How an Operations Manager Can Improve

Supply Chain Management

By Mary Ann Anderson, MSE, Edward J. Anderson, and Geoffrey Parker, PhD from Operations Management
For Dummies
Most companies know that designing and maintaining a strong and reliable supply chain is vital to profitability and
long-term survival. It is important to improve supply chain management through better communication, accountability,
and inventory management.

Better communication
Through modern information technology, companies are now able to share two critical data points with their suppliers:
actual customer demand and the amount of inventory on hand.
Fortunately, modern scanners used at retail outlets enable suppliers to access consumer demand instantaneously.
Your local grocery store probably utilizes this scanning system to tally your order and to facilitate stockreplenishment orders. That is, companies can use this point of sale (POS) information to trigger the ordering of
inventory.
In addition, if suppliers can access a companys POS data, they can anticipate when youll likely place an order
before you actually place it! The bar coding of inventory facilitates this constant monitoring throughout the supply
chain. Concepts such as collaborative planning, forecasting, and replenishment (CPFR) strive to increase supply
chain integration by increasing the visibility of demand at every point on the supply chain.

Outsource inventory management

More and more companies are putting the responsibility of inventory management on their suppliers. This practice,
known as vendor-managed inventory (VMI), is quite common in major retailers.
Heres how it works: A major retailer gives a certain amount of shelf space in its store to a supplier, which keeps its
products stocked there. Armed with the retailers POS data, the supplier can restock its products without direct
involvement by the retailer. This saves the retailer time and money because it avoids the job of managing the
inventory.
VMI requires trust in a supplier. For VMI to work, a company must give the supplier access to sales information so it
can restock the shelves as necessary. In many cases, especially retail, the supplier also supplies competitor retailers.
Given actual sales and inventory levels, the supplier could inadvertently provide sales data to the competition. So
trust and integrity are necessary conditions for a sound relationship that benefits both parties.
In addition, a company must be certain that the supplier knows how to efficiently manage inventory. And the supplier
must have the technical capability to perform VMI. Its computer systems and programs need to be compatible with
the partner company to enable the necessary information exchange to execute VMI.

Simplify the chain by consolidating shipments

Managing a supply chain can get complicated quickly. From the OEM standpoint, the more Tier 1 suppliers that are
involved, the more time someone must spend coordinating them. Many companies try to minimize the number of
suppliers they use.
For example, consider a restaurants dependence on food distributors. The burger joint down the street needs many
separate items to prepare and serve a meal consisting of a cheeseburger, fries, and drink. If the restaurant uses a
different supplier for each component, imagine the traffic jam of delivery trucks thatd amass around the facility!

In the restaurant business, supply chains no longer rely on multiple suppliers with specialty support. All-in-one
restaurant supply companies have emerged to simplify the material management process for restaurants. This new
Tier 1 supplier purchases core supplies from specialty suppliers (now Tier 2 suppliers) and delivers them in one
shipment to the restaurant.
Reducing the complexity of the supply chain eases the burden on restaurant management to keep ingredients and
supplies in stock, and, because fewer trucks are making deliveries, this simplification decreases traffic congestion at
the facility and the number of deliveries the restaurant must receive.
Another method for simplifying a supply chain, cross-docking, reduces a companys inventory levels and the need for
warehouse space. Cross-docking is a logistics network approach used to minimize warehousing costs and reduce
inventory. This is a popular process for big retailers and grocery store chains.

The OEM maintains a shipping dock where supplier trucks arrive and park. The trucks are unloaded, and instead of
placing the inventory in a storage warehouse, the goods are placed directly on the firms truck (or another suppliers

truck), which delivers the inventory directly to the facility. The end delivery truck may contain goods from multiple
suppliers.
Cross-docking reduces pipeline inventory and also the need for warehouse space. It functions similarly to the
simplified restaurant supply chain, but cross-docking leaves direct control over suppliers in the hands of the OEM
instead of an all-in-one middleman supplier.

Introduction to Supply Chain Management

If your company makes a product from parts purchased from suppliers, and those
products are sold to customers, then you have a supply chain. Some supply chains are
simple, while others are rather complicated. The complexity of the supply chain will vary
with the size of the business and the intricacy and numbers of items that are
manufactured.

Elements of the Supply Chain

A simple supply chain is made up of several elements that are linked by the movement
of products along it. The supply chain starts and ends with the customer.

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Customer: The customer starts the chain of events when they decide to
purchase a product that has been offered for sale by a company. The customer
contacts the sales department of the company, which enters the sales order for a
specific quantity to be delivered on a specific date. If the product has to be
manufactured, the sales order will include a requirement that needs to be fulfilled by
the production facility.

Planning: The requirement triggered by the customers sales order will be

combined with other orders. The planning department will create a production plan
to produce the products to fulfill the customers orders. To manufacture the products
the company will then have to purchase the raw materials needed.

Purchasing: The purchasing department receives a list of raw materials and

services required by the production department to complete the customers orders.
The purchasing department sends purchase orders to selected suppliers to deliver
the necessary raw materials to the manufacturing site on the required date.

