A supply chain is the stream of processes of moving goods from the customer order through the raw materials stage, supply, production, and distribution of products to the customer. All organizations have supply chains of varying degrees, depending upon the size of the organization and the type of product manufactured. These networks obtain supplies and components, change these materials into finished products and then distribute them to the customer.

Managing the chain of events in this process is what is known as supply chain management. Effective management must take into account coordinating all the different pieces of this chain as quickly as possible without losing any of the quality or customer satisfaction, while still keeping costs down.

The first step is obtaining a customer order, followed by production, storage and distribution of products and supplies to the customer site. Customer satisfaction is paramount. Included in this supply chain process are customer orders, order processing, inventory, scheduling, transportation, storage, and customer service. A necessity in coordinating all these activities is the information service network.

In addition, key to the success of a supply chain is the speed in which these activities can be accomplished and the realization that customer needs and customer satisfaction are the very reasons for the network. Reduced inventories, lower operating costs, product availability and customer satisfaction are all benefits which grow out of effective supply chain management.

The decisions associated with supply chain management cover both the long-term and short-term. Strategic decisions deal with corporate policies, and look at overall design and supply chain structure. Operational decisions are those dealing with every day activities and problems of an organization. These decisions must take into account the strategic decisions already in place. Therefore, an organization must structure the supply chain through long-term analysis and at the same time focus on the day-to-day activities.

Furthermore, market demands, customer service, transport considerations, and pricing constraints all must be understood in order to structure the supply chain effectively. These are all factors, which change constantly and sometimes unexpectedly, and an organization must realize this fact and be prepared to structure the supply chain accordingly.

Structuring the supply chain requires an understanding of the demand patterns, service level requirements, distance considerations, cost elements and other related factors. It is easy to see that these factors are highly variable in nature and this variability needs to be considered during the supply chain analysis process. Moreover, the interplay of these complex considerations could have a significant bearing on the outcome of the supply chain analysis process.

The Challenge

In today's world, competing is taking on new dimensions. A global resegmentation of markets is imposing stiff foreign and domestic competition on worldwide economies. The ability to compete is being determined by the degree of responsiveness to customers and key markets: how fast you deliver, how good the quality is, what the price is, and what value the customer perceives he is getting. Markets are demanding quick customizing of products.

Over the next ten years, worldwide manufacturers will be faced with stiffer competition in most markets. Clearly the pressure is on to be the best, nothing less. They must concentrate on satisfying the demands of the market: designing and building the best quality product in the shortest time possible. Taking dramatic steps to become agile in the supply chain is necessary to be a manufacturing contender in the next century.

Organizations must focus on moving information and products quickly through retail, distribution, assembly, manufacture, and supply. All physical and logical events within the supply chain must be enacted swiftly, accurately, and effectively. The faster materials, information, and decisions flow through an organization's supply chain, the faster it can respond to the demands of the market. The keys are flow and time.

The next ten years will emphasize radical development of the corporate supply chain infrastructure, inducing major changes to the organization. The focus will be on quickly introducing new customerized high quality products and delivering them with unprecedented lead times.

The end result will be a new effective organization capable of making swift decisions, and manufacturing and delivering products with high velocity. Large scale changes in the way we operate in the office, in the factory, with our suppliers, and how we market and move products to the end customer are required to achieve this degree of performance.

Those successfully emerging from this radical transformation will be the winners and leaders: quick, and resourceful enterprises. These enterprises will be world-class competitors, organized to respond to a dynamic market with precision and unprecedented speed and agility in delivery and new product introduction. They will be capable of achieving world class quality, with substantially less nonvalue-added cost. Each company will be developed uniquely to suit its particular needs, but one characteristic will fit them all--they will all be agile.

Becoming agile means competing and leading in the next century. Companies require an overhaul of their infrastructures to be able to introduce and build new products quickly and accurately, but also need an acculturation process fueled by heavy involvement. It takes time to enact changes of major proportions, and it takes careful planning. How do you get your arms around this?

Our Approach: A Comprehensive, Systematic Master Plan is Required

A comprehensive and systematic master plan is needed to effectively manage a large-scale effort. Our Supply Chain Development Model(TM) provides state-of-the-art technical application tools and emphasizes a continuous improvement approach. This exclusive management transformation program creates a master plan that systematically enacts supply chain agility. It encompasses the full supply chain from customer through production, assembly, supply, warehousing, and distribution.

