Supply Chain Management (eng)

Supply Chain Sustainability at a Glance

In recent years, almost all major companies are pursuing sustainability initiatives. Pressure from regulators, consumers, employees and shareholders creates more and more companies are starting to implement and improve sustainability on their supply chain accordingly. We may aware that most companies have their own Corporate Social Responsibility (CSR) Division.  Supply Chain Sustainability (SCS) is an important part of CSR which basically to ensure that the companies meet social, environmental and economic requirements and expectations. SCS go beyond the focus on delivery, inventory and traditional views of cost.

SCM3

So, what is SCS ?

Supply Chain Sustainability is the management of environmental, social and economic impacts, and the encouragement of good governance practices, throughout the lifecycles of goods and services. The objective of the SCS is to create, protect and grow long-term environmental, social and economic value from all stakeholders involve in bringing products and services to market.  (Source: UN Global Impact)

Supply Chain Sustainability is a business issue affecting an organization’s supply chain or logistics network in terms of environmental, risk and waste costs. There is a growing need for integrating environmentally sound choices into supply chain management. (Source: Wikipedia)

Why SCS is important ?

There are various reasons why companies implement a SCS. Primary reason is to ensure compliance of laws and regulations, also to support international principles for sustainable business conduct. In addition to that, by implementing SCS, companies act in their own interests, the interest of their stakeholders and the interest of society at large, companies earned benefits by doing so.  In other word we can say that SCS is no longer an optional nice to have it, but it business imperative, critical to the success of the companies.

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Supply Chain in Humanitarian Relief

In humanitarian organizations, the terms supply chain is basically used to describe the process of getting relief items from the source to the beneficiaries in a timely manner. The source could be suppliers as well as donors. And in some organizations, they used the terms supply chain and logistics both together to describe above mentioned process. Usually logistics also used to describe the function or division who is responsible for managing the process.

Basically, the nature of supply chain and logistics in business or commercial are essentially the same with humanitarian supply chain and logistics, the following are the significant differences:

  • Unpredictable demand in terms of timing, geographic location, type of commodity, quantity of commodity.
  • Short lead time and suddenness of demand for large amounts of a wide variety of products and services.
  • High humanitarian stakes regarding timelines in the face of sophisticated global media and the high anticipatory attention of the donors.
  • Lack of initial resources in terms of supply, human resource, technology, capacity and funding. (Source: Balcik and Beamon, 2008)

 

SCM2The main components of the humanitarian supply chain are:

  • Procurement
  • Transport
  • Warehousing and inventory

 

Procurement

Procurement is a key activity in the supply chain. The procurement involves the sourcing, purchasing and covers all activities from identifying potential suppliers of relief items and services that are needed to meet the needs of the beneficiaries. There are three important principles of humanitarian procurement:

  • Transparency: all phases in the procurement process are fair and accurately documented.
  • Accountability: accountability to donors who may require certain rules to be followed when using the fund/money that they have provided.
  • Efficiency and cost effectiveness: meeting the six rights of supply: right price, right time, right quantity, right quality, delivery to the required places and from the most cost effective source.

The procurement function must guard and mitigate against risk, understand the market, build a trust relationship with suppliers, meet the needs in a timely manner, and constantly monitor performance to improve service provision.

Transport

In the humanitarian context, transport can be defined as the physical movement of relief items/goods from suppliers or point of origin to internal customers (in this case mainly is warehouse of humanitarian organization)  or directly to the beneficiaries. The transport component in the supply chain therefore is critical in connecting supply to demand. The aim of transport in humanitarian context is to physically move the relief items/goods in a reliable and safe manner, on time, cost effectively and efficiently to its destination.

Transport mode will depend on several factors including:

  • The type and volume of items/goods to be transported.
  • The urgency that items/goods are required.
  • The availability of different transport routes as well as different types of transport.
  • The destination to which the items/goods to be transported.
  • The cost of transportation.
  • The terrain through which the items/goods need to be transported.

Warehousing and Inventory

The third main component is warehousing and inventory. Recently, some of the experts said that in the perfect supply chain we do not need warehouses in order to reduce costs. In the humanitarian context, clearly there are reasons why items/goods have to be stored and why we need warehouses. In the humanitarian supply chain, there are types of responsibility to manage warehouses, e.g. supplier warehouses, donor warehouses, humanitarian organizations warehouses.

Types of warehouse space:

  • Commercial
  • Government
  • Transit warehouse
  • Bonded warehouses
  • Open storage
  • Pre-fabricated warehouses – non permanent structure

The role of inventory management in humanitarian context is to ensure that stock is available to meet the needs of beneficiaries when required.