Inventory: The raw materials are received from the suppliers, checked for quality
and accuracy and moved into the warehouse. The supplier will then send an invoice
to the company for the items they delivered. The raw materials are stored until they
are required by the production department.

Production: Based on a production plan, the raw materials are moved inventory
to the production area. The finished products ordered by the customer are
manufactured using the raw materials purchased from suppliers. After the items have
been completed and tested, they are stored back in the warehouse prior to delivery to
the customer.

Transportation: When the finished product arrives in the warehouse, the

shipping department determines the most efficient method to ship the products so that
they are delivered on or before the date specified by the customer. When the goods
are received by the customer, the company will send an invoice for the delivered
products.

Supply Chain Management

To ensure that the supply chain is operating as efficient as possible and generating the
highest level of customer satisfaction at the lowest cost, companies have adopted
Supply Chain Management processes and associated technology. Supply Chain
Management has three levels of activities that different parts of the company will focus
on: strategic; tactical; and operational.

Strategic: At this level, company management will be looking to high level

strategic decisions concerning the whole organization, such as the size and location
of manufacturing sites, partnerships with suppliers, products to be manufactured and
sales markets.

Tactical: Tactical decisions focus on adopting measures that will produce cost
benefits such as using industry best practices, developing a purchasing strategy with
favored suppliers, working with logistics companies to develop cost effect
transportation and developing warehouse strategies to reduce the cost of storing
inventory.

Operational: Decisions at this level are made each day in businesses that affect
how the products move along the supply chain. Operational decisions involve making
schedule changes to production, purchasing agreements with suppliers, taking orders
from customers and moving products in the warehouse.

Supply Chain Management Technology

If a company expects to achieve benefits from their supply chain management process,
they will require some level of investment in technology. The backbone for many large
companies has been the vastly expensive Enterprise Resource Planning (ERP) suites,
such as SAP and Oracle. These enterprise software implementations will encompass a
companys entire supply chain, from purchasing of raw materials to warranty service of
items sold. The complexity of these applications does require a significant cost, not only

a monetary cost, but the time and resources required to successfully implement an
enterprise wide solution. Buy-in by senior management and adequate training of
personnel is key to the success of the implementation. There are now many ERP
solutions to choose from and it is important to select one which fits the overall needs of
a companys supply chain.
Since the wide adoption of Internet technologies, all businesses can take advantage of
Web-based software and Internet communications. Instant communication between
vendors and customers allows for timely updates of information, which is key in
management of the supply chain.
Logistics for Dummies: Key Concepts Defining Supply Chain Management
15 Replies

Logistics as a concept can be said to be amorphous and far reaching: different functions work
together to support complex systems that make up the broad variety of activities that can be put
under the supply chain management umbrella. In properly defining logistics, however, the efforts of
our industry can be distilled down to a few basic fundamental issues that form the foundation for
supply chain management.
At the core of logistics and supply chain management operations is the movement of information.
Before any part of the logistics process can commence, it is necessary for communication to be
initiated. Information such as client orders for goods, or notification that new cargo is headed to a
warehouse must be sent and received to facilitate carrying out the required procedures.
Information regarding the whereabouts of cargo in transit is also shared between delivery crews,
warehouse managers and customers. Similarly, information regarding inventory is moved between
those in charge of warehouses and the suppliers of goods housed therein to keep inventory levels
where they need to be.
Such movement of information therefore fosters integration of a supply chain management company
or department with key stakeholders. This works in favor of all involved by establishing a well oiled
system of communication that encourages fast responses and ease in reaching the other parties in
case of an emergency. Logistics therefore relies upon integration between supply chain management
players and their customers to allow for delivery of services. Likewise, integration is required with
vendors and other suppliers of cargo or support functions such as security solutions where
contracted from outside the company to ensure smooth running of operations, enabling carrying out
of functions that define logistics.

The most apparent pillar of logistics can be said to be movement of goods. The underlying purpose
of logistics, all things considered, is to get cargo from one point to its final destination. Cargo can
range from consumer products, highly perishable goods, raw materials headed for factories, medical
waste or supplies and many others. Logistics therefore entails identifying the optimal mode of
transportation to get goods to where they need to go. Taking into consideration issues of time, cost,
availability and even distance in the case of exports or imports, deciding on the logistics of moving
cargo means choosing between road, air, sea, rail travel or a combination of them for multi modal
transport.
The final core facet of logistics is the provision of services. This term here encapsulates all
operations carried out in the course of rendering services as purchased and paid for. Activities such
as delivery of cargo for individual or corporate purposes, provision of storage facilities, consultation
on streamlining delivery processes in a given company and so forth all form the basis for logistics as
an industry and practice. As with integration, this function works both as applied to supply chain
management companies providing services and companies receiving services as paying customers.
Logistics both as industry and a study can be challenging to define in the traditional sense, most of
all in lay terms to those outside related professions and scholarly discourses. The fundamental
concepts of supply chain management, however, make it simple to compartmentalize this field,
making it possible to have a concise answer the next time you have someone ask, What exactly is
logistics?. Youre welcome.