Supply Chain Strategy: Building a more resilient Supply Chain

Introduction

It is shown that supply chains in some shape or form are required to deliver products and services we, or our organization need, or think is needed. For every business transaction there is a supplier and a customer and there are activities, facilities and processes linking the supplier to the customer. The management process of balancing these links to deliver best value to the customer at minimum cost and effort for the supplier is supply chain management. You will experience supply chains everywhere, for example in running your home, managing a manufacturing business, in health services, hotels, banks, government, utilities, non-profit organizations, universities, entertainment, retail and professional services. From the cradle to the grave there will be supply chains involved.

Supply chains vary significantly in complexity and size but the fundamental principles apply to all operations whether they be large or small, manufacturing or service, private or public sector. Supply chain management is not just for large big name businesses such as Dell Computers, Wal-Mart and Toyota Motors. It is for all businesses and for all operations. When Moira and Joy (our respective wives), visit a hairdresser they are the customer and the hairdresser is the supplier. The hairdresser will have to ensure the availability of materials (shampoo, conditioner and colouring), facilities and equipment (e.g. chairs, driers, etc.). The hairdresser in order to provide the service is involved with purchasing, inventory management and facilities management. In order to minimize customer queues there is also a need for demand forecasting, capacity management, scheduling and quality management. In this example of a basic service operation we can identify the key components of supply chain management. Take another example. Consider that you are checking in at Zagreb Airport for a return flight to London. You are unhappy to find a long queue. You have discovered that in addition to normal procedures the central computer was down and a screening machine was installed to X-ray all types of luggage as an extra security precaution. In this case, the supply chain is obviously more complex than the hairdressing service. For you the customer the initial focal point is the check-in clerk, but there are many supporting links leading to this service.

The airlines have to sell tickets, ensure the availability of aircraft with all the required fittings (including in flight entertainment systems) in an acceptable condition, provide meals and have a stock of trained aircrew available. Before you got to Zagreb Airport our administration manager will have purchased a ticket from a travel agent who in turn may have made an electronic booking.

In this example, there are suppliers and suppliers of suppliers and there are customers and customers of customers. However, the basic functions of forecasting, capacity management, inventory management, scheduling and quality management are present just as they were with the hairdresser, and just as they are for any supply chain.

The key objective of supply chain management is to provide best value to the customer by measuring, planning and managing all the links in the chain. When Joy or Moira receive a hair style as per her requirements (specification) and at an affordable price in pleasant surroundings from a helpful and skilled hairdresser she will consider that she has received good value service. With a coiffure (French for hair cut) the perception of whether a service is good or not can be very subjective. Joy might have said what she wanted, and the hairdresser has faithfully carried out her instructions, but once ‘madam’ sees the end result she could well be dissatisfied. Not all aspects and outputs of a supply chain can be precisely measured!

What is supply chain management?

In a typical supply chain, raw materials are procured and items are produced at one or more factories, shipped to warehouses for intermediate storage and then shipped to retailers or customers. If you asked people involved in business to define the term supply chain you would get many different answers. Each definition would reflect the nature of the business and the inputs and outputs produced. For some, supply chain is related to purchasing and procurement, to others it is warehousing, distribution and transportation. Yet for others it would be sources of capital and labour.

Melnyk and Swink (2002) provide a holistic definition of the supply chain which is the entire network of organizations involved in:

  1. Converting raw materials and information into products and services,
  2. Consuming the products and services,
  3. Disposing of the products and services.

They further state that ‘this definition treats the supply chain as a product cradle-to-grave concept, including all value-added activities required to plan, source, make and deliver products and services that meet customer needs’. To this we add the word process. We see the supply chain not as a series of separate operations and organizations but as a complete end-to-end process.

Connect with your manufacturers and suppliers

Keep in close contact with your manufacturers and suppliers so you know the status of your product creation and transportation timing. By triple-checking a few key transportation steps, you’ll save time and money on unexpected tasks like adding bubble wrap at pack-out, which distract from getting orders to customers in a fast and affordable manner. If your manufacturers or suppliers are experiencing delays that prevent you from getting inventory in time, start contingency planning and sourcing alternative products where possible. For products that are ready to ship, consider the following:

  1. Inventory readiness: Reach out to your suppliers to determine inventory readiness by variant, and get estimates for shipping your product as soon as possible;
  2. Package quality: Check package integrity and quality at the manufacturing and supplier level to limit damage on arrival;
  3. Fragile items: Use protective packaging for fragile items to prevent damage and route.

Monitor inventory arrival

With international and domestic ports backed up, reports of week-long delays of products arriving from ocean freight into ports are becoming more common. When your product leaves your manufacturer, there are a few ways to monitor the transport and estimated delivery time.