 

In addition to those three main components, there are several subsidiary activities in the humanitarian supply chain, e.g. assessment and planning, fleet management, customs etc.

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Simple Ways to Measure Supply Chain Performance

We must be able to measure the existing supply chain performance and we also should able to see if the performance has improved.

SCM Measurement

In general, there are two ways that we can use to measure the performance of the supply chain, i.e. objective measure and subjective measure. Objective measure based on facts, preferably in the form of numbers. To be able to measure objectively, it requires setting up ways of recording for the performance of physical flow and information flow. Measurement of the performance of physical flow can be done through delivery performance, we need to record all request for goods/materials, when orders are placed, when orders are delivered/received, orders that are not delivered/received completely, etc. Measurement of the performance of information flow can be done through record all information concerning requests, delivery, returns/reverse or any information relating to the physical flow of goods / material.

There may be some aspects of performance which are either too difficult or not possible to measure in objective way. For these aspects, we have to use subjective measures. For example, subjective measures includes the views or perceptions of the people that cannot be supported by hard facts, this includes customers satisfaction surveys that can be done through questioners or direct interview.

With both ways as above, we then can make a matrix that focuses on the internal performance and the external performance.  External performance is performance that is done to the customer / buyer as well as the performance of all links in the supply chain. Internal performance will focus internally on the efficiency of the process, particularly the cost of carrying out all of the process.

Below is a simple way to measure the external performance:

1. Customer service, measurement includes:

  • Percentage of requests and orders fulfillment. The most used definition is on time, in full and error free. On time are orders delivered on or before date requested. In full are complete orders, and error free usually means complete based on the specification of the request, correct labeling and not damage.
  • Quality of the service provided. Included here is the information provided to the customer/buyer on the status of the goods / materials that are required/requested.
  • The flexibility provided.

2. Performance of supply chain links.

  • It is also important to measure different parties/actors involved in managing the whole supply chain. If these different parties/actors have different views what is required and they are using different matrix to manage and measure the performance, this can have a significant impact on the performance of the whole/total supply chain.

 

A simple way to measure the internal performance

Providing good customer service also must be done efficiently. Purely focused on managing and measuring customer service can lead to inefficiency and unnecessary costs. Below are simple ways to measure cost efficiency on the supply chain process:

  1. Total costs. These are the sum of all the supply chain costs including people who involved in the process and management costs.
  2. Inventory costs. Total costs of holding inventory in the whole supply chain.
  3. Inventory value. The value of inventory being held in the whole supply chain.
  4. Order management costs. Total costs involved in processing and managing orders.
  5. Cost of waste. Total costs involved in managing, returning and disposing of goods/materials which for different reasons are never used by the buyers/customers. This can include wrong goods/materials, damaged goods, expired goods, or goods/materials that arrived too late in the buyers/customers place, etc.
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Ideas for Improving the Performance of the Supply Chain

Previously, we have seen that there are two types of flows that exist in the supply chain, i.e. the “physical flow” and the “information flow”. Here’s an outline about the functions of the two flows:

  1. Physical flow or goods/material flow is to ensure the right types of goods/materials, in the right quantities, and to the right quality are meet the requirement of customers. Activities in this flow are buying, making and moving.
  2. Information flow is to find what are the goods/materials needed by customer, what quantities are required, when and where are they required.

All the activities involved in the supply chain are to respond to this information.

Supply demand

We also have seen that there are five basic components of the supply chain management, i.e. plan, source, make, deliver, and reverse. From these five basic components, in general we can see there are three important things involves in the supply chain:

  1. Procurement and Order Management.  Source of goods/materials is key information for companies to meet the needs. From this information then we can make a further planning for delivery of goods to the customers/buyers.
  2. Transport. Transport is an important component that ensures goods/materials are moved efficiently in the right speed to meet the needs of customers/buyers.
  3. Warehousing and Inventory. These components are also a key component of the supply chain process. By warehousing, any inventory is being stored in the supply chain process.

Improving supply chain is about ensuring the flow of goods/materials and the flow of information is as effective and efficient as possible and removing any barriers there may be affected to those flows.

