Supply Chain Management 101: An Executive Guide to Supply Chain Management (SCM)

Supply Chain Management 101: An Executive Guide to Supply Chain Management (SCM)

Supply Chain Mangement topics covering definition, objectives, solutions and the impact of globalisation.

What is the extended supply chain?

The extended supply chain is a clever way of describing everyone who contributes to a product. So if you make text books, then your extended supply chain would include the factories where the books are printed and bound, but also the company that sells you the paper, the mill where that supplier buys their stock, and so on. It is important to keep track of what is happening in your extended supply chain because with a supplier or a supplier’s supplier could end up having an impact on you (as the old saying goes, a chain is only a strong as its weakest link). For example, a fire in a paper mill might cause the text book manufacturer’s paper supplier to run out of inventory. If the text book company knows what is happening in its extended supply chain it can find another paper vendor.

What is the impact of globalisation on the Supply Chain?

Just in time manufacturing isn't the only way companies have used their supply chains to reduce cost. Manufacturing in developing countries is substantially cheaper than in the US, Europe or Australia because of the low cost of labour. For example, the median wage at a Chinese manufacturing plant is 1,000 yuan, or about $US120, per month, according to a 2005 survey by The MPI Group. But foreign manufacturing brings with it another set of challenges. It isn't as easy to set up real-time data sharing with a factory in, say, China as it is with a factory you own in your home country. And the sheer distance that overseas goods need to travel — not to mention the number of vessels they need to travel on — increases the chance that they will get delayed.

The bottom line is that foreign manufacturing brings back a lot of the uncertainty that supply chain systems were designed to eliminate. The good news is that technology capable of tracking shipments throughout the world is getting better. The bad news is that a lot of this technology is still pretty expensive, that some of the places you would want to deploy it don't have the necessary infrastructure in place, and well, there isn't a piece of technology out there that can make up for the whim of a Chinese Customs official. Furthermore, labour costs in some places are so low that IT automation and monitoring projects may add more to costs — in terms of software, hardware and still-precious (and unreliable) bandwidth — than they save in productivity. Hence, some low-tech or commodity products may not be worth monitoring at all until they hit a ship in a foreign port.

In the meantime, the best bet is to use whatever systems you can to gain as much visibility into the global supply chain as possible. It may be impossible to replicate the just in time model on a global scale, but by applying whatever technology you can, and by choosing the supply chain partners who have the capability to share data with you, you can get many of the benefits of just in time while paying low foreign prices.

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