  1. Status check: Regularly check the status of your shipments and share tracking with your team, whether internal staff or your fulfillment partners, so they’re ready to receive the products.
  2. Coding: If your products are arriving from overseas, make sure Harmonized System (HS) codes are up to date to avoid potential customs delays.
  3. Timing: Account for time to receive inbound goods from your supplier. If you’re using a third-party logistics (3PL) provider, talk to your partner about the timelines they need to prepare your inventory for shipping. †
  4. Due dates: Aim to have products arrive with enough time so inventory is accounted for and ready to be picked, packed, and shipped before shipping cut-off dates.

Diversify your carrier options

Reduce shipping delay risks by working with multiple carriers. If you ship your own orders, work with more than one domestic and international carrier so you have a variety of shipping speeds and services for customers to choose from. If you outsource your shipping, your fulfillment partner should already have you covered with multiple carrier options.

Beyond shipping speeds, there are a few other considerations as you manage your shipping partners:

  1. Status updates: Keep an eye on carrier status pages about restricted or delayed areas, like USPS Service Disruption reports.
  2. Shipping claim process by carriers: Not all carriers and shipping methods offer inherent insurance. Knowing what’s covered by each carrier can save you incremental costs and customer relationships.
  3. Shipping speeds: Think through your shipping speeds and how your insurance could be impacted. Across domestic and international carriers, Economy services are most likely to be uninsured. But by setting your shipping rates to Standard and Express, you can increase insurance probability.
  4. Third-party apps: For even higher insurance probability, explore using third-party apps such as Cabrella to insure your packages.
  5. Fulfilment partners: Ask your fulfilment partners how they can support you in managing carrier claims, and provide more immediate solutions to help you retain your customer relationships.

Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system-wide costs while satisfying service level requirements.

What do these definition suggest? They suggest that supply chain management must consider every organization and facility involved in making the product and the costs involved in doing so. This also implies that the objective is to be cost effective across the whole supply chain, which requires a system-wide approach to optimization.

Supply chain in manufacturing

Supply chain management in a manufacturing and supply organization considers demand, supply and inventory needs for each item of production and in particular looks at how inventory flows through the system to achieve output to the customer’s specification on time and at least cost. With supply chain management, customer service is increased through the reduction of lead times and the product is always exactly as specified and it is always delivered on time. We describe this as the delivery of a ‘perfect order’. Costs are reduced through the elimination of any activity that does not add value and through the reduction of inventories of material and associated holding and handling costs. Activities and measures based on customer requirements, are very important in improving business performance. But externally driven customer-based measures have to be matched by measures of what the company can do (feasibility, capacity, know how and resources) to consistently meet customer expectations. A high standard of customer performance derives from planning, processes and actions integrated across the whole organization. Supply chain management focuses on the critical measures of all elements of the supply chain. Externally the measures include the suppliers at one end, and the customer at the other end of the supply process. These externals, the supplier and the customer, are matched with the internal requirements of the manufacturing process. The focus is twofold; to satisfy customer needs and to keep costs to a minimum.

In reality the elements of supply chain management are not new — we all have been managing parts of the supply chain for years (e.g. buying, planning, scheduling, stock control, warehousing, logistics, distribution, etc.) without realizing the significance of the whole chain concept. Likewise, the cost of the various elements of supply and distribution has been long recognized. ‘In 50 years between 1870 and 1920 the cost of distributing necessities and luxuries has nearly trebled, while production costs have gone down by one fifth — what we are saving in production we are losing in distribution’ (Ralph Barsodi, 1929). It is relatively new to view the supply chain as a process, that is a single integrated flow across all the functions of the business.

Offer convenient delivery and pickup options

Both local delivery and “buy online, pick up in store” (BOPIS) are effective ways to get products in the hands of local customers. For brick-and-mortar businesses, convenient fulfilment options have become a default method to maximize sales, with online shoppers spending 23% more and having a 25% higher cart size when local pickup and delivery are offered. Engage more local customers by using your store or warehouse as a pickup location, or offer local delivery by staff. This removes some dependence on your shipping carrier and can help you avoid potential shipping delays. In addition, these often prove to be the most cost-effective delivery methods for buyers. Define local delivery zones and multiple pricing conditions for each zone, manage and prepare orders for delivery, and create optimized delivery routes for drivers.

