What is supply chain? A definitive guide.
Getting the supply chain right is make or break to companies - especially in the...
What is Supply Chain? A definitive guide to the Supply Chain industry.
Getting the supply chain right is make or break to companies - especially in the modern world, where consumers expect to receive goods quicker than ever before. But what actually is the supply chain?
A supply chain is defined as the entire process of making and selling commercial goods, including every stage from the supply of materials and the manufacture of the goods through to their distribution and sale. Successfully managing supply chains is essential to any company hoping to compete.
Why is supply chain management (SCM) so important?
An efficient, optimised supply chain is already so important to the fulfillment of customer orders for a company. But when managed correctly, it can also result in much lower costs, and a faster production cycle. SCM is the umbrella term that covers product development, sourcing, production, procurement, logistics and more when it comes to operations in the supply chain. Without it, companies run the risk of reducing its customers, and losing a competitive edge in respective industries.
Efficient supply chains will work with an effective returns process. It has been found that customers are 71% more likely to become returning customers if they are happy with the way their return process was handled.
SCM isn’t just about creating the most efficient process possible, it’s also crucial to mitigate risks and ensure everything runs smoothly. This is because so many elements make up the supply chain, from manufacturing sites and warehouses to transportation, inventory management and order fulfillments.
Each step of this process carries countless risks and possibilities to derail an entire customer order. Minimising delay, optimising the time of day that goods are moved, the length of time that inventory is held for and the order dispatch process are all points that can have huge impacts on the operation. Without an optimised SCM process in place, the chain can fall apart from the very beginning.
The “Amazon Effect”
Modern consumers are expecting to receive their orders sooner than ever before. The digital marketplace continues to expand beyond the traditional retail business model every day, and with that, customer expectations grow. This has revolutionised the way that supply chain professionals must work to ensure orders are processed and fulfilled.
Amazon is open 24/7. Orders are processed instantaneously, and are expected to be sent to pick in the warehouse immediately. With next day delivery, and even same day delivery, being options that Amazon and the majority of online retailers offer, the “Amazon Effect” has completely redefined the way that supply chains operate. Procurement staff must be prepared to fulfill more blanket orders at a faster rate, and orders from foreign countries, like China, must deliver on smaller order with much faster turn-around times.
Supply chain in the NHS
Supply chains aren’t only crucial to businesses looking to fulfill orders. The National Health Service (NHS) has operations across England and Wales to manage the sourcing and supply of healthcare products, services and food for NHS trusts and healthcare organisations.
The organisation manages more than 4.5mn orders every year across 15,000 locations. The NHS supply chain primarily works on delivering savings for the NHS, reducing product and price variation, meeting the NHS’ diverse needs and providing clinical assurance. The NHS transformed its procurement operations in 2018, with the goal of saving £2.4bn by 2022-23 in mind. This redefined procurement operation is one of the most powerful and important in Europe.
Supply Chain Roles
CPO - A Chief Procurement Officer (CPO) is an executive role within the supply chain, focused on sourcing, procurement and supply chain management for a business. A CPO will focus on costs, ensuring they remain under control and constantly looking for ways to reduce them. They will also ensure the company’s procurement procedures are all in line with internal and external compliance guidelines - these will include government requirements and company initiatives.
CLO - A Chief Logistics Officer (CLO) manages the transfer of goods or services that a company offers to facilitate smooth operations. They will ensure the correct products are shipped in accurate quantities within the established timeframe, and will also provide logistical support to senior management in relation to challenges the company may face. Challenges such as truck driver shortages, tariffs like the ones seen in the US-China trade war and technology all face CLOs every day.
Supply Chain Manager - A Supply Chain Manager works closely with external partners and suppliers to produce the product, create inventory and sell products to outside markets. They will evaluate suppliers and negotiate contracts with vendors. Supply Chain Managers are often considered similar to Operations Managers, who take a more internally-focused approach to operations. Formulating policies, taking control of daily operations and workflows, and overseeing general processes of workers are the primary responsibilities for Operations Managers.
Supply Chain Best Practices
In a growing global market, it can be difficult to achieve success. An optimised, end-to-end connected supply chain can drive your company forwards in the competitive ecosystem.
Real-time supply chain planning - Real-time, connected supply chain planning can help ensure your company isn’t relying on historical data when planning. If any unforeseen circumstances cause disruptions, it can be very difficult to overcome when using historical data. Scenarios can be dealt with much more efficiently when real-time planning is in place.
Identify where technology can improve processes - Highly automated end-to-end cross-functional processes can significantly improve efficiency and reduce costs in your operations. Automation can help many companies solve the issues that surround a lack of visibility in their supply chains. Selecting the correct technologies and software solutions can improve data reporting and strategic planning.
Maintain healthy supplier relationships - Supplier relationships are crucial to your supply chain. These connections require constant maintenance and two-way communication between the buyer and the seller. There should be a specific, optimised platform in place for conflict resolution, should anything arise, to ensure the continued success of your relationships.
Align your strategy - A supply chain council can help with this process. If the strategy isn’t aligned to the company’s strategies, it will not perform to the best of its capabilities. A coordinated, efficient supply chain strategy, aligned with the organisation’s, can enhance operational costs, improve quality throughout the supply chain and reduce errors whilst streamlining procurement.
For more information on all topics for Procurement, Supply Chain & Logistics - please take a look at the latest edition of Supply Chain Digital magazine.
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.”