The Supply Chain Orchestra: Interactions, Trades-off and Integration
Totok Sugiharto , Jakarta | Wed, 08/12/2009 1:17 PM | Supplement
Bowersox (2009) defines the supply chain as “a strategy that integrates all aspects of satisfying customer requirements”. It means that virtually no element of the supply chain is totally independent.
Therefore when we change one element, it has a profound effect on the others. For example, a decrease in production batch size will have an impact on the inventory and plant utilization.
Supply Chain Management (SCM) is required to understand the activity and cost drivers within the business processes, the numerous trades-offs and how to drive improvement.
There are many interactions in the processes which must be understood before the supply chain can be managed effectively.
Some examples are: the promotions and marketing behind customer demand in the form of forecasts, prediction of lead time and accuracy of forecast in terms of how much stock is required at each location, etc.
This series of processes is also interconnected with physical storage, distribution requirements, financial needs (funding for the supply chain) and the possibility of new product launch plans.
Effectively managing a supply chain is like managing an orches-tra. It depends on leadership (the conductor), a set of known po-licies and procedures (the music score) and capable people (the musicians).
In some cases a set of integrated measurements have been brought together to facilitate them. The management team is working together to bring sustainable benefits to the organization.
Planning and collaboration of information are the key elements in achieving excellence in supply chain performance. The role of planning is essential in orchestrating the supply chain.
Like any orchestra, the quality of the performance depends on the skills and competence of the orchestra members.
Think of a piece of music, say the 9th Symphony - Scherzo by Ludwig Van Beethoven. Played well it is a thing of beauty, an inspiration; played badly it is simply awful.
When thinking of an orchestra, what comes to mind is synchronisation and team-work as well as individual brilliance and an integration of all the elements of the composition.
The essence of such an orchestra starts with planning and has two main roles.
First, is to convert the business objectives into doable plans.
Second, is to convert the customer requirements into doable plans at each level in the supply chain and then monitoring or controlling or tuning of those plans.
Before proceeding, it is worth considering the role of planning and operations. The relationship is described as follows: The role of planning is to plan the work, while the role of operations is to work the plan. Supply chain planning covers a wide spectrum and must be applicable to all levels within the organisation.
Furthermore, decisions need to be made in different timeframes and the level of data aggregation varies according to the decision being made.
It is for these reasons that we have a range of processes within every planning hierarchy. It is sufficient to understand and handle that through Sales and Operation Planning (S&OP).
Ideally, the result of S&OP should be aggregated in a way that is meaningful to demand and supply in the 24-month horizon.
The first two months’ processes are in “control”. The main purpose is to make resources available; these might be production capacity, transport, warehouse, people and inventory.
The S&OP is fed by detailed plans that start with customers, or more precisely expectations of customer demand, i.e. forecasts.
This demand is then balanced by the availability of stock and the inventory by location. They then pass through the network of warehouses and transport lanes until it reaches either a production facility or a purchase request placed with an external vendor.
Only doable plans should be released to production or sent to vendors. Therefore the capacity and material planning are key elements of the overall planning process.
The deployment and setting of the inventory are also the responsibility of the planning organisation.
Execution against these plans should be measured at each step in the process.
Senior management focus should be at the S&OP and major aggregates for demand relations. Their role is to set and implement strategies, determine what resources need to be made available and approve an investment (which might be in a plant, people, inventory, etc.).
They should not be less concerned about what is happening in the zero-to-two month planning horizon. Within this horizon, commitments have been made and are likely to be difficult to change.
Details of demand, supply and inventory planning occur over the full horizon but the focus is more short-term, in the majority of cases from one to 12 weeks.
In some exceptions, export and import requirements may need to be actioned outside 12 weeks and some components have a long lead-time.
In the near term it is focused on what we are going to make/buy and how this will be scheduled. This also includes shipment to customers.
As customer lead-times are short, finished products that are being shipped today were probably made two to three months ago depending on lead-times, inventory aims and production schedules.
In that series the ultimate weapon of SCM is a necessity, which is integration.
Like any chain, the supply chain is based on a set of interdependent links. Virtually everything in the supply chain has interactions with other elements.
Therefore, SCM involves the identification and quantification of trade-offs, and success can only be achieved by integration! This is the beauty of the supply chain orchestra.
The writer is a lecturer at Pelita Harapan Graduate School. Website: www.totoksugiharto.com