Of course, you shouldn’t limit yourself to local customers. When you can make delivery fast, affordable, and convenient for customers across the country or even the entire world, your potential market (and profits) grow exponentially. 61% of global consumers said that the option to ship their products on the same day or next day had a significant/very significant influence on their decision to order a product online. Make no mistake — expectations around delivery are high no matter how far you are from your buyers. Sixty-seven percent of US consumers expect to have items purchased online delivered in two days or less. And they want the ability to choose their preferred delivery option at the time of purchase. To meet those needs and compete with big box retailers you’ll likely either need dedicated fulfilment staff or the support of a third-party logistics company to fulfil orders for you. Beyond delivery options, these customers want to follow their orders and know of any hiccups along the way. On top of helping to drive sales, offering clear timelines and then communicating with customers post-purchase has been shown to increase retention. That’s why we made transparency around delivery times one of the top three shipping and logistics trends in Shopify’s 2022 Future of Commerce report.

In anticipation of carrier capacities being tested, de-risk your click-to-delivery buyer experience by leveraging multiple carriers this season. By using an outsourced logistics provider like Shopify Fulfilment Network, you’ll get access to a variety of domestic and international carrier services that will help you offer fast and affordable shipping — so you can focus on scaling your business.
Grace Kim Shopify Fulfilment Network

Depending on your weekly order volume or countries you ship to, you may consider hiring a 3PL. Find the right partner to deliver your brand with the 3PL checklist.

n the past information flow was the domain of the commercial division while the conversion process of materials flow was a manufacturing or technical division responsibility. With an integrated supply chain approach the responsibility for all elements of supply is now with operations management or supply chain management. In many businesses, the integrated approach is being extended to include all suppliers (including ‘upstream’ first, second and third tier suppliers) through the manufacturing process ‘downstream’ to each level of customer (including distributors, wholesalers and retailers through to the end user or consumer). This is known as the extended supply chain.

Supply chain in services

Thanks to ease of travel, the media and the ‘World Wide Web’ customers have never been more informed than they are today. Customers know what they want and know what can be done, they understand the concept of world class and continuous improvement. This is especially true in service industries. As a result of the heightened expectations of customers, operations managers in service sectors have been forced to focus their attention on managing the complete value-adding system using the principles of supply chain management.

Working out your local pickup and delivery fulfilment flow is a good way to get ahead of increased demand for expedited ordering around the holidays. Consider assigning staff or hiring seasonal workers to pick, pack, wrap, and deliver these orders. Not only will it eliminate a backlog, but it will help keep your local shoppers satisfied — and coming back.
Kevin MacGillivray Product Marketing Lead, Shopify Retail

Of course, you shouldn’t limit yourself to local customers. When you can make delivery fast, affordable, and convenient for customers across the country or even the entire world, your potential market (and profits) grow exponentially. 61% of global consumers said that the option to ship their products on the same day or next day had a significant/very significant influence on their decision to order a product online. Make no mistake — expectations around delivery are high no matter how far you are from your buyers. Sixty-seven percent of US consumers expect to have items purchased online delivered in two days or less. And they want the ability to choose their preferred delivery option at the time of purchase. To meet those needs and compete with big box retailers you’ll likely either need dedicated fulfilment staff or the support of a third-party logistics company to fulfil orders for you. Beyond delivery options, these customers want to follow their orders and know of any hiccups along the way. On top of helping to drive sales, offering clear timelines and then communicating with customers post-purchase has been shown to increase retention. That’s why we made transparency around delivery times one of the top three shipping and logistics trends in Shopify’s 2022 Future of Commerce report.

Supply chain in not-for-profit organizations

The good practices of supply chain management can be adapted to provide major practical benefit to not-for-profit organizations, such as charity organizations, in meeting their objectives. International disasters have a huge impact on the world’s population, increasing the need for aid organizations to improve their logistics capability and capacity. Perhaps the biggest impact of supply chain management in not-for-profit organizations is responding to unpredictable demands through quick response supply and distribution.

The world events of 2005 have insinuated that humanitarian organizations are yet to fully exploit supply chain optimization. For example, referring to the Hurricane Katrina disaster in New Orleans, Waller (2005) was not surprised that Wal-Mart, the world’s largest retailer, beat the Federal Emergency Management Agency (FEMA) and the Red Cross to areas devastated by the hurricane. He said the company delivered supplies quickly and efficiently because that’s what it does every day. Wal-Mart is the master of supply chain management and the company’s expertise in this area worked well during a natural disaster. How Wal-Mart was able to do this is further explained, and, an example of the application of supply chain management in a not-for-profit organization is the National Health Service (NHS) in the United Kingdom.

The role of supply chain as a value driver 7
UK National Health Service: Excellence in supply chain management
The NHS in the United Kingdom spends £15 billion annually on purchased goods and services. It was determined that there was enormous potential for NHS organizations to save money through effective purchasing. As a result, the NHS Purchasing and Supply Agency (PASA) was established in 2000 as a significant part of the government’s modernization of NHS procurement activities to act as a strategic adviser to the NHS on all supply issues. The primary goal of PASA is to improve the performance of the NHS purchasing and supply system and become the centre of expertise, knowledge and excellence in purchasing and supply matters of the NHS for the benefit of patients and the public.

