Using Models to Improve the Supply Chain

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The plan also includes determining business rules to improve and measure supply chain efficiency. These business rules span inventory, transportation, assets, and regulatory compliance, among others. The plan also aligns the supply chain plan with the financial plan of the company 3.


This step describes sourcing infrastructure and material acquisition. It describes how to manage inventory, the supplier network, supplier agreements, and supplier performance. It discusses how to handle supplier payments and when to receive, verify, and transfer product 3. Manufacturing and production are the emphasis of this step. Is the manufacturing process make-to-order, make-to-stock, or engineer-to-order?

The make step includes, production activities, packaging, staging product, and releasing. It also includes managing the production network, equipment and facilities, and transportation 3. Delivery includes order management, warehousing, and transportation. It also includes receiving orders from customers and invoicing them once product has been received.

Supply Chain Process Improvement

This step involves management of finished inventories, assets, transportation, product life cycles, and importing and exporting requirements 3. Companies must be prepared to handle the return of containers, packaging, or defective product. The return involves the management of business rules, return inventory, assets, transportation, and regulatory requirements 3. The SCOR process can go into many levels of process detail to help a company analyze its supply chain.

It gives companies an idea of how advanced its supply chain is. The process helps companies understand how the 5 steps repeat over and over again between suppliers, the company, and customers. Each step is a link in the supply chain that is critical in getting a product successfully along each level. The SCOR model has proven to benefit companies that use it to identify supply chain problems. The model enables full leverage of capital investment, creation of a supply chain road map, alignment of business functions, and an average of two to six times return on investment 4.

This model typically is for a very mature supply chain with a customer demand profile that has little variation. Consequently, the production workload can match demand through a continuous-replenishment model based on a "make to stock" decoupling point, where production is scheduled to replenish predefined stock levels based on a specified reorder point for inventory in the production cycle.

Accordingly, competitive positioning is based on offering a continuous-replenishment system to customers in order to assure high service levels and low inventory levels at customers' facilities, thus achieving optimization of costs associated with inventory. Management should focus on promoting supply chain collaboration, which is supported by three main capabilities.

In the early stages, they include electronic transactions that are used to reduce the number of transactional processes required during the order cycle, as well as the sharing of sales and inventory information to improve the ability to predict demand. In the most mature stage, collaborative planning with key customers helps to anticipate demand patterns.

Supply Chain Management: A Management Priority

This supply chain model typically works well for businesses with short-shelf-life products, such as dairy products and bread. It is also suitable for manufacturers of intermediate products, such as original equipment manufacturer OEM parts for assembly. Supply chains oriented to responsiveness Industries that face considerable demand uncertainty, where market mediation cost is highly relevant, should employ one of three different supply chain approaches that are oriented toward providing capacity in response to changes in demand.

These include the "agile," "custom-configured," and "flexible" models. The "agile" supply chain model The agile type of supply chain is useful for companies that manufacture products under unique specifications for each customer.

Supply chain strategies: Which one hits the mark?

This is typically seen in industries that are characterized by unpredictable demand. They use a "make to order" decoupling point, producing the item after receiving the customer's purchase order to avoid manufacturing products that have no certainty of future sales. The ability to be agile is proportional to the ratio between excess capacity and the average rate of asset usage. In strict terms, there can be no agility without excess capacity. Management should focus on ensuring agility, which is supported by two main capabilities: excess capacity, and products and processes designed to produce the smallest possible batches.

Generally, this type of supply chain is employed by manufacturers of intermediary goods that make products for industrial customers according to each customer's specific needs, and by companies whose industrial customers place a high value on short lead times. This strategy is useful for industries where the company's value proposal is oriented toward offering products "on demand" and with a high service level, such as packaging, chemical specialties, and metal machining services, among others.

The "custom-configured" supply chain model The custom-configured supply chain model is characterized by a high degree of relevance of the cost of assets to the total cost, and multiple potentially unlimited configurations of the finished product on a unique platform. Competitive positioning is founded on offering a unique configuration of the finished product according to the end consumer's needs. Unlike in an agile supply chain, where the product can be customized to meet virtually any customer requirement—limited only by technical constraints—in this supply chain, the product is configurable within a limited combination of product specifications, usually by combining parts into a set or assembly.

