Tuesday, February 25, 2014

Best Value Supply Chains of the 21st Century

An organization of people, activities, resources and information working closely to deliver a product/value to the customer forms the essence of supply chain. Enhancing the efficiency of the supply chain was mostly considered as integrating and coordinating the various elements of the supply chain. But the demands of the 21st century are different. Speed or time is not the only which determines the effectiveness of the supply chain. A best value supply chain rather focuses on providing a complete value addition to the customer. The target dimensions of a best value supply chain are: speed, cost, quality and flexibility. Since customer needs are multi-faceted, best value supply chains are more effective in creating a happier customer.

A Best Value Supply Chain

The best value supply chains differentiate themselves from the rest by the way they approach three key issues closely related to the strategic supply chain management. These issues are agility, adaptability and alignment.

1.    Agility - Agility is the supply chain's relative capacity to act rapidly in response to dramatic changes in supply and demand. Agility can be achieved through the use of buffers. Excess capacity, inventory, and management information systems all provide buffers that allow a best value supply chain to provide better service and be more responsive.
Agility in supply chain can be achieved by co-locating with customers. This arrangement helps in creating a better information flow.

2.   Adaptability – The willingness and capability to reshape supply chains when necessary is adaptability. For example – in the US defense industry, one set of weapons needs repair in 8 hours while the other set can take up to one month. To be able to adapt to these requirements, supply chains need to be adaptable.

3.   Alignment – Creating consistency which best suits the interests of all refers to alignment. Collaborative forecasting, carefully writing incentives to contracts can be helpful in creating alignment. Alignment plays a crucial role when demand is uncertain.

The best value supply chains use strategic supply chain management to coordinate the major supply chain elements. These elements being:

1.      Strategic Sourcing
2.      Logistics Management
3.      Supply Chain Information Systems
4.      Relationship Management

The best value supply chain uses the above elements to create competitive advantage to enhance performance. Through balancing these four metrics best value supply chains attempt to provide the highest level of value added. Firms like Wal-mart, Toyota, Zara have used these techniques to gain a competitive advantage over their peers.

Strategic Sourcing – Sourcing plays an important role in the supply chain as it decides the inflow. For example – John Deere tractors use more than 60% of the external items to develop tractors. The inflow of items form a critical component of the supply chain because it is the starting point of production. Practicing earlier involvement of supplier can help in reduction of cost by 20%. Human resources, measurement systems and strategic sourcing design are the three enablers of the strategic sourcing in forming best value supply chains.

Logistic Management – ­­­­­The ideal balance of speed, quality, cost and flexibility defines the value proposition of logistic management. Best value supply chain differentiates themselves from typical supply chains by integrating logistics in the strategic management. Positioning Inventory and building a flexible chain structure forms the basis of logistic management.

Supply Chain Information Systems – Information Systems aim at linking all the elements of the supply chain seamlessly to track information from the starting of product development to its delivery. However, information systems should make sure not to divulge any firm's sensitive data unless required. Transaction Systems, Management control, Strategic Planning and Decision Analytics form the key components of the Supply Chain Information Systems.

Relationship Management – Integrating participants in the supply chain is crucial to the success of the supply chain. Cooperation and Collaboration are two ways of organizing relations within the supply chain. Cooperation refers to contractual relations which sometimes complex and involve negotiation. Collaboration, however refers to trust based relations.

A Case Study: Many firms in the present are striving to achieve the best value supply chain. However, Raytheon Technical Services Company, LLC is one of those firms moving fast towards best value supply chains. They are providing best value to their customers by following the three A's (Agility, Adaptability and Alignment) and the four key components of the best value supply chains. Raytheon is one of the industries from which US Military outsources supporting functions. 

Raytheon is achieving agility by co-locating near the military offices. Raytheon provides support for live-combat simulations. Thus, it operates management facility very close to the military offices that run the simulation. 

When cell phones and other detonators were used as explosives in Iraq, Raytheon had to adapt quickly to this new change. They created a rapid response supply chain by deploying the best resources available with them. 

Raytheon uses financial incentives to create alignment amongst its members. There are also monetary penalties associated for wrong doings. But to maintain positive energy and cross collaboration, the incentives are much higher than penalties.

To comply with the strategic sourcing, the company uses the strength of big and small firms with the type of material needed. They use mobile repair vehicles to service equipments sticking to the best practices of logistic management. Raytheon has also attempted to make its supply chain better by developing an information system combining the latest developments in the data and the system concepts. They have built a federation of small business to maintain relations with its small business partners. The federation provides the innovative small firms with infrastructure and resources to bring them together to solve complex problems. 

Looking at the future forward, we can say the competition is not going be product-product or firm-firm, but it will supply chain - better supply chains. And this is the point where the firms need to question themselves - How much are they ready to adapt to this change? What are the things they could do better in order to move towards the notions of Best Value Supply Chains?

[1] http://www.rtn.com/ourcompany/rtnwcm/groups/rtsc/documents/content/rtn_b_rtsc_wp_1.pdf 
[2] http://en.wikipedia.org/wiki/Raytheon

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