The Supply Chain Development Model TM

At the heart of our supply chain management program is the supply chain development model. Managing large-scale change requires a comprehensive master plan as well as manageable stages in order to successfully accomplish the work. The integrated model provides that plus more. It is the shell for a master plan to manage a large-scale transition of capability in your company. It consists of three dimensions. · First Dimension: The Closed Loop

· Second Dimension: Six Keyholes

· Third Dimension: Performance Drivers For Success

First Dimension: The Closed Loop

Large-scale change requires managing the effort in phases or stages to effectively control progress. The first dimension consists of four stages, looped as a continuous process: (1) Diagnosis and Concept Development, (2) Detailed Action Planning, (3) Building Capabilities, and (4) Performance Results.

The following describes each of the stages:

Stage 1, Diagnostics and Concept Development, assesses the supply-chain competitiveness of the organization and builds a vision the desired supply chain. The evaluation begins with a diagnosis and comparison of business objectives against existing capabilities and performance. A rigorous diagnostic effort in all supply chain keyholes, production, supply, inventory location, transportation, and information, reveals where the existing supply chain can achieve immediate competitive advantage.

A vision of where the company should be is developed with respect to the five performance drivers: velocity, flexibility, quality, cost and service. The performance gap between today's performance and that of the vision is identified, and recommendations are made on which keyholes to leverage to obtain world class performance. This could be a strategic combination of one or several keyholes: production, supply, inventory, location, transportation, and information.

An action plan is developed to close the performance gap for those keyholes to be leveraged. Supply chain simulation models are developed where appropriate for extensive analysis and comparison of alternatives.

Stage 2, Detailed Action Planning, is the engineering phase that further develops the master plan in detail that is created in Stage 1. This effort focuses on the specific keyholes to be leveraged: any combination of production, supply, inventory, location, transportation and information. During this phase, the long-term supply-chain structure is designed in detail using new process and information technologies, organization structure, suppliers, inventory stocking policies, modes of transportation, new locations of plants and distribution centers. The focus is to streamline product, part and information flow, create operational flexibility, induce velocity of parts products and information, improve quality of performance, reduce overall cost and substantially improve customer service. This effort positions the company for long-term world-class supply chain performance.

Stage 3, Building Capabilities, is the stage of the effort when detailed plans to achieve world-class supply chain agility and performance are executed. New technology, capital, people, and resources are effected through team building and high involvement activity. New plant and distribution locations are leased or constructed, master contracts with new component and transportation suppliers are signed and implemented, new equipment and information technology are purchased and implemented, and new inventory stocking policies are executed where required to achieve world class performance.

Stage 4 Performance Results, is the stage when results of the plan are measured for performance success of the five drivers: velocity, flexibility, quality, cost and service. The master plan is a continuous closed loop process, and once performance drivers are assessed, the major activity returns to stage 1 for further diagnosis and development. This allows each company to select certain keyholes to leverage initially and work on others in subsequent iterations of the closed loop.

Second Dimension: Six Keyholes

To develop and implement supply chain agility, there must be an optimal balance in six key areas. The second dimension consists of six keyholes to be assessed and leveraged either individually or in combination.:

· Production

· Supply

· Inventory

· Location

· Transportation, and

· Information

The following describes each of the keyholes:

1. Production

Strategic decisions regarding production focus on what customers want and the market demands. This first stage in developing supply chain agility takes into consideration what and how many products to produce, and what, if any, parts or components should be produced at which plants or outsourced to capable suppliers. These strategic decisions regarding production must also focus on capacity, quality and volume of goods, keeping in mind that customer demand and satisfaction must be met.

Operational decisions, on the other hand, focus on scheduling workloads, maintenance of equipment and meeting immediate client/market demands. Quality control and workload balancing are issues which need to be considered when making these decisions.

2. Supply

Next, an organization must determine what their facility or facilities are able to produce, both economically and efficiently, while keeping the quality high. But most companies cannot provide excellent performance with the manufacture of all components. Outsourcing is an excellent alternative to be considered for those products and components that cannot be produced effectively by an organization's facilities.

