The globalisation of business and the resultant opening of trade borders has had so many positive repercussions the list is probably endless. However, supply chain management is an especially interesting case in point within this new context – whilst the ability to outsource services to different locations around the world can make very good commercial sense, it raises the complexity and importance of controlling stock and the whole flow of the production and delivery system. Globalisation has made this even easier said than done. What has not changed, though, is the main goal – deliver on time if you want to keep your customer happy.
The old adage "the customer is always right" remains as relevant today as ever before, especially when companies commit to delivering a certain product or service on a given date. Technical hitches may occur but it is ultimately the responsibility of the company overseeing the whole operation (regardless of how many sub-contractors are involved in the process) to anticipate any such problems and ensure that the "Customer Lead Time", as it is known in the trade, is respected. As the company providing the service, giving yourself the necessary margin protects yourself and your reputation, as well as maintaining customer satisfaction. However, in a globalised business context, the challenges are even more numerous.
Timing isn't necessarily everything
However multi-layered the process may be or however many different suppliers in different locations there may be involved in the process, companies have to keep a few basic considerations in mind. These may shift from one customer order to another, just to make life that little bit more difficult...
At the beginning of the process, establish the size of the order and ensure the appropriate stocks are available, throughout the supply chain. Fix set due dates for each step in the process, not only to make sure that customers get what they want when they want but that each contributor to the manufacturing, transportation and final delivery process respects the deadlines and has the necessary tools to do so. Maybe the biggest challenge is to accurately gauge the interval between each order – the frequency and size of an order can have a great impact on cost and logistics. Two separate deliveries of 500 items does not require the same supply chain management as one delivery of 1000...
When "taking stock" takes on a whole new meaning
Recent investigations have highlighted the crucial role of the inventory process in supply chain management, especially in a context where operations involve different suppliers, with different roles and spread across different locations. In addition, it is not just a case of controlling what comes in (the "input products") but also what emerges at each stage (the "output products"). A failure to correctly account for and control either can quite literally break the chain, with potentially grave consequences upon final product delivery and therefore customer satisfaction.
With this in mind, it is therefore the approach to inventory (or "stock-taking") at every step of the way that can anticipate for changes in order size, frequency, potential time delays and the availability of products in the first place. The automotive and electronics industries are two of the most striking examples of where this kind of pre- and post-production mentality of keeping tabs on stocks and making sure that no snags occur within the process are absolutely crucial to delivering the end product on time.
Making cost-effective sense
In any serious business set-up, the umbrella company providing the overall product or service will always have a complete overview on the supply chain and the way the various parts and suppliers interact. However, to ensure that the inventory process makes financial sense, it is especially important in multi-layered, multi-country set-ups that inventories be applied to each site involved, both in terms of the products coming in and those which emerge.
The umbrella company should be able to oversee but should not have to intervene at each and every stage, for cost and time-effective reasons. This said, at no time are they devoid of responsibility. Initial negotiation of timings and accounting for stock delays remain their responsibility, as do projecting the potential size of a customer order before placement and ensuring that each facility within the overall chain performs its inventory to the required standard.
A step-by-step process
Supply chain managers may be understandably intimidated by the model of input and output product inventories on a site-by-site basis but, to ensure the smooth running of the process and, above all, the ability to anticipate changes in order size and frequency, this approach could just save them a lot of additional costs in the long run.
Outsourcing of various aspects of design, production, and transportation by definition carry a degree of uncertainty but they also make commercial sense when more geographically-distant locations can provide a far cheaper service for the same quality of final product. On-time delivery and customer satisfaction remain key – managing the process via a thorough pre- and post-production inventory system can only raise the chances of success for companies who choose to operate in such a way.
This article draws inspiration from the paper A Capacitated Multi-echelon Inventory Placement Model under Lead Time Constraints, written by Ramzi Hammami and Yannick Frein, and published in the Productions and Operations Management journal in March 2014; vol. 23, no. 3.
Ramzi Hammami is the Head of the Research Centre for Supply Chain Management& Purchasing at ESC Rennes School of Business, France. His research interests cover supply chain design, supplier selection, and inventory management.
Yannick Frein is a teacher-researcher at Grenoble INP and deputy director of the G-SCOP research laboratory. His research interests cover logistic flow management in production systems (particularly within the automobile industry) and supply chain design (international factors, time delay and environmental concerns).
The old adage “the customer is always right” may apply in a retail shop but in the more complex world of business it is neither a universal truth nor even a desirable one. The dynamics of supplier-customer relations have for a long time been viewed purely from the customer perspective. However, by looking at ways to enhance the working relationship through the lens of the supplier and proposing a more strategic set-up based not only on the end product but also service and performance offers an alternative. Treating the supplier like a commodity might just become a thing of the past…