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Concepts in Supply Chain Management


Concepts in Supply Chain Management

Concepts in Supply Chain Management


A manufacturing company wants to improve the performance of its system from suppliers to customers. Currently, the company controls 30% of the local market, soon, they want to increase their market share. 

Even willing to enter the world market. In carrying out its operations, this company is supported by many suppliers, distributors, and retailers. Until now, the use of IT is very minimal. Even though it has started to implement SCM. Give input on any SCM theories that might be applied to help the company.


SCM theories that might be applied to help these companies:
  • Supply Chain Management
  • Develop logistics management
  • Change mental attitude
  • Utilize information technology
  • Create a competitive advantage
The source of this competitive advantage lies first in the company's ability to differentiate itself in front of consumers from its competitors (value advantage), and the second is in how to work at low cost, or in other words, to obtain higher profits (productivity). or cost advantage).

a. Productivity Advantage

Usually, the greater the volume of production of an item, the lower the cost per unit of goods because the fixed cost is divided more evenly by a larger number of dividers, while the variable cost per unit of goods will remain, so the total cost per unit of goods will be reduced. 

Therefore, the increase in market share will increase the production volume, which in turn will reduce the production cost per unit of goods. However, the way to reduce production costs is not only by increasing market share but also by reducing logistics costs.

b. Value Advantage

Currently, consumers do not buy goods (products), but they buy "certain benefits or benefits" (benefits). Therefore, if the company is unable to distinguish its products from competitors' products, the goods or products will become ordinary commodities and consumers will tend to buy these types of goods at the cheapest price. 

To get this value advantage, the company must create a certain value, and usually, this must be done in a certain market segment:
  • Middle and upper class.
  • Lower middle class.
  • Lower group.
For example, in the sedan market, Mercedes Benz deliberately chooses the wealthy segment by creating luxury cars with high prices. Buyers will not buy a Merci car just as a means of transportation, but rather to create a certain social status or show a certain success. 

The benefit offered by this Merci sedan is a brand or corporate image. To get this benefit, customers are willing to pay dearly. Another very important factor in gaining value advantage is providing the best possible service. 

Looking for ways to get competitive prices by producing goods more efficiently. To overcome this, a supply chain management strategy or supply chain optimization can be taken, which is to break down the boundaries between companies that have traditionally separated goods or services procurement actors, and also fragment their ability to increase efficiency.

Look for ways to get competitive prices by producing goods more efficiently.

To overcome this, a supply chain management strategy or supply chain optimization can be taken, which is to break down the boundaries between companies that have traditionally separated goods or services procurement actors, and also fragment their ability to increase efficiency.

c. Quality Management

The definition of quality is no longer just "by specifications", but broader than that, namely everything outside the price desired by the customer, such as delivery time, reliability of fulfilling promises, form/aesthetics, and product durability, product safety, after-sales service, etc.

1. Approach

The previous approach, namely the push system can no longer be done but changed to a pull system, which means that the maker of goods is dictated by the wishes and demands of the customers.

2. Supplier Participation

In design planning, to meet customer tastes and demands that must be considered, the role of suppliers also needs to be included. So that design determination is no longer only done by the company itself. In the partnership concept, the supplier facility can be used as R&D so that the company does not need to create and develop its R&D department. 

With this R&D, suppliers are expected to participate in developing the design of goods in the form that customers always want at increasingly competitive costs. Designing together with suppliers (designing out) is more profitable than the old approach, which is doing your design (designing in).

3. Benchmarking

What needs to be benchmarked is by the inter-industry association (The Supply Chain Council), for example, a model known as the SCOR (Supply Chain Operations Reference). SCOR issues a standard measure of supply chain management work that can be used for comparison with other industries.

4. Logistics as the Spearhead

To achieve supply chain success, logistics can be used as the spearhead and the first target of handling. The first is because the supply chain itself is the development of logistics management, and the second is because logistics costs, especially the cost of purchasing and storing goods, are very high costs for the company. 

In logistics management, management, including the distribution of goods, only concerns within the company, but supply chain management, management concerns the flow of goods from raw materials to goods received by end customers, so it involves the entire network of company organizations from the upstream to the downstream.

