Supply Chain: A Quick Overview

Remember the empty supermarket shelves during the peak of COVID-19? The scarcity of essentials like toilet paper highlighted just how crucial supply chains are in our daily lives.  Behind the scenes, supply chain professionals were working to navigate new challenges, ensuring that goods moved from suppliers to stores efficiently. 

Understanding these operations “unlocks” the secrets behind how products magically appear on store shelves or arrive at your doorstep. But what exactly does supply chain entail? 

Table of Contents

Definition of Supply Chain Management

Supply chain management encompasses a broad spectrum of activities aimed at optimising the flow of materials, money, and information across global networks.

Supply chain can be viewed through various lenses:

  1. Processes: Some models break down the supply chain into key processes such as planning, sourcing, ordering, transforming, fulfilling, returning, enabling, and orchestrating.
  2. Flows: It involves the seamless flow of materials, money, and information across global networks
  3. Nodes: Refers to the numerous facilities worldwide that constitute the physical infrastructure of supply chains.
  4. Functions: Core functions include procurement, logistics, and operations, each critical to the smooth operation of supply chains.

Logistics vs. Supply Chain

In discussions and writings, logistics and supply chain terms are often used interchangeably, yet they play distinct roles:

  • Logistics: Involves materials management and distribution, ensuring goods move efficiently through production processes and reach end consumers or businesses.

Logistics = Materials Management + Distribution

            • ‘Materials management’ represents the activities concerning materials going into and through the production process.
            • ‘Distribution’ represents the process of making a product available to the consumer or business that needs it.

  • Supply Chain: Encompasses suppliers, logistics, and customers in a network that spans from sourcing raw materials to delivering final products. This holistic approach ensures smooth coordination and optimisation across all business stages.

Supply Chain = Suppliers + Logistics + Customers 

Supply Chain Functions

From forecasting demand and optimising procurement to managing logistics and ensuring sustainability, each function plays a pivotal role in driving an efficient supply chain.

Let’s get into the fundamental functions of supply chain management.

Demand Forecasting and Planning

“Someone’s sitting in the shade today because someone planted a tree a long time ago.”

Supply chain planning is not just about meeting current demands but about anticipating future needs to create maximum value for customers. It involves three critical components:

  1. Customer Needs Anticipation: The first step is predicting what your future customers will require. This involves understanding their preferences, trends, and evolving expectations.
  2. Business Environment Prediction: Forecasting where your business will stand in the future involves assessing resources, capabilities, and market dynamics. Factors like technological advancements, economic cycles, and competitive landscapes play pivotal roles here.
  3. Scenario Planning: While the future is uncertain, scenario planning helps in outlining plausible future scenarios. For instance, scenarios could range from economic booms with high efficiency gains to stagnant economies with minimal technological adoption.

→ Why It Matters

Good forecasting and planning keep customers happy and businesses running smoothly. By predicting demand and managing inventory well, companies can avoid running out of stock or having too much sitting around.

Sourcing and Procurement

In an ideal world, purchasing goods would be as simple as placing an order and having them magically appear. However, in the complex realm of supply chains, this rarely holds true. 

Introduction to Procurement

Procurement and supply management are crucial for any organisation’s success. Whether you’re running a factory or a business, getting the right materials at the right price and quality, on time, is essential.

This process is so important that many companies have big teams just to handle all their supplier dealings.

The procurement cycle typically follows these stages:

      • Identifying Needs: Recognising the need to procure goods or services.
      • Requisition: Preparing and approving requisition documents.
      • Request for Quotation (RFQ): Soliciting quotes from selected suppliers.
      • Negotiation: Evaluating quotes and negotiating terms.
      • Purchase Order (PO): Issuing a formal order specifying price, delivery terms, and goods/services.
      • Authorisation: Approving and sending the PO to the supplier.
      • Delivery and Inspection: Receiving and inspecting goods/services.
      • Invoicing: Supplier sends an invoice.
      • Payment: Approving and processing payment, resolving any discrepancies.
      • Post-Contract Review: Evaluating supplier performance based on quality, timeliness, pricing, and order completeness.

Let’s take a peek into how purchasing and sourcing works and see what goes on in a corporate procurement department:

Planning and Forecasting: What will we need?

At the heart of procurement lies strategic planning. Before making purchasing decisions, procurement teams analyse historical buying patterns and forecast future needs. This involves:

        • Analysing Past Purchases: Reviewing what products have been purchased previously to understand current needs.

        • Predicting Future Needs: Anticipating future demands based on market trends, upcoming projects, and new product developments.

For example, if a company sees an increase in customer demand for eco-friendly products, they might forecast a need for more sustainable materials in the future.

Supplier selection: Where Can We Buy it? How Much is It Gonna Cost?

Choosing the right suppliers is crucial and involves more than just comparing prices. Factors to consider often include:

        • Price Breaks and Volume Discounts: Suppliers often offer discounts based on the quantity purchased. However, larger orders might tie up more working capital.
        • Total Landed Cost: This includes not just the purchase price but also shipping, handling, and inventory costs. For instance, buying from a distant supplier might have lower product costs but higher shipping expenses and longer lead times.
Supplier Development: Can They Make What We Need?

