Supply Chain Management: Enhancing the Bottom Line With Smart SCM

Supply chain consultant Michael Herman seems to provide one of the best definitions of the SCM process.

He told Management magazine last year, that “SCM directs and coordinates logistics activities across independent organisations that together make up complete market channel for range of products or services. [For the supply chain manager] the challenge is to effectively manage formal and contractual relationships across suppliers, providers and customers.”

In other words, we live in society that expects to be supplied accurately, inexpensively and immediately.

To deliver on these expectations, managers must be sure of suppliers and delivery mechanisms and manage these relationships to ensure maximum business benefit (read: savings) from the supply chain process.

Failure to do so erodes profits, and drives off both good customers and key suppliers. That’s why good SCM is important.

In the know
Managers with supply-and-demand component to their enterprise understand that SCM is business component which can, if well honed, deliver competitive edge. They also know that good SCM can reduce internal supply, storage, labour and delivery costs – savings that can be passed on to the customer.

The same managers however, are likely to be vague about how to define SCM as it applies to their organisation, how SCM practices can be refined and maintained, which SCM technologies or outsourced services to use, and what key management steps must be taken to ensure their SCM is as lean, mean and efficient as possible.

You could call Peter Davies, supply group manager for telecommunications big gun TelstraClear, an SCM veteran with 30 years’ experience of the business under his belt. He also heads New Zealand’s Supply Chain Association.

SCM is about managing suppliers not supplies explains Davies, and key SCM decisions must be based around the total cost of owning the supply chain (TCO). “The reason company goes to its suppliers at 2am in the morning is because there is customer need. You need managed supplier relationships to be able to do that,” says Davies.

Davies is currently calling on every modicum of knowledge and experience he’s accumulated. Last year he credited most of the success of (the then) Clear Communications supply chain to the installation of an Oracle e-procurement system. Then came the merger with TelstraSaturn. Since then, Davies has inherited the unenviable task of shelving that system in favour of the SAP software and services that arrived with TelstraSaturn.

“On top of that we had new team, redundancies, and the job of tying two supply chains together,” he adds.

Clear and TelstraSaturn had different supply sources. The supply team had to consolidate inventory, and review warehousing, distribution and e-commerce mechanisms. “The supply chain consolidation was massive exercise which required shifting lot of stuff around the country. Everything has to be geared towards the supply chain customer, and those are internal as well as external. Now we’re 12 months down the track, I reckon it took about six months to get the basic guts of it done.”

According to Davies, supply managers must manage the expectations of customers regardless of what’s happening because “these people pay the bills”. It is important to get e-commerce tools which help automate the supply chain right.

“It takes experience to use large, evolved software system. With SAP, we feel bit like we have Formula One racing car but we haven’t got racing licence. We can make it work, but we need time to learn how to get it to perform.”

E-strategy is important to modern SCM, but Davies thinks the e-commerce features of SCM systems should be developed over time. “Don’t expect things to happen too fast. You have to rely on the e-commerce readiness of individual companies in your supply chain and that readiness is not always what it could be, especially for smaller companies.”

So how important is TelstraClear’s supply chain to its competitiveness?

Davies ranks it equal with marketing and finance. “Products and companies no longer compete; supply chains do. We have society of wants; people are used to instant gratification. Our SCM process is very involved with finance, sales, accounts, engineering, marketing and warehousing.”

Engineered for satisfaction
Graham Purvis is supply manager for engineering supply company Paykels, an organisation he calls “the supermarket of engineering supplies”.

“We supply products including those for transmission, conveyor, and hose engineering systems. We link some services in with that, such as system maintenance and hose testing for petrol companies.”

Paykels’ competitors are also its customers.

The organisation comprises 21 retail branches and an online “virtual warehouse”, called Supply Solutions, which contains 350,000 lines of engineering products.

Supply Solutions products are not only sourced from the much smaller Paykels bricks and mortar warehouse, but from many supply partners. Supply Solutions has some 12,000 established engineering industry customers, including Paykels’ retail competitors.

Supply Solutions emails orders to suppliers, placing several orders on one invoice. The supplier compiles the order and ships it directly to the customer via New Zealand Courier’s online system. The supplier invoices Supply Solutions which in turn electronically invoices the customer. When the customer pays, Supply Solutions pays the supplier electronically.

All this means the customer has only one point of contact but can order from variety of suppliers, including competing brands, explains Purvis. “The supplier is happy because all they have to worry about is producing and then supporting their product. We tap into their expertise when we get customer query.”

Supply Solutions charges suppliers handling fee. “Sometimes retail competitors make sales using our system, but customers always have the final say. You can cause lot of disharmony by insisting customers use certain brand or type of product.

“If our retail stores don’t stock brand they’re set on, our customers are off to the competitor anyway. If we let the competitor become the supplier, and we become the vehicle for that, our name becomes the single point of contact for supply in this industry,” says Purvis.

Supply Solutions provides supplier training and works on the electronic interface between itself and its suppliers. “Supply Solutions uses the Microsoft Great Plains ERP suite and Microsoft’s Biztalk software tool allows different financial systems to communicate.”

But, Purvis warns, the best SCM technologies in the world can’t make up for other flaws in the SCM process. “A lot of electronic trading has hit rocky ground because people see the tools as the solution, instead of one of those things you do to increase supply chain efficiency and make life easier. There’s no point electronically enabling SCM process which isn’t working.”

Purvis, like many other experienced supply managers, identifies the relationships in the supply chain as important. “We still make lot of phone calls. Manual practices are less efficient so you need to formalise policies around them, but people contact is crucial to SCM success.”

The cost savings delivered by Supply Solutions’ SCM technology is illustrated by the fact that nine people are employed to provide 12,000 others with access to 350,000 products.

Good SCM requires decisions about the end result, says Purvis. “It’s only after that you go about the process of saying ‘how do we achieve that?’ We had dream that if there was warehouse with all these products in it, that would be great.

“Two years ago we only had the Paykels’ physical warehouse and we started to crystallise our thoughts about Supply Solutions. We assigned people to sourcing and finding the products and suppliers.”

Trial and error followed. “We ended up with out-of-box products couple

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