The Scope of the Supply Chain

• Storage and materials handling. This covers the safe, secure, and disciplined handling of materials as initial receipts, as parts awaiting processing, as work in progress during manufacture, and subsequently as finished product. Embraces packaging design, unitisation and the full range of simple to sophisticated aids to storage. • Distribution. Includes warehousing and both inbound and outbound transportation: all strongly influenced by demands for higher levels of customer service, JIT requirements and the evolution of contract distribution. With an estimated 500,000 vehicles dedicated to freight movement in the United Kingdom alone, distribution is under increasing pressure for greater control on environmental grounds.

The basic nature of business is that it procures or buys something, whether goods or information: changes its form in some way that adds value and then sells a product or service onto someone else. In manufacturing industries in particular, this sequence may occur a number of times:

Inbound Core business Outbound logistics

raw materials process or refine supply others refined materials manufacture components/assemblies components assembled finished product finished goods distribute customer

At a similar albeit oversimplified level, within a manufacturing or processing organisation we can identify three basic operations:

• Change of form — Production or process • Change of ownership — Marketing or internal transfer • Change of tim e and place — Logistics

But these three operations are not clear-cut and do not stand alone. Taking overpackaging as an example of a process. It does not strictly change either the form of the product or its time and place, but rather its outward appearance. Packaging must, of course, be designed with a change of ownership in mind (i.e., unitisation to suit an industrial customer’s needs), or display packaging for

marketing. It must also be designed for movement (i.e., protection against damage, ease of handling) or for security in transit. However, the requirement that takes priority not only has a major influence on the costs of the packaging but also distribution costs. There are some apparently discrete activities that can be influenced by a number of individual functions or management areas. The supply chain concept aims to capture and to analyse such activities.

Supply Chain an Integrative Process?

The organisational emphasis of traditional business is normally on vertical line management within individual functions. Such a framework actively promotes suboptimisation, as many of the trade-off opportunities outlined previously are not visible. It is essential to highlight the pattern of materials and information flows and their interdependence. An example of the strategic process of planning integration is shown in Figure 24. Each of these planning functions are discussed throughout this text with an emphasis on the need for integration as part of the logistics process. The key steps in the planning and integration process, highlighted in Figure 24, are as follows:

1. The organisation sets up a corporate strategic plan and mission statement 2. The supply chain/logistics element of the corporate plan (identify the broad logistics strategy and improvement targets) 3. The logistics management team accepts the challenge of developing and managing the process 4. Logistics strategic management team identifies the full supply chain/ logistics base profile and mission statement 5. Mapping process, SWOT analysis, strategic review. Where are we now?

Where are we going? How do we get there? 6. Start the organisational and structural review and change plan. 7. Reengineer each element of the logistics map and the supply chain process. 8. Identify the best practice “gaps,” overcome the obstacles, improve the elements of effective management and processes (a) Identify the best practice standards, develop personal competencies to bridge the gap (b) Develop and improve on relevant management information (c) Develop state-of-the-art communications within the supply chain

9. Set demanding targets for each mapping element within the total logistics service profile and plan 10. Manage the project; individual and group elements within the team plan

Manage the performance outputs and the process of continuous improvement at every level. Feedback to process 8 and rework as required. Feedback to process 4 and rework as required.

Figure 24. Supply chain planni ng process

1.Corporate mission statement & strategy 2 Supply chain strategy and improvement targets 3. Logistics team accepts the strategic challenge

4. Establish the logistics profile

7. Reengineer structures and processes

8. Improve the elements of effective logistics management

11. Manage the continuous improvement & performance results

Decide the organisation & management structure

8a. Develop logistics competencies

8b. Develop management information

8c. Develop communications & electronic commerce 5. Map logistics service & operational elements

9. Set demanding targets and performance measures

10. Manage and communicate the change process

Bullwhip effect. The objective of supply chain management is to provide a high velocity flow of high-quality, relevant information that will enable suppliers to provide an uninterrupted and precisely timed flow of materials to customers. However, Kacheria (2003) suggested unplanned demand oscillations, including those caused by stock outs, in the supply chain execution process create distortions that can wreck havoc up and down the supply chain. There are numerous causes, often in combination that will cause these supply chain distortions to start what has become known as the bullwhip effect. The most common general drivers of these demand distortions are customers, suppliers, promotions, sales, manufacturing, and poor internal processes. This unplanned for demand results in a disturbance or lump of demand, which may be a minor blip for any one customer, oscillates back through the supply chain often resulting in huge and costly disturbances at the supplier end of the chain. Often these demand oscillations will launch a mad scramble in manufacturing with the need to acquire and expedite more raw materials and reschedule production. The bullwhip effect has in the past been accepted as normal. The negative effect on business performance, however, is often found in excess inventories, quality problems, higher raw material costs, overtime expenses, and shipping costs (see, e.g., Christopher & Gattorna, 2005; Kacheria, 2003). In the worst-case scenario, customer service deteriorates, lead times lengthen, sales are lost, costs go up, and capacity is adjusted. An important element to operating a smooth-flowing supply chain is eliminating the phenomenon. The most effective process for smoothing out is customers and suppliers understanding what drives demand and supply patterns and then, working collaboratively to improve information quality and compressing cycle times throughout the entire process. The role of supply chain in today’s and tomorrow’s organisations will change as the value of products changes, and also as the value that buyers or customers ascribe to product changes. This statement represents a new concept for many supply chain managers, who were trained in transportation, warehousing, and other such functions to conduct their activities based on lease-cost or other hard measure priorities. Modern supply chain managers must find innovative ways to help their companies improve profits, increase market share, improve cash flow, open new territories and introduce new products. However, supply chain neither creates demand nor product. Supply chain management is the organisation that responds to demands, and creates a bridge between that demand and those who supply it. A professional and integrative approach is clearly needed. Bottlenecks. Within any supply chain, bottlenecks are possible. For example, marketing accepting more orders than the organisation has the capacity to produce — a production bottleneck! The more a product or service is successfully marketed, the greater the number of requests for quotation — a marketing bottleneck! Purchasing, too, may not escape the bottleneck problem. Assuming production capacity is not exceeded, “late” orders can create a bottleneck by