TWI Knowledge Summary

Supply chains and their management

by Steve Jones

Few companies handle all aspects of product manufacturing and supply; most are involved in supply chains that distribute elements of manufacture and supply across multiple organisations.

Traditionally, the power behind a supply chain resided with the original equipment manufacturer (OEM), who was able to control prices across the chain by dealing with multiple competing suppliers. In recent years, the drive towards leaner production, coupled with global competition and a need for continuing product innovation, has challenged this orthodoxy.

Supply chain development is increasingly driven by the wide use of advanced communications - which lead to reductions in transaction costs between partners - and by the need to maintain competitiveness in increasingly global markets.

Current status

Each industry sector has its own characteristic supply chain structures and history. All sectors are subject to change and there is a lot of scope for cross-sector transfer of good practice. The following trends are present, or emerging in several areas:
  1. Introduction of 'pull' systems, where customer demand triggers material flow, thus minimising inventory. These approaches demand much closer collaboration between all parties involved, from supply of raw material to product delivery and systems maintenance.
  2. Reduction in supplier numbers: to promote focused effort, allow closer collaboration and to support investment in both plant and people. A position in a supply chain is secured by maintaining competencies, not only in terms of cost reduction, but also in the ability to innovate.
  3. Elimination of unnecessary duplication of effort within the supply chain. Record-keeping and even skills and equipment can be rationalised by a redistribution of responsibility among supply chain members.
  4. Integration of technologies to support collaborative design, manufacture, testing and transport of articles. This area is the focus for large scale information and communication technology (ICT) developments, starting with physical support services and moving toward knowledge sharing and innovation support tools and systems.
  5. Replacement of traditional department and discipline-based 'silo' structures by systems that take responsibility for the delivery of specific processes (such as inventory control or innovation). Cross-functional teams can extend beyond company boundaries across the supply chain. The objective is to reduce barriers to thinking that can result in locally valid, but otherwise damaging decisions and actions. A consequence of this type of approach is that those decisions which have been based on local financial criteria are increasingly being expanded to include issues such as the ability to deliver flexibly, quality and service, while at the same time meeting environmental demands.
  6. Recognition that much of the supply chain's knowledge is held in the heads of individuals. Continued functioning of the supply chain and, even more importantly, allowing innovation relies on systems that promote individual and team initiative, rather than central control.

Research and development issues

In principle, a systematic reorganisation of supply using rational planning and available ICTs would give significant benefits, not only to the end customer, but also across the supply chain. In practice, the full realisation of such benefits is often inhibited unless external factors come into play. These overall drivers for improvement include global competition, new market entrants with new business models (on-line trading etc), privatisation of public utilities and regulation in line with national or international standards.

While much attention necessarily attaches to computers and software, human resources pose an even greater challenge to organisations within chains.

Changing entrenched and simplistic 'buy cheap-sell dear' attitudes is difficult but essential if companies, in many sectors, are to survive competitive challenge. Tools that are relevant in this acronym-rich field are:

  • Electronic Data Interchange (EDI): the transfer of information between companies in line with pre-agreed protocols to handle all types of process (design, scheduling, quality, supply etc).
  • Knowledge management: conscious management of the information and knowledge processes within stakeholders; realisation that workforce knowledge is often the most expensive (and fragile) resource of the company.
  • Decision making and support tools: these increasingly involve integration of technical, economic and business factors, with heavy simulation capability to avoid the need for costly trials.
  • Advanced communication tools: enabling personnel to work collectively and securely across organisational boundaries. Corporate intranets are increasingly supplemented by Business to Business (B2B) commerce, which allows organisations to buy and sell products and services over the Internet at competitive prices.

Further information

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