Management of Goods Flow

1. Inventory Monitoring 

Inventory monitoring is carried out by changing performance benchmarks, which is no longer the usual turn over ratio, but the ratio between revenue and inventory. Thus, all members of the supply chain network are more oriented towards revenue. 

Monitoring is not carried out on the inventory level of each network member, but on the inventory level on all networks as a unit. What is prioritized is the storage and maintenance of inventory in each organization, but the smooth flow of goods from upstream to downstream. 

For a successful supply chain performance, centralization is required. Inventory centralization is meant here not in a physical sense, but terms of planning and regulation. Physically, the flow of goods can be carried out in such a way that the most optimal logistics costs can be obtained, so it does not have to always follow the order of formal distribution channels. 

In the car industry, supply chain integration is not only carried out between companies and suppliers but also with downstream organizations, namely distributors and retailers (dealers). If there is a request from the buyer, the dealer can contact the car supply center, and the desired model and color will be sent. 

If the model or color requested is not available or runs out, it can be directly added to the factory's upcoming production schedule. In this way, inventory can be reduced and transportation costs can also be reduced. 

Lead time management is necessary so that customer wants can be fulfilled at a level that is acceptable to them. This can be done, among others, by eliminating activities that do not provide added value and accelerating or synchronizing activities that provide added value wherever possible.

2. Centralization of Inventory

Lead time control strategy:
  • Reducing the time used by all elements, especially elements that do not provide added value.
  • Supplier partnering will greatly reduce the time for finding sources of purchase, negotiating prices, making purchase contracts, and making letters of credit.
  • Supplier partnering will also greatly reduce the time it takes to make or supply goods on the seller's side. If the supplier partnering cannot be made, purchases can be made through a blanket order or a long-term purchase contract. Likewise, the search for carrier companies and the negotiation of freight rates can be reduced by using a freight forwarding agent regularly, or at least a contract for a fairly long period.
  • Early and intense communication regarding the availability of goods to be sent between buyers, sellers, and forwarding agents can eliminate or reduce storage time in both the seller's warehouse and the forwarding agent's warehouse.
  • Change the way the activities were carried out "sequentially" to "simultaneously" And the agreement was made with the seller so that the manufacture and delivery of goods did not need to wait for the opening of the L / C or even the signing of the purchase contract or order letter, but it was enough after issuing a confirmed or committed letter of intent.
  • Preparation and completion of import duty exemption documents can be carried out during the shipment of goods so that it does not require extra time, and what is called just in time customs clearance will occur.
  • It can also eliminate or reduce storage time in port warehouses.
Organizational Management

1. Form of Organization

The form or pattern of organization that needs to be developed is not a functional organization like the old pattern in general, but a horizontal organization.

The key to a horizontal organization is an organization that is structured by process rather than function.

In other words, process management is more important than functional management and this needs to be done in an integrated manner.

2. Open Communication between the links must be carried out routinely, transparently, openly, spontaneously, and must be felt as well as a daily necessity.

Communication between links must be developed so that it becomes like communication between sections within the company itself.

3. "Win-win" thinking Because thinking in a network, totally and as a partnership, it is necessary to develop a "win-win" concept continuously.

Being in a network doesn't have to mean any negotiation at all. Negotiations are still necessary and must be carried out whenever necessary, but must always be guided by a win-win solution and not a win-lose solution.

Cost And Value-Added Management

1. Value chain analysis Value chain

An analysis is very useful for identifying the strengths (strengths) and weaknesses (weakness) of the company.

This value chain analysis assumes that the basic economic objective of each company is to create value (value) as measured by the company's total revenue. In value chain analysis, managers divide the company's activities into activities that create added value.

By analyzing the strengths and weaknesses of each of these activities, managers will be able to know more deeply the overall capabilities of the company.

The activities referred to include primary activities (incoming logistics, operations, marketing and sales, customer services) and support activities (human resource management, technology development, procurement or purchasing, company infrastructure).

Concerning the supply chain, an analysis of the company's weaknesses and strengths is carried out to try to increase efficiency within the company itself.

2. Specific and Quantitative Targets

In implementing a supply chain program, it is necessary to plan certain targets for each stage, and as far as possible be specific and quantitative.

What is meant by specific is for example about the lead time, logistics costs, and service levels, and what is meant by quantitative is for example a reduction in costs of 40% in two years and so on.

Each stage in question has a certain time or status meaning.

