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The
Supply Chain today is the integrating process that
connects different business function. The supply
chain starts with the planning and procurement,
continues with warehousing of raw materials,
production of finished goods, storing of finished
goods and finishing with distribution and
transport to the customer
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premises.
This
is a very long chain of interlinked and
interdependent business function.
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The
competitive market is imposing rules to all participants
in the game of market competition. The company that
strives to become successful in the market needs to
excel in one of two segments, but ideally in both;
product value advantage and production cost advantage.
The
product value advantage is the can be achieved by
providing the product to the customer that will be
perceived as good value for the money paid. The value
can be perceived by product's brand, functionality,
service, etc.
The
cost advantage of the company is important element
obtained by application of effective technologies,
efficient organizational abilities and through the
economy of scale.
Both
of these factors make the competitive advantage of one
company compared
to the other companies in the market. Supply chain
optimization plays the significant role in this process.
It is possible to reach a sustainable competitive
advantage through successful supply chain optimization.
There are several important segments of supply chain
management that contributes significantly to the supply
chain optimization.
Demand
Planning
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successful demand planning has the key role in supply
chain optimization. Everything starts with the demand
management.
Therefore, the supply chain optimization starts with the
assessment of market demand. Demand planning is the process of supply
chain planning where complex calculation is made, in
order to provide the following supply chain segments
inputs for further activities. The input data for the
demand planning are the historical data, seasonality,
marketing plan, launching of new products, changes in
commercial policy, market trends, competition
activities, legislation changes, etc. Now we see that
the demand planning is complex process and it plays a
very important role for the supply chain optimization.
If the demand planning is overestimated it can lead to
excessive stock. On the other side, if the demand
planning is underestimated than it is possible to have
stock out situation.
Inventory
Planning
The
next step of supply chain optimization is the inventory
planning. Based on the demand plan, supply chain
planners are planning stocks of raw materials for
production. All components for production are planned
based on demand planning. At this point the supply chain
optimization process becomes even more complex. Even the
best demand planning cannot remedy mistakes made during
the inventory planning. In order to conduct supply chain
optimization it is necessary to have accurate and timely
inventory planning, with the respect to the time needed
to purchase and ship all raw materials.
Production Planning
The
production planning is the next step of supply chain
optimization. After having the demand plan and inventory
planning done, it is necessary to set aligned production
planning. With the production planning the complexity of
supply chain optimization grows even more. In case that
production planning deviate versus demand, than
overstock or stock out may occur. Even when production
plan is properly aligned with the demand, any delay or
stoppages in production can decrease
the production accuracy, what
can lead the unbalanced supply of products.
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Lead
Time
During
all mentioned segments there is one more important
factor to be respected – Lead Time. By definition, the
Lead Time is the time required from initiation of the
activity until the activity end. For example;
the procurement of raw
material has its own lead-time, depending on the
supplier responsiveness, administration time, transport
time, delays, etc. This means if the raw material
quantity is planned according the demand planning, but
the lead-time was not assessed from all aspects, then
some delays and raw material shortages may happen. Any
deviation in raw material delivery may produce further
problems in supply chain. In case of late delivery of
raw material the production can be stopped. This is
making additional costs of idle production line and
creating cost of missed sales opportunity and missed
revenue and profit. Therefore, the lead-time must be
properly assessed for every activity, in order to
satisfy the supply chain planning.
Recommended
reading:
An
Introduction To Supply Chain Management
Making
The Most Of Your Supply Chain Metrics To Leverage
Competitive Advantage
Supply
Chain Management 101
The Fundamentals Of Supply Chain ROI
Supply Chain
Concept
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