Usually, product configuration is accomplished during an assembly process, where some of the parts are mounted or assembled according to an individual customer's requirements. However, product configuration may be done in other types of processes, such as mixing, packaging, and printing, among others. As a general rule, the processes before product configuration are lengthier than the configuration itself and the downstream processes.

Because of the nearly unlimited number of possible finished products resulting from multiple combinations of parts or materials, it is practically impossible to make an accurate forecast. Other complicating factors include the finite number of materials or pieces, and the fact that processes that occur prior to configuration are scheduled according to a forecast or a continuous-replenishment model, depending on the variability of the demand profile. Consequently, product configuration and downstream processes are scheduled after receiving the customer's order, and to ensure a short order cycle those processes are designed with extra capacity available.

Because of those factors, this type of supply chain employs a "configurable to order" decoupling point, where the processes occurring before configuration are managed under an efficient or a continuous-flow supply chain model, and the configuration and downstream processes operate as in an agile supply chain. One example of where this supply chain strategy makes sense is the assembly of personalized products, such as computers and vehicles. Another example is in the paper manufacturing industry, where the decoupling point occurs after the manufacture of the big paper rolls, and the products are customized in the cutting and packaging process.

In the service sector, some fast food restaurants apply this supply chain model.

Supply chain strategies: Which one hits the mark? – Strategy – CSCMP's Supply Chain Quarterly

The "flexible" supply chain The sixth supply chain type, the flexible model, is suited for companies that must meet unexpected demand and therefore are faced with high demand peaks and long periods of low workload. This supply chain model is characterized by adaptability, which is the capability to reconfigure internal processes in order to meet a customer's specific need or solve a customer's problem. This model typically is used by service companies that focus on handling unexpected situations, perhaps even including emergencies.

Due to the nature of such events, customers appreciate not only the speed of a supplier's response, but also its ability to tailor solutions to their needs. Consequently, the price becomes largely irrelevant to the customer. Management should focus on ensuring flexibility, which is supported by four main capabilities: extra capacity of critical resources, rapid-response capability, technical strengths in process and product engineering, and a process flow that is designed to be quickly reconfigurable.

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A typical example of this type of supply chain can be found in companies that provide metalworking and machining services for the manufacture of spare parts for industrial customers. This type of company may encounter emergency situations such as the need to immediately replace broken parts. Accordingly, they must be able to provide a fast response and sufficient capacity to develop unique parts by combining successive processes, such as turning, reaming, and welding, in a configuration adapted to a specific situation.

Simultaneous capabilities, or multiple supply chains? Organizations tend to want their supply chains to have simultaneous capabilities: efficient, fast, agile, custom-configured, and flexible, among others. Yet each of these capabilities requires different skills, and in the majority of cases, these skill sets are incompatible within the same supply chain. However, it is possible to develop several parallel supply chains within a single organization, each focused on a defined market segment with a responsiveness level and a cost structure that are appropriate to the segment it serves.

The most powerful benefits of the "Supply Chain Roadmap" arise from its ability to help demystify the process of formulating supply chain strategy. As suggested by the overview in Figure 4, it does so by identifying the key drivers of business strategy, and then helping managers understand how those drivers would align in a coherent way with each of the six generic supply chains. This makes it possible to select the supply chain type that best fits a particular business segment.

Notes: 1. Hau Lee, "Aligning supply chain strategies with product uncertainties," California Management Review 44, no. Martin Christopher and John Gattorna, "Supply chain cost management and value-based pricing," Industrial Marketing Management 34 : David Ketchen and Tomas Hult, "Bridging organization theory and supply chain management: The case of best value supply chains," Journal of Operations Management 25 : Shunk, "Comprehensive framework for the development of a supply chain strategy," International Journal of Production Research 44, no.

Michael E. Alex Hill and Terry Hill. Manufacturing Operations Strategy, 3rd ed. Basingstoke: Palgrave MacMillan, After you comment, click Post. If you're not already logged in, you will be asked to log in or register. We Want to Hear From You!

[INFOGRAPHIC] The Evolution and History of Supply Chain Management

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