Some of the achievements of PASA include:

• Achieved savings for the NHS totalling £580 million over the 3-year period of April 2000–2003.

• Implemented pilot supply ‘confederations’ as recommended in the May 2002 policy document ‘Modernizing Supply in the NHS’ to develop a middle tier between national (PASA) and local (individual NHS trust) level purchasing.

• Produced an e-commerce strategy for the NHS through the development of an e-procurement toolkit, which provides a framework to help NHS trusts and confederations understand the benefits of e-procurement and plan its implementation in a structured way.

• Developed a national set of purchasing and supply performance management measures to better assess the performance of NHS trusts with respect to supply chain activities through benchmarking analysis and strategic assessment of trust and confederation spending.
Source: National Health Service, UK (2004).

What about logistics management?

Is there a difference between ‘logistics’ and ‘supply chain’ management?

The Council of Logistics Management has recently changed its name to Council of Supply Chain Management Professionals, which indicates that they see logistics management as part of the supply chain process. The council when still the council for Logistics Management defined logistics management as:

The process of planning, implementing and controlling the efficient, cost effective flow and storage of raw materials, in-process inventory, finished goods, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.

There new definition is ‘Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers and customers. In essence, supply chain management integrates supply and demand management within and across companies.’
Council of Supply Chain Management Professionals (2007).

8 Total Supply Chain Management procurement activities to act as a strategic adviser to the NHS on all supply issues. The primary goal of PASA is to improve the performance of the NHS purchasing and supply system and become the centre of expertise, knowledge and excellence in purchasing and supply matters of the NHS for the benefit of patients and the public.

Some of the achievements of PASA include:

Achieved savings for the NHS totalling £580 million over the 3-year period of April 2000–2003.

Implemented pilot supply ‘confederations’ as recommended in the May 2002 policy document ‘Modernizing Supply in the NHS’ to develop a middle tier between national (PASA) and local (individual NHS trust) level purchasing.

Produced an e-commerce strategy for the NHS through the development of an e-procurement toolkit, which provides a framework to help NHS trusts and confederations understand the benefits of e-procurement and plan its implementation in a structured way.

Developed a national set of purchasing and supply performance management measures to better assess the performance of NHS trusts with respect to supply chain activities through benchmarking analysis and strategic assessment of trust and confederation spending.

Source: National Health Service, UK (2004).

If we consider these definitions we see they are very similar to the earlier definitions we have provided (Melwynk and Swink, 2002; Simchi-Levi et al.,

2003), and can conclude that for our purposes, at least in a manufacturing and supply organization, logistics and supply chain management are synonymous.

If one is inclined to separate the physical movement of logistics in a service organization, we can see that there is but a fine border between logistics and supply chain management in the service sector.

Taylor (1997) goes on to divide supply chain management into:

  • Logistics and supply chain strategy
  • Purchasing and supplies management
  • Manufacturing logistics
  • Distribution planning and strategy
  • Warehouse planning and operations management
  • Inventory management
  • Transport management
  • International logistics and international market entry strategies

Taylor’s definition infers that ‘Logistics’ is a subset of ‘SCM’. Each sub-topic contributes to the performance of the overall supply chain process and, as a consequence, to improved stakeholder satisfaction.

What are inbound and outbound logistics?

The flow of information and physical goods from both customers and suppliers to the business or the conversion centre (e.g. a factory or a warehouse or an office) is termed as inbound logistics. Likewise, the flow of information or goods or service from the conversion centre to the customer constitutes out-bound logistics. To put it more simply inbound logistics relate to demand and procurement while outbound logistics relate to supply and service.

Demand and supply planning capabilities enable companies to balance inbound and outbound logistics and thus to maximize return on assets, and to ensure a profitable match of supply and demand. Inbound and outbound logistics are also described, as upstream and downstream processes. For example, Christopher (1992) defines supply chain management as the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole.

In Conclusion

The primary purpose of this introductory chapter was to provide an overview of supply chain management principles and to indicate how an effective supply chain management process adds value to all types of businesses, whether in manufacturing or service sectors, public and not-for-profit organizations. It also aims to initiate the understanding of some core concepts of the book including ‘it is people, not processes or technology, that makes things happen’.

It is critical to have data sharing and interaction between all stakeholders in the total supply chain using a value stream ‘total supply chain’ approach.

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Dr Francesco Dergano

Dr Francesco Dergano

Founder and Chief Executive Officer (CEO) of SkyDataSol