Companies must carefully select suppliers for raw materials. When choosing a supplier, focus should be on developing velocity, quality and flexibility while at the same time reducing costs or maintaining low cost levels. In short, strategic decisions should be made to determine the core capabilities of a facility and outsourcing partnerships should grow from these decisions.

3. Inventory

Further strategic decisions focus on inventory and how much product should be in-house. A delicate balance exists between too much inventory, which can cost anywhere between 20 and 40 percent of their value, and not enough inventory to meet market demands. This is a critical issue in effective supply chain management.

Operational inventory decisions revolved around optimal levels of stock at each location to ensure customer satisfaction as the market demands fluctuate. Control policies must be looked at to determine correct levels of supplies at order and reorder points. These levels are critical to the day to day operation of organizations and to keep customer satisfaction levels high.

4. Location

Location decisions depend on market demands and determination of customer satisfaction. Strategic decisions must focus on the placement of production plants, distribution and stocking facilities, and placing them in prime locations to the market served. Once customer markets are determined, long-term commitment must be made to locate production and stocking facilities as close to the consumer as is practical.

In industries where components are lightweight and market driven, facilities should be located close to the end-user. In heavier industries, careful consideration must be made to determine where plants should be located so as to be close to the raw material source. Decisions concerning location should also take into consideration tax and tariff issues, especially in inter-state and worldwide distribution.

5. Transportation

Strategic transportation decisions are closely related to inventory decisions as well as meeting customer demands. Using air transport obviously gets the product out quicker and to the customer expediently, but the costs are high as opposed to shipping by boat or rail. Yet using sea or rail often times means having higher levels of inventory in-house to meet quick demands by the customer.

It is wise to keep in mind that since 30% of the cost of a product is encompassed by transportation, using the correct transport mode is a critical strategic decision. Above all, customer service levels must be met, and this often times determines the mode of transport used. Often times this may be an operational decision, but strategically, an organization must have transport modes in place to ensure a smooth distribution of goods.

6. Information

Effective supply chain management requires obtaining information from the point of end-use, and linking information resources throughout the chain for speed of exchange. Overwhelming paper flow and disparate computer systems are unacceptable in today's competitive world. Fostering innovation requires good organization of information. Linking computers through networks and the internet, and streamlining the information flow, consolidates knowledge and facilitates velocity of products. Account management software, product configurators, enterprise resource planning systems, and global communications are key components of effective supply chain management strategy.

Third Dimension: Performance Drivers for Success

The third dimension consists of five performance levels of focus for change strategy: Velocity, Flexibility, Quality, Cost and Service. They are used in all four stages to monitor success and must all be addressed for supply chain effectiveness. The following describes each of the performance drivers:

1.Velocity

Velocity is the rate at which raw materials, parts, components, finished products and information travel through the supply chain. As each element is able to move faster through the supply chain of events, lead times compress and less inventory is required to support demand.

2. Flexibility

Flexibility is the ability to adapt to new or changing demands in the market. It includes design flexibility and production flexibility. Design flexibility is the company's ability to introduce new products and modifications to current products. Production flexibility is the company's ability to change product mix within short lead times, such as day to day.

3. Quality

It is the conformance to requirements in measuring if the information, product, part or component does what it is supposed to do. Quality includes form, fit, function, reliability, consistency and accuracy.

4. Cost

Costs are the total costs of the conversion and movement through the supply chain per unit. The cost of adding value per unit is a measure of the productivity of the supply chain.

5. Service

Customer service is a quantitative as well as qualitative measurement. The quantitative approach is the more traditional method of calculating customer service based on a comparison of orders placed to orders shipped. The qualitative approach measures the customer's satisfaction with service received.

Optimizing the Supply Chain

Dynamic simulation models can be very helpful in attempting to optimize the trade-offs between production, supply, inventory, location, transportation and inventory. These models are efficient and capable of a high degree of complexity of algorithms when attempting to balance velocity, flexibility, quality, cost and service within a chain of supply. A rigorous "What-if?" exercise can predict the impact to the bottom line for various alternatives. Global models, as well as local geographic models, can estimate quantifiable outcomes to statistically high degrees of accuracy. The dynamic simulation is a powerful decision making tool for both the diagnostics/concept development and detail planning stages.

Summary

The Supply Chain Development Model TM provides a comprehensive and systematic model to be used in restructuring a company's supply chain. It can be used to induce supply chain agility for achieving world-class performance in the 21st century.