Supply Chain Management Parameters and Supply Chain Profitability

Automated sandwich making industry provides ready-to-eat, easy-to-consume and pre-packaged sandwiches. These sandwiches are very popular because of many factors like speed of delivery and the quality that comes with every unit of sandwiches. Automated sandwich plants employ a continuous production cycle that works as per a standard demand and supply schedule. The production process is precise and well maintained, while the process itself is a byproduct of well-calibrated marketing strategy. The production schedule is backed by several other departments whose support is very important to keep the production going without any hitch. Like any other production facility, even sandwich making plant operates in a similar way – planning production, purchasing raw materials, registering orders, producing sandwiches, packing them and dispatching them are final delivery are some of the basic processes that occur there.

This short paper analyses supply chain management objectives help an automated sandwich-making factory to focus on its production and sales management goals and to create strategies to enhance turnover and profits. This becomes very essential as a large super market chain places a large order for high quality sandwiches. The main objectives of the firm after getting this order is to evaluate, analyze, and review the exiting production practices and later design an action plan that result in the production of 12,000 units of sandwiches every week. To produce such an amount of weekly order, the firm will need to combine its plans and strategies along with streamlining the numerous supply chain components. In addition, the firm will also need to step up the supply chain profitability so that the production process retains its marketing and competitive edge. Like any other manufacturing facilities, even sandwich making plants works on the principles of supply chain management.

Supply chain management objectives – the most basic measures that drive the production process

Lee and Billington (1993) define a supply chain:

“As a network of facilities that performs the functions of procurement of material, transformation of material to intermediate and finished products, and distribution of finished products to customers.” In other words, a supply chain is also an intricate system of personnel, production activities, skills, knowledge, information and resources involved in transferring a given product from supplier to a customer. Supply chains also link value chains as described below in subsequent chapters. Supply chain management is an advanced concept that is considered by almost all businesses in the world. A sandwich making business can easily use the basic principles of supply chain to enhance its product delivery mechanisms by linking several business functions.

To introduce a profitable supply chain, a business development manager should design and create a plan the leads to reliable and guaranteed supply chains that also provide high quality products. Supply chain management (SCM) demands a far stringent transformation from administering simple individual departments who handle individual functions, to integrate them in a seamless manner. The result of such an action is the creation of many important supply chain functions and processes. Let us consider a simple example:

A firm gets a big order for some products. The details of the order will be dispatched from the sales department to the purchasing department. Now, the purchasing department will start placing the required order with the production department. The production department will produce the required products and dispatches them to the marketing department that in turn will sell the goods to wholesalers and retailers. However, the marketing department will need to asses customer demand by communicating with wholesaler and retailer distributers; the main goal of this exercise is to find out the exact demand for the product. It means that a method of process integration is carried out with different supply chain partners.

Integrating supply chain business functions will include well planned and teamwork between buyers and suppliers, production and sales department and through sharing information that is common to all the stakeholders. In the present example, we will consider different business functions of the sandwich-making firm like purchase of raw materials, receipt of orders from retailers and wholesalers, activities of marketing department and inventory department and production and marketing department. Such integration needs the flow of information in a calibrated and continuous manner (Lambert and Cooper, 2000).

Appropriate technologies and methods could help manufacturers create an optimum supply-chain system. These are possible by using demand, supply philosophies like push, and pull techniques. Defining push and pull philosophies are very important for a sandwich company that wants to sell many sandwiches per week. Customer or demand side push is actually an entrepreneurial response in hope of customer demand. On the contrary, demand or customer pull is a response that actually results from ensuing customer demand.

However, it is very difficult to decide if a particular supply chain is in push or pull mode in a general mode. Here, the business may need to decide what constitutes the supply chain and how different stakeholders act in the supply chain. In the present example, there is already a readymade demand for 12,000 sandwiches per week and this is classic example of customer pull. In most of the supply chain scenarios, demand-push may meet demand-pull and this is the situation when the inventory starts accumulating. This is a typical push-pull interface or a supply chain decoupling point.

For the sandwich making business mentioned in this example, the benefits of acting to a pull model is very compelling as the calculated levels of production is independent of forecasts for a future order. The general axiom that works very well here is very simple – “just produce what you pull from the customer exactly at the rate of their needs”. A business that operates in a pull philosophy can perform better to accept changes that usually occur in tastes and preferences of customers. However, the sandwich business that operates in this mode may not use this model unless there is clear demand from the customer side.

