SCM: A New Approach Towards Enhancing Productivity

Dr. Arpita Khare, Faculty Associate, IIIT Allahabad.

The vision of Supply Chain Management was to maximize the returns for the organizations; it should link the various processes of the organization and its suppliers to provide greater visibility across the supply chain. Increasingly supply chains are being realized as a strategic tool to improve efficiencies and cut down operating costs. Supply chain management (SCM) evolved with the aim of integrating disparate functions like forecasting, purchasing, manufacturing, distribution, sales and marketing into a harmonious ecosystem that would envelop the company's suppliers and customers. With management becoming increasingly customer-centric, and customers becoming more aggressive and demanding about quality and better service, companies are evolving strategies to maximize the customer encounter and value. The challenge for today's business managers is to create efficient networks across the organization that binds not only the various functional areas of the organization but also the suppliers and customers. Moreover, information technology has emerged as a tool that is helping organizations to attain this goal.

The paper focuses on supply chain as a dimension to business that enhances the decision making in the organization by providing better coordination across various supply chain members.

Supply chain management's role in the 21st century:

  • First, emphasis will shift to the broader supply chain from the narrower logistics discipline, to derive the greatest value.
  • Second, supply chain management will provide true competitive advantage only when new concepts, practices, and performance are combined to sharply impact companies' and customers' bottom lines.
  • Third, supply chain managers must harness the leading external drivers of change, including rising consumer demands, globalization, and information/communication.
  • Fourth, the future responsibilities of the supply chain manager will change, although his or her organizational level may be similar to todays.

Supply Chain management is all about having the right product in the right place, at the right time, and in the right condition.

Information Technology Enhancing Productivity:

In modern supply chains information replaces inventory. Information changes the way supply chains can and should be effectively managed, and these changes may lead to, among other things, lower inventories. Modern manufacturing has driven most of the excess time and cost out of the production process, so there is little advantage to be gained on the shop floor. The new competition is supply chain versus supply chain. Business managers face the challenge of integrating the assets and suppliers, so that they can create maximum value. Customers are increasingly time sensitive. To the supplier who fails to recognize the importance of time as a competitive variable or whose systems cannot meet the needs of fast changing markets, the cost can be considerable. Businesses are continuously forging relationships with their customers; they are empowering their customers to help themselves to information. In order to meet the compelling demands of the markets and customers, companies are undertaking significant restructuring within the organizational silos to be able to function in the era of electronic commerce. Electronic commerce improves organizational performance by making it possible to cut down operating costs, have better access to markets, lower production costs and lower inventory costs.

All manufacturers are looking for ways to reduce cost out of the production cycle, from procurement of the raw materials right to the delivery of the finished product to the dealer/ retailer and eventually to the customer. The challenge today for organizations is to develop systems and ideologies that would be equipped to face the onslaught of competition. The new face of competition has brought forth a number of issues; integrating technology with the traditional business structures, equipping personnel with the technological innovations so that they are able deal better with adverse situations and, adapting to the customer who has become focused about the value dimension.

Information Technology Cutting Costs:

Every year, it seems, supposedly “breakthrough” IT is introduced for the supply chain. A few years ago, it was enterprise resource planning (ERP) software, the management tool that gathers information across procurement, inventory, manufacturing, and distribution. Today, the hot technology is radio-frequency ID tags , which allow for automated, real-time tracking of inventory. The "Internet of things" is important because it promises to bridge the divide between the digital and physical worlds. During the late 1990s, many e-commerce initiatives hit the headlines. All sorts of business-to-consumer and business-to-business models evolved from the Internet, including hub and spoke trading networks.

Researchers also cited an initiative in Europe , where radio-frequency identification (RFID) tags are attached to Gillette products that are shipped to Tesco stores. These tags enable both companies to track inventories down to the item level, thus reducing channel volume and enhancing forecasting and planning capabilities. In today's global economy, in-transit visibility is vital. Just-in-time manufacturing and assembly operations require firms to know – sometimes to the minute – when a key part or component will arrive from a supplier. Technology such as radio frequency identification (RFID) tags and automated identification technology (AIT) can provide this information to all firms in the supply chain. Customers increasingly demand the capability to use the Internet to track their package from the time it is shipped to the time it arrives at their home or office. FedEx provides excellent tracking capabilities for items shipped through its network of airborne and ground-based transportation channels.