Below some ideas for improving the performance of the supply chain:

  1. Improve and increase communication between all units in the companies (internal) and all agencies/companies involved in the supply chain process (external). Lack of communication either internal or external may raise some problems in providing the needs to the customers/buyers. Sharing information also includes in this point. By sharing related information to other colleagues will help companies to meet the needs. Sometimes people kept latest information only for them or their unit to get applause from the management. But applause will be given only if the work is done well. If it is failed then we will blame each other. We also need to give correct information in order to avoid any problem. It is always better to double check the information before pass it to other.
  2. Improve coordination and manage all links in the supply chain in properly manner. This includes improving the knowledge of people involved on the supply chain process.
  3. Reporting. Good and clear reports as well as correct data are needed. For example, by creating a new database related to the movement of goods/materials from the sources until the customers/buyers. All related information such as procurement, storage, warehousing, and transport to be updated on daily basis.
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Procurement Activities

As mentioned previously, procurement covers all process from the beginning until the end to obtain goods or services.

Procurement activity

Below are the activities:

1. Identification of goods or services as per requirement.

The companies should determine what products or services required based on the plan that have been made previously. The specified type or the required specifications have been created in that plan, even most of the company already has its own standards for goods or services required. Also at this stage, the company must know it needs for the goods or services, whether that needs to be reordered or it may be a new item.

 2. Conduct market survey or market assessment.

The companies might have list of references of suppliers or they have to find a new supplier using a variety advertisement sources, e.g. from magazines, newspaper or electronic media. What to be done in this activity includes:

  • Make list of suppliers.
  • Build a good relationship with suppliers.
  • Make suppliers appraisal includes their capabilities.
  • Selection of potential suppliers.
  • Get sample of goods from potential suppliers.

3. Selection and determine who will be the supplier.

This activity is usually done through a bidding / tender process. However, for some cases, the companies can directly enter into contracts with suppliers without going through a tender process, of course, this is done by strictly taking into account the terms and conditions. Usually direct contract is made if the goods or service is urgently needed or it needed within a narrow time.

4. Make and placing a procurement contract or purchase order with supplier.

All terms and conditions, specifications and price should be clearly stated in the procurement contract or purchase order. This contract or order should be made in two copies, each party need to keep one copy. Acknowledge receipt of contract from supplier to be kept by buyer.

 5. Expediting orders as per contract or purchase order.

Timely delivery is important, supplier has to notify if there is any delay. In principal, this activity should pay attention on delivery times, work completion and payment dates.

 6. Receipt and inspection of purchases.

The goods or services should be checked and inspected by the recipient prior sign any receiving document. The recipient could reject to receive if there is a defect or the goods/services are not same with specifications in the contract or order.

 7. Payment.

Payment is made if all data and numbers in three documents are match. The receiving document, the invoice and the contract/purchase order must match. Any discrepancies must resolved before executing the payment.

 8. Make supplier performance evaluation.

This activity is important because the result of supplier performance evaluation will determine whether the supplier will be able to continue to be used or not. Observed performance is from the beginning since the contract / order is signed up to the invoice or payment. This performance evaluation also important for audits. All documentations should be kept in properly manner.

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Procurement >> Preliminary

We have seen five basic components of SCM previously, i.e. plan – source/supply – make/production – deliver – reverse.

These five components cannot be separated. A simple example is if we have a necklace. Of course that necklace has to be in good form in order for us to use it. If one part, e.g. the hooks are damaged then we need to fix so we can use it again. Maybe there will be a slight defect or the looks will not as good as before. And maybe at first we only had the money to buy a silver necklace, but after a while we’ve got enough money to buy a gold necklace. We will take care of that gold necklace properly because it is valuable goods.

Above example is same with SCM, each component is unity and should be managed properly to achieve value / profit as per the goals, it has to be sustained and improved.

Back to procurement, for most ordinary people, procurement is same with purchasing. But actually both are different. Below we can see what the difference between procurement and purchasing:

Procurement Contract

Procurement: the complete process for acquiring goods or services from external party or supplier. Procurement covers all process from the beginning until the end to obtain goods or services. It includes identifications of goods or services as per requirement, market survey or assessment, obtain sampling based on the required specifications, tender process until award for the winner, make a contract, ordering includes logistics arrangement (transport & warehouse if necessary), monitoring and make performance evaluation of the supplier. Almost same with logistics missions, procurement is acquiring goods or services in the right quantity & quality, at the right time & place and from the right source at the right price.

Purchasing: the specific activity of committing expenditure (money or equivalent) and tends to focus on the price rather than others. We can also say that purchasing is a part of procurement and more for administrative aspects. There are several companies set their own standard for purchasing, it can vary greatly between companies.

Going forward we will discuss steps in the procurement process.

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