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Supply Chain Management

Supply Chain Management

Bernard Teiling, assistant vice president of business process integration at Nestlé SA in Vevey, Switzerland, answers a range of questions about his area of expertise, supply chain managementQ: We are revamping our short-term forecasting applications and processes to establish more-reliable forecasts. We expect the forecast to drive our supply chain processes. What things should we consider as we manage this transition? Is it realistic to think short-term forecasts can be reliable enough to drive the supply chain?

A: This is a classic question. I would contend that forecasts are never sufficiently reliable. They are designed to reduce uncertainty, and this can be statistically verified. Most important to realise is that a good part of the supply chain can be managed with low or zero stock. In that case, the actual demand is replacing the short-term forecast: integration, information systems and speed of communication through the entire (and extended) supply chain becomes critical, of course.

Q: I am new to the consulting industry and am trying to quickly learn as much as possible. My question is simple: what is supply chain management, and why is it so important?

A: Supply chain management (SCM) is managing the flow of goods, services and information between suppliers, manufacturers, wholesalers, distributors, stores, consumers and end users. The complexity and cost of supply chains have significantly and continuously increased in the past two decades. At the same time, companies have realised that their customers' satisfaction (or dissatisfaction) was linked to the performance of their supply chains. On the other hand, different companies' (and industrywide) initiatives have shown the tremendous benefits of just-in-time, zero-stock, total quality and category management - just to name a few steps into the business integration potential. SCM is both a source of competitive advantage and a lever for profit margin. If you are not good at SCM, somebody else will be.

Q: What supply chain assessment tools are available, and which ones would you recommend for generic, industrywide application? Which tools have you used for supply chain assessment?

A: At Nestlé, the three main ways of assessing a supply chain make up the key performance indicators (KPIs), which are standard to the company. These KPIs are customer service levels, cost of distribution and cost of wastes. We have developed different database and data warehousing systems to automate the capture and calculation of these KPIs. We have also designed a self-assessment checklist that supply chain managers can use to evaluate themselves and where their organisations stand within a table of process maturity and alignment. A selection of internal business cases is used to communicate the best practices in supply chain management.

Q: I am employed by the world's second-largest cement company, and I work on the business process integration team. This year we have formed a task force to evaluate our business processes and decrease our supply chain costs by at least 10 per cent. We have consulted with a number of industry experts, and, frankly, now I am more confused than informed. Our quest is to re-engineer our processes and incorporate e-business solutions where applicable, and it also includes automation such as paperless billing of lading and invoices. What starting point will give us the biggest bang for our buck?

A: It's hard to answer your question without knowing your existing degree of automation and organisational integration, but let me try. If you have a solid base of legacy systems (client/server), no matter how good they are, they are or will rapidly become obsolete.

Web-based applications may deliver immediate benefits by providing an integration of the process with the business partners: it is an instant combination of increasing people communication (the people process) and technological solution (the extranets). The two ends of the supply chain are good places to get started: e-procurement and e-sales (promotions). The best way to determine the priorities is to have the initiatives pushed by the CEO throughout the governance system so that they're in line with the business strategy. I estimate that the level of improvements that have been accomplished in the past 10 years can be repeated again, and much faster this time (say in two to three years). The challenge is to put in place a change management program, allowing the operations to continuously improve and deliver tangible benefits in the short term. Quick wins and benefits from long-term directions are compatible.

Q: What is your plan to integrate the supply chain down through the manufacturing process? It seems that this is where the rubber meets the road, and it needs to be an integral part of the strategy.

A: The opportunities to integrate the processes of the supply chain are practically unlimited. At this time, we focus on different dimensions of the integration: the standards along the supply chain (for example, product coding or data structures) for procedures and information systems, and the geographic regionalisations and globalisation, providing common processes (sourcing, manufacturing and distribution) for several countries within and across regional trade markets. Outsourcing and insourcing must be constantly reassessed with a strategic perspective. The integration must allow seamless co-manufacturing, co-packing - all sorts of collaborative working environments with the business partners. A new paradigm is emerging with the integration of business partners and the focus on the core processes. An IT infrastructure must be deployed to support these virtual companies.

Q: What are the expected relationships (if any) between ERP software tools and SCM software tools? It appears there is overlapping functionality offered in each. Are ERP and SCM vendors working on interfaces or strategic partnerships?

A: This is a good (and viscous) question. The big software players need to preserve their investments and keep their customers - in spite of the rapid obsolescence of their products. The battle is around the architectures and the business models. The right choices are critically important, although they are never absolutely right or wrong (only some have proved useful). There is an emerging paradigm, I think, where these tools will be more process centred than database centred, with an extended perspective beyond the boundaries of a given company. The capability to interface different systems through XML (or XML-like) standards, in theory, should create an environment in which companies could take advantage of the best of both worlds. The migration to this future environment is a little bit like the introduction of the e-mail system in the 1990s.

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