Initial successes need to be recognized and disseminated to all parties concerned so that they can be used to increase motivation and excitement for further development

3. Cost Added Value and Value-Added Activities

Analysis can also be carried out with other approaches, namely differentiating between activities that add value.

The general principle is to eliminate activities that do not provide added value at all and to make optimal efficiency of activities that provide added value.

Supplier Relationship Management

1. Rationalization

Rationalization is limiting the number of suppliers to the most efficient and manageable level.

This rationalization is for the needs of essential goods, and for key suppliers, it needs to be developed towards business partnerships.

Reducing the number of suppliers:

This concept was developed in the late 1980s, which aims to reduce diversity, negotiation costs, and tracking.

This concept is the beginning of a shift in the trend from multiple suppliers to a single supplier.

Thus, the old method that was previously considered effective, such as looking for sourcing through an open tender, is increasingly unpopular, because open tenders do not guarantee a limited supplier

What is still compatible with this development is the limited number of tenders among suppliers

2. Business Partnerships 

Business partnerships begin with supplier-buyer partnerships (towards upstream companies) for key suppliers.

Then it is developed in partnership with downstream companies, namely distributors and retailers.

In practice, the implementation stage can be reversed, namely starting from the downstream company first, then developing it to the upstream company.

3. Outsourcing

Outsourcing is one form or way of increasing the efficiency and effectiveness of one or several areas of activity.

Usually what is outsourced is not the main activity (not the core business), because the main activity (core business) is still handled by the company itself.

4. Principles and Spirit of the Partnership (Supplier partnership / Strategic alliance)

Several principles that need to be developed in a strategic partnership or alliance are the same goals, mutual benefit, mutual trust, openness, forging long-term cooperation, and continuous improvement in costs and costs. quality.

The last principle is the estuary of the other five principles which are essentially the ultimate goal of the partnership.

This concept has been in development since the mid-1990s and is expected to continue to be popular in the early 21st century.

This concept assumes that only with supplier partnerships, key suppliers for certain goods are strategic resources that can be relied on and can guarantee the smooth movement of goods in the supply chain.

This concept is always accompanied by the concept of continuous improvement in cost and quality of goods.

A strategic partnering or alliance can provide the following benefits:
  • Adding product value
  • Partnerships with superior companies can add value to products marketed such as shortening distribution/production times, ordering, repairs, and the like.
  • Improve market access
  • This can be achieved by co-advertising, use of partner networks, and so on.
  • Strengthen operations
  • Partnership with suitable partners can combine each other's resources, increase efficiency, empower facilities, and so on.
  • Adding technological capabilities
  • The capabilities and experience of partners and R&D partners can become joint R&D so that their technological capabilities can be improved.
  • Accelerate growth
  • Many growth opportunities are only open to large and experienced companies. With partnerships, resources can be combined to remove barriers to growth.
  • Adding organizational skills
  • Partnerships provide excellent opportunities to learn from fellow business partners and learn together.
  • Build financial strength
  • With a partnership, profits can increase and many types of costs can be shared, thereby increasing the financial capacity of every one of them.
5. Coaching

Coaching can have a broad meaning, including guidance in improving quality, improving costs, improving communication, and so on.

6. Integrated Information System

This system needs to be supported by the use of the latest information technology, so that decisions can be made quickly, accurately, and not limited to linear, but also multifaceted. With this technology, suppliers can manage and regulate the flow or supply of goods into the factory based on prior notification of the production schedule. 

In an advanced system, purchase orders, invoices, and the like are no longer needed, but only a piece of information that is used as a basis for delivering goods on time and which triggers payments to suppliers.

Total Effort Approach

1. Network Management

Network integration or management between all related companies, from the very upstream to the downstream, especially in the supply of goods and the distribution of goods. In the sense of networking, each organization or company remains owned by their respective owners and there are no acquisitions.

2. Collective Strategy

Every strategy that is developed must be a total and collective strategy, and not the company's strategy.

For this reason, all related parties need to be involved in formulating a strategy so that a joint strategy is believed to be produced and implemented together.

