To be effective in a field such as the supply chain, it is first and foremost necessary to understand its fundamentals and operating principles.
What are its fundamental principles? What difference with logistics? How does inventory management work?
(Supply Chain Definition Video / Please activate the automatics subtitle in English)
Supply Chain Definition – The different streams :
Briefly, the supply chain is divided into 3 streams:
1) The physical stream :
It can be associated with logistics, i.e. the movement and storage of goods. We start from a production site, then probably move to one or more warehouses, then to a store or a final customer. This physical flow is really based on the transport and storage of the flow of goods.
2) The information stream :
It is the brain that will make the physical flow work. It is like a gigantic database that could be summarized by a:
- What? (all, processes and associated information)
- Where? (In which country, in which warehouse in which store but also in which IT systems)
- How? (by what means and under what pre-established conditions)
- When? (throughout the entire product life cycle). It includes, for example, all the recorded characteristics of a product, all sales histories, all your performance indicators but also all the information on your suppliers that can affect your procurement strategy.
For example, is it better to supply from Asia with a low cost but a long lead time or from Europe with a higher cost but less lead time? This flow of information and your performance indicators (KPIs) are essential to the functioning of the physical flow. The challenge of this information is to know how to use it to predict and anticipate the future. If you can establish what will happen in the future, the work of the supply chain teams is simplified.
In addition, logistics also has information flows, so in the end, the physical flow and the information flow are closely linked. To optimize logistics movements within a warehouse, for example, a large flow of information is required to improve process and productivity.
3) The financial stream :
It can also be considered as information and is similar to all money movements to partners, suppliers, and subcontractors, as well as within your company. Money flow is a procurement strategy in its own right. In large companies, this flow is carried out in several currencies. And the strategy for moving these currencies between suppliers and the company is fundamental and a factor of failure or success.
Supply Chain challenge is, therefore, to combine these streams and make them work together.
Several people within the company are involved in the supply chain. They oversee all procurement, inventory forecasting, IT management and financial forecasting.
Finally, the goal of the supply chain is to make its products accessible at the right time, in the right place and at the best price. This is achieved by having the most efficient supply chain possible.
To do this, it will, therefore, be necessary to find a balance between the satisfaction of your customers and the profitability of your company. To achieve this, for example, it will be necessary to be as precise as possible in inventory management for example (owning an infinite stock is obviously not possible). The environmental impact of different types of travel is also increasingly important in people’s minds. Once again, finding the compromise between satisfying the customer and meeting these commitments is the key. For example, you will not be able to deliver everything by air because it is neither profitable nor environmentally friendly.
Supply Chain Challenges
The actors in the supply chain management the flow of materials and goods in order to manage several elements essential to the smooth running of the company.
First, the various internal human resources must be managed in order to get the most out of each position. In addition, there are external resources such as suppliers, warehouses, carriers, and warehouse workers. A good relationship must be maintained with the actors of each entity because good collaboration is essential here.
Then come the various services inherent to the proper functioning of the supply chain such as planning, packaging, handling, warehousing, export, transport, customs, invoicing and disputes. In addition, the management of the elements necessary for these services must be ensured: storage infrastructures, warehouses, tools, machinery, and vehicles, as well as fuels and other sources of energy necessary for their operation, must be taken into account.
As mentioned above, the supply chain is a decisive factor in price or non-price competitiveness and can provide a decisive competitive advantage over other competitors in the market.
The costs associated with the supply chain can also quickly get out of hand and simply drive down a company’s bottom line. The aim is to anticipate as much as possible any risks that may affect the system and cause unexpected additional costs. The company’s profit margin is therefore highly dependent on these costs.
Costs are also an integral part of the productivity objectives set by management. It is not uncommon for supply chain budgets to be huge to achieve these objectives. For these reasons, the supply chain manager often sits on the board of directors and must report the results of activities to the managers.
The image of efficiency and the quality of the service provided by the company in terms of delivery time, both to customers and suppliers, is also based on the quality of the supply chain.
The supply chain is also increasingly contributing to the ecological image that a company wishes to convey. The means of transport or materials used in the work processes of the supply chain can be promoted to give an environmental and sustainable image to the company or on the contrary, have a negative impact if the means used are polluting for example.
What’s the future of Supply Chain Management?
2 charts to explain that :
This first graph is from Google Trend with the word Excel. He is here to show you that despite the digital transformation and the development of very advanced software. Used by 98% of companies, Excel remains an essential tool in the management, analysis, and improvement of the supply chain and will therefore probably remain so for a few years.
Second graph more illustrative this time, with words revolving around data management: Big Data, Machine learning, Data Science, Deep learning. There is an explosion in the volume of research on data processing, collection, and analysis. This data becomes fundamental to analyze and improve the entire quality of the supply chain. Today, 98% of companies still use Excel, but most of them use it in a basic way. But a gap is widening between traditional companies and those that place data intelligence at the heart of their strategy. The objective for most is, therefore, to move from traditional management to intelligent supply chain management. Amazon is, therefore, investing in this area to make it possible for everyone to use machine learning and deep learning.
Thus the supply chain is strongly impacted by these new technologies through digital. The data becomes usable in real-time, which results in a faster workflow, i.e. the production process.
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Founder of AbcSupplyChain | Supply Chain Expert | 15 years experience in 6 different countries –> Follow me on LinkedIn