by Dr. Arunachalam R
A look into how supply chain can be invaluable as a strategic activity.
The evolution of any good business evolves from a budding idea. The strategy usually involves a third person view along with the internal perspectives. Strategies are finalised taking into account both the perspectives and then sales and profit generation algorithms are formulated for growth. The initial discussions are almost always about product, production and then comes the dissemination. Identifying opportunities is the next logical step and putting together demand forecasts to scale and plan production volumes seems like the natural progression.
Supply chain is often an activity that is left out of the initial planning altogether. The main aim of a business tends to become profit-centric and planning the logistics unfortunately comes up as an afterthought. Once the sentiment of income has materialized, planning the supply chain for the business starts to feel like a cost that the company must incur. This is the regrettable impression that logistics and supply chain has collected, which tends to govern the activities around it.
It is safe to say that a radical paradigm shift is required to change the attitude surrounding the idea of supply chain planning. The current perspective is that supply chain is a cost that a company must entertain. This perspective needs to evolve to perceive supply chains as a cost-saving activity. There are several advantages to including supply chain planning into the seed capital stage. Logistical activities, if planned from the beginning, tend to become one with the manufacturing processes and blend seamlessly with the overall activities. If this is done right, supply chain can seamlessly complement the manufacturing process and present massive cost benefits to the company.
When supply chain is involved, the three key areas of cost-saving open more opportunities at the planning stage than at the manufacturing stage:
What can be eliminated: At the early stages, it becomes relatively easier to do away with the elements that aren’t required. From the renewed perspective, the aspects that take up higher expenses become easier to spot and simpler to remove from the equation. Supply chain planning helps optimize this activity to streamline product traversal.
What can be improved: As supply chain is now involved, optimizing the existing processes can help bring up the speed and efficiency of the internal processes. This is because there is complete visibility into the overall processes and the chain of activities can be upgraded to avoid any possible bottlenecks.
What can be changed: Since the cost commitments have not yet been made, supply chain offers suggestions to streamline the manufacturing process. A part of it involves inter-facility traversal and planning the micro logistics to the T helps enhance the efficacy.
In addition to the above, supply chain as a strategic activity allows a deeper visibility into the performance metrics. A company can go beyond simply the critical performance metrics and ascertain which portion of the value chain can best be modified to see improvement. Additionally, it helps identify the any possible loopholes that can be plugged with the help of tactical technological investments. It can also lower the inventory carrying costs, as the added flexibility opens up the possibility of implementing the JIT (Just in Time) inventory management system. This enables the company to maintain inventory on as-needed basis.
The Theory of Marginal Gains has the most effect on business strategy when all the elements, including supply chain, are a part of it. The Theory states that when small, incremental improvements are implemented, they result in a significant improvement. Supply chain as a strategic activity has the potential to do just that and companies often fall short of several efficiencies if the logistical processes are kept out of the strategic planning process.