3. Total Success Target
  • Inventory reduction.
  • Speed ​​up the turnaround time for meeting needs.
  • Increase in sales.
  • Increase in market share.
  • Increased profit.
  • Improved customer relationships.
  • Get rid of the "build your own empire" attitude, especially in areas like marketing and manufacturing.
  • Realizing that competitive advantage needs to have endeavored so that the company can survive and maintain market share.
  • Develop logistics management into supply chain management.
  • Pursuing both advantages at once, namely value advantages and cost and productivity advantage.
  • Develop relationships with suppliers.
  • Ensure accurate and real-time flow of information both upstream and downstream.
  • Use information technology hardware and software that is user's friendly.
  • Conduct joint training with upstream and downstream organizations on issues relating to supply chain management.
  • Looking for the type and level of service that consumers want.
  • Creating and developing superior tailored services based on the will of the consumer.
  • Especially in the field of logistics, services can be in the form of providing goods whenever needed, fast delivery times according to orders, provision of spare parts, provision of door to door service, provision of reliable transport, and so on (reliability and responsiveness).
  • Reducing inventory to the planned level (asset turnover).
  • Using existing capacity as much as possible (capacity utilization).
  • Planning together with all existing links regarding inventory.
  • This planning includes functions of procurement, inventory control, manufacturing, and distribution.
  • Optimizing the purchase price of goods.
  • Support in general
  • Supporting value advantage
  • Supporting productivity advantage
Performing Logistics Pipeline Management 

Pipeline management is a process in which the manufacturing lead time is linked to the lead time for procurement of goods (procurement lead time) in such a way as to meet market demand. 

By managing this logistics pipeline it is hoped that:
  • Lower costs.
  • Higher quality.
  • More flexible.
  • Faster response time.
A. Changing the Concept that the main controllers of the supply chain are consumers. The main controllers of the supply chain are consumers
  • It is very important to improve service to customers regarding lead time. Effective service improvement to customers can be assisted by ways such as:
  • Using safety stock.
  • Perform stock replenishment promptly.
  • Forecasting better.
  • Determine service level consciously and planned.
  • Implementing a supportive purchasing strategy.
  • Implementing a distribution strategy (cross-docking)
  • In this strategy, warehouses are supplied from a central warehouse which acts as a supply coordinator and as a point of transshipment for goods ordered from suppliers, but the central warehouse does not store goods.
  • In the new system, the main warehouse and central warehouse are cross-docking points. The point is that the warehouse is developed not as a warehouse, but as an inventory coordinator. Physically, the goods are not stored in the warehouse for too long, no longer than 12 hours. This system reduces the cost of storing goods and speeds up lead times.
Product Design Analysis

Certain product designs can incur high storage and transportation costs and may result in longer manufacturing costs. Therefore, it may be necessary to redesign to solve it so that it helps the smoothness and efficiency of the supply chain.

Application of information technology and support systems.

The main objective of information technology in the supply chain is to connect the point of production with the point of sale as best as possible. The idea is to be able to track the product gear as it is in its physical state.

The methods include collecting information on each product, accessing every data in the system, analyzing it, and planning based on the data obtained.

Integration needs

Supply chain integration implies process integration, which means close cooperation between buyers and suppliers, joint product development, development of the same system, and sharing of information. This can be achieved well, among others, supplier development programs:

Developing cooperation between companies and suppliers to improve the quality of goods purchased and improve costs.

The focus of the relationship lies in developing and fostering suppliers for the benefit of both parties.

Three ways/strategies to overcome the global supply chain, namely:

1. Speculative Strategy

In this strategy, after careful consideration, the company determines only one scenario based on certain assumptions and will change scenarios if the reliable assumptions change. 

For example, car manufacturers in Japan in the late 1970s and early 1980s determined that by making cars in Japan, the increase in employee costs was still much lower than the effect of the difference in the yen exchange rate and the high level of productivity. 

However, this later changed and Japan was forced to start making cars in foreign countries because since the late 1980s, the increase in employee costs has been very high and the difference in the yen exchange rate has also changed a lot.

2. Hedging Strategy

In this strategy, the company plans its supply chain in such a way that the losses in one chain can be covered by the advantages of the other. This strategy is typical in that it works simultaneously in one place but may be less successful in another. 

For example, Volkswagen has factories in Mexico, Germany, Brazil, and the United States. The losses of operating in one country can be covered by the profits of another country.

3. Flexible strategy

Thus an article about  Concepts in Supply Chain Management. Hopefully it will be useful to you.

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