‘Collaboration key for effective SCM’

Our Management Bureau in Chennai

Organisations need to get their internal processes in order instead of blindly installing supply chain management (SCM) systems which are not relevant to their operations. This is because software is only an enabler and not a final solution for best SCM practices, said Mr K V Sriram, director, Ernst & Young, Chennai.

Addressing the National Convention of Indian Institute of Materials Management (Natcom) in Chennai, Mr Sriram said that if implemented correctly using systematically generated information from the market, the customer and all relevant internal processes, SCM permits a company to meet or exceed customers’ expectations while simultaneously improving profits.

According to him, there are seven key questions organisations should address before implementing SCM systems. They are:
* What is the current supply chain performance versus requirements?
* What are the requirements from the customers’ point of view?
* What are the benefits of managing the supply chain in a more integrated global way?
*How effective are the current practices for planning and operations management?
*What are the choices for managing the supply chain better?
* What time-frame and resources are required?
* What are the organisational and people implications of the changes?

On the other hand, Ernst & Young’s prescriptions for effective SCM implementation include constantly striving to meet the supply chain challenge, providing better quality products at low cost and to be faster than the competitor to ensure operations are customer-focused. It involves balancing conflicting objectives of low working capital, high production economics and customer delivery service. However, it also involves ensuring a proper balance between customer service and cost/returns.

There is also need to focus on select supply chain value metrics. These metrics include costs, time, profit/margins, inventory coverage,
cost of capital held in inventory, return on supply chain assets like warehouses, cash flows and net operating profit and customer
value (perfect orders, order fill rates, on-time delivery, customer profitability and retention).

It is also important to constantly measure value to the customer. Measures of supply chain performance must be defined in terms of value to the customer - delivery reliability (agreement between confirmed and actual delivery date), availability (agreement between desired and confirmed delivery date), lead time (time between placing the order and its delivery), quality (the percentage of orders delivered
without defects caused by logistics), flexibility (ability to meet customer change requests for an existing order and information quality (ability to provide information regarding order status).

Finally, collaboration is the key. Collaboration between manufacturers, distributors and customers is the key for effective SCM, says Mr Sriram. Miscommunication, poor demand forecasting, lead-time padding, last-minute specification changes and credit problems are some of the customer-side problems that can put a kink in the supply chain.