Sometimes, finding suppliers capable of meeting specific requirements can be challenging. Supplier development plays a critical role by:

        • Building Supplier Capabilities: Working closely with suppliers to improve their understanding of your business needs and product specifications.
        • Training and Process Improvement: Providing training and support to enhance their operational efficiency and quality standards.
        • Financial Support: Offering financial assistance such as accelerated payments or business loans to help suppliers improve their capabilities.

Logistics: Distribution and Inventory

Logistics plays a crucial role in the seamless movement and storage of goods within a supply chain. Here’s a detailed exploration of how distribution and logistics work, focusing on transportation modes, inventory management, and their significance in various sectors:

Understanding Transportation Modes

Airplanes move freight faster than trucks, and trucks are faster than ships. So why don’t we just ship everything by air? Turns out air freight is much more expensive than packing stuff into a container on a ship. 

Choosing the right transport mode involves a systematic approach encompassing different stages:

    • Operational Factors: External logistics considerations, customer requirements, and product characteristics influence mode suitability.
    • Transport Mode Characteristics: Understanding the unique traits of each mode—from speed and capacity to reliability and environmental impact.
    • Consignment Factors: Tailoring mode selection based on urgency, volume, and specific consignment needs.
    • Cost and Service Requirements: Balancing transportation costs with customer service expectations is crucial for effective logistics management.

Each mode—road, rail, air, sea—offers distinct advantages and trade-offs:

    • Road Freight: Dominates intra-country movements due to flexibility and accessibility.
    • Rail Freight: Significant in large geographical countries like the United States, Australia and China, balancing environmental concerns.
    • Sea Freight: Crucial for long-distance international movements, offering cost-efficiency for bulk goods.
    • Air Freight: Expedient for perishable or urgent deliveries, despite higher costs.

A good way to measure transportation reliability is a metric known on-time deliveries or OTD. And that brings us to the second part of logistics, which is inventory. Inventory decisions generally involve making a tradeoff between costs and customer service. Customers want their products right away, so the faster that you can deliver them, the better service you can provide. 

Managing Inventory

Inventory decisions typically involve balancing costs with customer service. Here are the key things to look at when managing inventory: 

    • Customer Expectations: Amazon has set the bar high, and customers now expect quick deliveries. However, keeping inventory on hand comes at a cost.
    • Cost Implications: Inventory ties up working capital that could be used for hiring staff, expanding your business, or paying dividends to shareholders.
    • Forecasting Demand: Predicting demand accurately is crucial for determining how much inventory to keep on hand.
    • Replenishment Planning: Planning when to reorder stock ensures you maintain optimal inventory levels without overstocking or running out.
    • Process Optimisation: Streamlining internal processes and equipment helps keep products moving smoothly and efficiently.

Sales, Marketing, and Customer Service

The supply chain begins with getting someone to buy from you. Let’s explore how sales, marketing, and customer service generate the demand that pulls products through your supply chain.

The Demand Chain

The demand chain includes three critical functions: marketing, sales, and customer service.

    • Marketing: The marketing team focuses in generating awareness and interest in your products. It involves educating potential customers about your product and creating an emotional attachment to your brand.
    • Sales: Sales focuses on convincing customers that they need your product and getting them to make a purchase.
    • Customer Service: Ensuring the product works as promised, customer service keeps customers happy and encourages repeat business.

Generating and Managing Demand

Marketing, sales, and customer service work together to generate demand for your supply chain.

    • Forecasting Demand: Predicting how much demand there will be is known as forecasting or demand planning.
    • Shaping Demand: Adjusting prices can help you change or shape the demand for your products.

→ One of the biggest challenges for companies is aligning the demand chain with the supply chain.

      • Coordination Issues: Sales teams may miss out on sales if the supply chain can’t keep up with demand. Conversely, the supply chain team might end up with too much inventory if sales targets are not met.
      • Integrated Business Planning: Sales and Operations Planning (S&OP) helps improve coordination. S&OP ensures that sales and marketing set realistic demand targets and communicate openly with the supply chain about capacity and constraints.

Material Handling Equipment

In supply chains, the physical movement and tracking of products are critical tasks handled by material handling equipment (MHE). Let’s explore the essential categories of MHE and their roles in maintaining efficient supply chain operations.

Categories of Material Handling Equipment (MHE)

    • Transport Equipment
      • Moves products between locations.
      • Includes conveyors, cranes, fork trucks (for pallets), and semi-trucks.
      • Future innovations may introduce drones and autonomous vehicles.
    • Positioning Equipment
      • Enhances safety and ergonomics by adjusting work environments.
      • Examples: lift tables, dock levellers, and various robots.
    • Unit Load Formation Equipment
      • Packs individual products into larger units for efficiency.
      • Methods include totes, pallet stacking, and containerization.
    • Storage Equipment
      • Manages storage efficiently.
      • Manual systems like racks and automated solutions such as storage robots and ASRS (Automatic Storage and Retrieval Systems).
    • Identification and Control Equipment
      • Tracks products and maintains inventory accuracy.
      • Technologies include barcodes, QR codes, and RFID (Radio Frequency Identification) tags.