Leading companies are using true point-of-consumption information to trigger replenishment actions back through multi-company supply processes with enormous improvements in inventory and service levels. In effect, demand chains are replacing supply chains. Efficient consumer response (ECR) offers an early example of demand chain orientation. Pioneered by Procter & Gamble (P&G) in the early 1990s, the ECR project encompassed a wide range of initiatives but at its heart lay the continuous replenishment program (CRP) . Through the CRP, companies could tap into point-of-consumption data and drive a fast replenishment process based on actual retail store sales data. Significantly, P&G not only adapted its own production processes to synchronize supply with demand but also worked with its suppliers to integrate their upstream activities into the replenishment process .

Organizations are now engaging the services of the consultants and software companies to not only reallocate the resources but also create better visibility in the supply chains, which would enable the management to better, integrate information. The ability to develop the B2B relationships and realize their potential in the shortest possible time is critical to the long-term success of any modern business. It is the use of shared information that enables cross-functional, horizontal management to become a reality. Even more importantly, it is the use of shared information between partners in the supply chain that makes possible the responsive flow of product from one end of the pipeline to another. The notion that partnership arrangements and mentality of the cooperation are more effective than the traditional arms-length and often-adversarial basis of relationships is now a days gaining ground. Thus, the supply chain is becoming a confederation of organizations that agree upon common goals of maximizing profits and driving out inefficiencies by building systems that are closely integrated with each other.

Lean Manufacturing With Information Technology:

Firms that consider SCM a strategic priority are moving from a traditional business model of build-to-stock (push systems) to build-to-order (agile pull systems) systems that support mass customization and responsiveness. The foundation underlying this movement is the lean manufacturing philosophy that originated in the Toyota Production System. Its tenants are “demand pull” production and material scheduling flows, just-in-time deliveries at each link in the chain, and process mapping to focus on value-added steps (and eliminate non-value adding steps which are classified as “waste”). American Honda's new manufacturing system, Ultimate Flex , provides the automaker with a significant competitive advantage. Honda retrofitted its plants so that each one could build nearly every car in its lineup, a move that provides tremendous agility and allows Honda to respond quickly to changes in demand. The central aim of this effort is that Honda's flexible and agile lean manufacturing is now better able to respond to a demand pull concept, not only for material flows internal to manufacturing (parts reside in the production plant for a mere six hours) but also to better respond to demand direct from customer orders.

Real-time information connectivity is moving us away from the traditional forecast-guided business structure—wherein all value is created in anticipation of demand—to an agile, response-based structure that reacts rapidly to demand requirements. This response-based structure is geared toward quickly and accurately identifying actual customer demand and then rapidly fulfilling that demand. Response-based supply chains exploit the full capabilities of all channel partners through the sharing of synchronized information to jointly develop complete solutions that satisfy customers.

Nike, selling $9 billion worth of athletic shoes annually, does so without owning any factories itself. Gateway 2000 assembles product to customer-direct orders, but without building any of the equipment itself. Sara Lee recently signaled a move in the same direction with its announcement that it would divest itself of 13 U.S. spinning and weaving mills.


Future supply chain designs will be characterized by agility, flexibility, and integration --in support of equally agile overall business designs. These designs will incorporate dynamic flow management of products, information, cash, and even ideas. The focus will be on coordination across the entire supply chain, both within a corporation and--critically-- linking backwards to suppliers and forward to customers and end-consumers. Collaborating skills will become major differentiators of supply chain management performance. Volkswagen calls this flexible design the "breathing organization," referring to an ability to adjust volumes throughout the supply chain as demand goes up and down. These agile supply chains must be focused around customer needs. A critical missing link that progressive enterprises will forge in coming years is the integration of supply chain design considerations into corporate business design, marketing, and product design. How can key supply chain variables drive down order-to-delivery cycle times, make customer delivery more convenient, enhance the ordering process, or reduce inventories? These questions will be asked as part of setting new corporate or product-line decisions, rather than as mere "operational" afterthoughts. The supply chain no longer will be viewed as a given that must be applied no matter what value proposition changes are made.