7 things you should consider before writing any supply chain policy
In most of the business it is often the same people, who are doing the same job. When purchasing materials, the same routines are used on each occasion, even if each and every one of these purchases may be unique, so why we need supply chain policy or procedure or procedure ?
Similarly, the steps of booking materials in warehouse is same regardless of supplier and part number in most scenarios. Such repeated set of activities is called a process.
A more formal definition is presented by Professor Bo Bergman: “A process is a network of activities that are repeated in time, whose objective is to create value to external or internal customer”.
Any supply chain policy or procedure involve teamwork rather than assembly lines. Supply chain policies are largely a matter of co-ordination between people, that is, agreement between individuals who cooperate, and agreement about their competence.
In supply chain, processes can be centralized and decentralized. When defining a supply chain policy or procedure, it is often a good idea to describe its characteristics. A supply chain policy or procedure should have a first activity and a final activity, a customer, and a supplier; and it is consists of a network of activities, produces a value-adding result at the end; and is repeated time and again.
While writing any supply chain policy or procedure you should consider these headings suitable to your business.
Proposed Heading in Any Supply Chain Procedure :
This heading should define the main reason drive or why you are writing this supply chain policy or procedure. For example, if you are writing a supply chain policy or procedure for ABC analysis then you might want to say “The purpose of this supply chain policy is to establish the rules of assigning market segmentation codes (ABC codes) to all the parts/SKUs in the business. ABC is driven by a consensus process balancing market needs (decided by historical patterns and future plans), customer agreements, and supply chain characteristics”
The scope defines what is included and excluded from the supply chain policy or procedure parameter. For example, in the ABC segmentation policy example, scope can be defined as “This policy doesn’t cover part obsoletion or reactivation, replenishment and inventory management details though these are tightly linked with ABC codes. These details will be covered in separate policies and work instructions”.
In any process management there are three important roles1, namely:
- Process Owner - who is responsible for the strategic direction concerning the process.
- Process Manager - who is responsible for how the process is controlled operatively, i.e. process fulfils the goals that have been set for it.
- Competence of Supplier – who is responsible for supplying the appropriate competence needed in the process.
The role and responsibility concept is very important for successful execution of any supply chain policy or procedure. Following the example of writing ABC Analysis Policy, people and function who could potential be involved are:
- Marketing/Product management (target promise time, product life cycle management, frequency of regeneration, new parts ABCQ determination, customer communication)
- Supply Chain Manager (ERP codes maintenance, ERP lead times, replenishment policy or procedure)
- Customer service Manager (major customer commitments , firm time period, trade customer communication)
- Manufacturing manager (capacity availability)
- Pricing manger (price changes with ABCQ)
- Plant manager/ Head of Operations (reporting and implementation timeline)
4.ROLES , INPUT and OUTPUT (SIPOC)
In this section you can advise who are the key roles and what would be their input to pass on to customer of that process steps. Carrying the example of ABC Analysis, it could be shown as:
- Supplier: Supply Chain Team
- Input: Invoice history, open orders, major customers, historical demand of all parts, last ABC analysis
- Process – Initial ABC generation and Analysis
- Output- A, B, C classified parts, clear lead time segmentation
- Customer- Marketing or Product Management.
5.POLICY OR PROCEDURE – PROCESS STEPS & EXPECTATION
In this section you should illustrate each of the process steps one-by-one. This is the most important part of the supply chain process in focus. In this section understand customer requirement, how supply chain process adds value and lastly where is the potential for improvement.
DEFINITIONS & ACRONYMS
Most business these have lot of acronyms and many different definitions and we expect everyone on business to know them! Or maybe we invent them just to confuse newbies. Either way, list them all down here! So when you move ahead with well-earned promotion, the new guy should know all acronyms related to these polices.
This is a simple yet important step. This section at the end should explain who is the ‘Sponsor’ of this supply chain policy or procedure. Who has ‘Recommended’ this policy or procedure and lastly who ‘Approved’ this policy or procedure!
- SPONSORED BY:
- RECOMMENDED BY:
- APPROVED BY
While writing any supply chain policy or procedure & procedure you must think about:
- Organize for improvement- who are the owners and process improvement team.
- Understand the process- define the input & output, inter-faces, customers and suppliers. Map the process, i.e. include the flow of work in supply chain policy or procedure you are writing.
- Observe the process- establish control points and implement regular measurement.
- Improve the process continuously- Use and analyze the feedback from the measurement to improve the process.
Dr. Muddassir Ahmed is a Manufacturing Operations, Procurement and Supply Chain leader with international multi-site manufacturing experience in Electrical, Hydraulics, Textile and Internet industries. Moreover, he has considerable experience in deploying Continuous Improvement & best practices in Europe Middle East & Africa.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”