Supply Chain Information Systems

Supply chain information systems are vital in overseeing diverse functions and processes within a supply chain. Let’s explore the key types of supply chain information systems commonly featured in certification exams.

Deployment Models

Supply chain information systems are all basically big databases, but they’re designed to be used for different functions. The software and data are stored on computers called servers. When these servers

    • On-Premise Hosting
      • Software and data hosted on company-owned servers.
    • Cloud Hosting (Software as a Service – SaaS)
      • Access software remotely via the Internet, reducing infrastructure costs and enhancing scalability.

Types of Supply Chain Information Systems

    • Transportation Management System (TMS)
      • Manages shipping logistics and freight movements.
      • Tracks shipment locations and delivery routes.
    • Warehouse Management System (WMS)
      • Controls and optimises warehouse operations.
      • Allocates storage locations for incoming goods.
    • Warehouse Execution System (WES)
      • Generates pick tickets and instructions for order fulfilment.
      • Coordinates tasks within distribution centres.
    • Labor Management System
      • Monitors and enhances workforce productivity in warehouses.
    • Yard Management System
      • Tracks trailers and containers in yards and distribution centres.
    • Supplier Relationship Management (SRM)
      • Manages supplier interactions and procurement processes.
      • Also referred to as Procurement Management System.
    • Customer Relationship Management (CRM)
      • Tracks customer interactions and manages sales processes.
    • Contract Management System (CMS)
      • Manages contracts and agreements for service-oriented businesses.
    • Manufacturing Resource Planning System (MRP)
      • Plans production schedules and material requirements in manufacturing.
    • Enterprise Resource Planning System (ERP)
      • Integrates MRP across multiple factories and departments.
      • Centralises data from customers, suppliers, and internal operations.

Sustainability in the Supply Chain

Taking care of our planet is a responsibility shared by all, and how we engineer and manage our supply chains can significantly impact the sustainability of every company and the products and services we provide. Let’s explore some key sustainability concepts and terms you’re likely to encounter on a certification exam.

Inputs to Supply Chains

Supply chains rely on two main resources/inputs:

    • Materials: Essential for manufacturing, materials flow through supply chains.
    • Energy: Powers all processes within supply chains.

These resources fall into two categories:

      • Renewable Resources: Infinite or quickly regenerative, such as solar power and plant-based materials.
      • Non-Renewable Resources: Finite and difficult to replace, including fossil fuels like petroleum and natural gas.

Strategies for Sustainable Supply Chains

To enhance sustainability, consider these strategies:

    • Switch to Renewable Sources: Replace non-renewable energy and materials with renewable alternatives, such as transitioning from fossil fuels to solar power or from plastics to organic materials.
    • Reduce Consumption of Non-Renewable Resources: Improve efficiency through process enhancements, recycling, and reusing materials.
    • Enhance Waste Management: Implement measures like air pollution filtration and water treatment to responsibly handle leftovers and waste.

The Triple Bottom Line (TBL)

A common tool for tracking sustainability performance is the Triple Bottom Line:

    • People: Focuses on employee welfare, families, and community support.
    • Planet: Measures environmental sustainability efforts.
    • Profit: Evaluates financial performance and sustainability.

For lasting sustainability, companies must demonstrate progress across all three areas of the Triple Bottom Line. 

Manufacturing: Safety, Efficiency, Capacity, and Quality

Manufacturing and assembly are pivotal processes in any supply chain, where raw materials and components are transformed into valuable products. Here’s a detailed look at the key aspects that define successful manufacturing operations:

Understanding Manufacturing Processes

Manufacturing encompasses various activities such as making, producing, transforming, and assembling raw materials and components into finished goods. Regardless of what is being manufactured, four critical factors require careful consideration:

    • Safety

Safety is paramount in any manufacturing environment. It involves creating a workspace where employees are protected from immediate risks like accidents and long-term hazards such as exposure to noise, chemicals, or repetitive motions. Safety measures can range from engineering controls to personal protective equipment (PPE) such as safety glasses, earplugs, and steel-toed shoes.

    • Efficiency

Efficiency measures how effectively resources are used to produce output. It can be quantified by dividing output by input, such as calculating the number of products manufactured per hour worked. Maximising efficiency ensures optimal use of time and resources, contributing to higher productivity and reduced costs.

    • Capacity

Capacity refers to the maximum output capability of a manufacturing process or machine. It’s essential to operate within the capacity limits to avoid inefficiencies and bottlenecks. Capacity utilisation, calculated by dividing actual output by maximum capacity, indicates how well resources are utilised.

    • Quality

Quality is non-negotiable in manufacturing. Products must meet customer standards and specifications to ensure usability and marketability. Quality issues can lead to defects, rework, discounts, or even scrapping of products, all of which incur costs and affect efficiency. Maintaining high quality throughout the manufacturing process is crucial for customer satisfaction and business success.