Many “dial-up” pizza shops prepare their products based on specific demand-pull to supply a particular number of pizzas. This example is non-analogous to the present sandwich making company. In a typical pizza supply unit, the delivery is held until there is a specific order for pizzas. To be able to respond to a situation, the unit will include bases and ingredients as built-in inventory well in advance. The final delivery will occur only when there is a specific order. It means that there is an evidence of both push- pull philosophies in that example. In the present example, there is already an element of customer-pull and it ensures a confirmed order for sandwiches. Demand-pull philosophy has the ability to reduce waste and inventory and it is more in the direction of satisfying needs of end customers. In the end, a sandwich business that operates on this principle should create a package of practices that include the best supply management principles.

SCM – Cycle View Model

All manufacturing activities are divided into many sub-activities that eventually help the sandwich company to conduct the business operations in an optimal manner. Like any other business, even sandwich making business operates in a standard manner that actually mimics a standard production assembly format. In essence, a given production assembly consists of four important components – Customer order cycle, Replenishment cycle, Manufacturing cycle and Procurement cycle.

Customer order cycle: This is the mutually agreed cycle time of a given purchase order. It is also a gap between the purchase order creation date and agreed delivery date. In other words, one should expect the time and it may not be the actual date for delivery. The metrics used provides a guide to deliver the order.

Replenishment cycle: This is the average time needed to fill a current purchase order. The time starts when a particular order is sent or receive dot entered. This process ends at the time of shipment or soon after the delivery to the customer. Business developers should consider both the actual delivery time and promised delivery time.

Manufacturing cycle time: It is possible to quantify this time from the planned order until the report timing of final production process. One can compare the actual production quantity with the intended quantity.

Purchase order cycle time: This metric measures the creation of PO to the delivery at a location like distribution center. Here, one may not have the requested delivery date beyond the agreed lead-time.

Here is a standard Cycle view model for sandwich business:

Note: One can think of supply chain as a chain of communications that occur between two consecutive stages of production. These cycles always share similar types of communications because the entire process will have a buyer and a supplier. As one go away from the customer, the scale of the transaction will diversify and become larger.

Fig 1: Cycle View – Sandwich Production Process (Supply Chain Management: cycle view – figure adaptation after Supply Chain Management – Strategy, Planning& Operation”; Third Edition; Smil Chopra, Peter Meindl)

As mentioned before, a customer cycle involves an external demand. The balance side of the supply chain should react to the existing customer demand and later satisfy it without fail. However, the only hitch is that basic process of creating sandwiches from different raw materials (like vegetables, spices and meat) stage to the “ready to eat” one will always involve spending some time, money and energy. If the production process is not quick enough to cater to the demand of the consumer, the existing demand may vanish altogether. It means that the producer should make proper assessments of all future demands during the production process. In essence, speculations that the producer makes should be more so that they will take fewer numbers of decisions when there is an unforeseen or uncertain condition. All the reactive processes are the pull processes while the speculative processes are push types.

Level 1 SCOR Model

According to SCC (2000), Supply-Chain Operations Reference is a top-level business processes related to all phases of satisfying customer demand (SCC 2000). Four important business processes organize this model at its highest level. These processes are Plan, Source, Make and Deliver. For the present paper, we will discuss about the Level 1 aspect and this deals with the MAKE process.

Fig 2: SCOR Level 1 – Performance Metrics, Diagram (After SCC, 2000)

In this process, a business entity uses actions that transform raw products or raw materials into a finished product to meet planned or actual demand or confirmed demand. In the illustration given above, PLAN is a process that accumulates demand and supply to set in motion a plan of action that meets sourcing, production, delivery, inventory and other similar needs. With this Level 1 model, a sandwich business creates a wholesome plan of sandwich manufacturing and delivering from consumer to retailer to production and marketing sectors. In addition, it also streamlines the plan with sales and marketing. At Level 1, the sandwich business considers a number of processes that convert raw materials into finished products to meet the demand placed by the consumer. Here, the sandwich business considers both push and pull philosophies to consider the business processes.

A typical supply chain is truly dynamic and interactive. A sandwich business will run through many states – procuring raw materials like meat, vegetables, spices, packaging materials and other items from a inventory supplier, actual manufacturing process, the process of distributing the products, dispatching them to retailers and eventually to customer and marketing and promotion departments that actually sell the sandwiches. A competitive business will streamline all these processes into one single entity that eventually enhances productivity and profitability. A supply chain also flows in two directions and it has an attached cost and capacity domain attached to it. An empowered and skilled business management team that can create a viable plan along with strong management and supply chain design fundamentals will succeed in the end.