Supply Chain: the Pivot of Global Resource Allocation

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What’s past is prologue
—— Shakespeare.

Today, as technology changes rapidly and security problems become increasingly prominent, the United States, the world's first-rate superpower, has also experienced unprecedented challenges and threats. In February 2012, President Obama issued the National Strategy for Global Supply Chain Security,
which set strategic goals about "safety", "efficiency" and " resilience”.

On the 13th of October 2017, in China, the Guiding Opinions on Actively Promoting the Innovation and Application of Supply Chain was also promulgated by the General Office of the State Council as an important starting point for the supply-side structural reform. Obviously, as an important pivot of global resource allocation, the supply chain has been gradually upgraded to a national strategy.

How can micro individuals or enterprises use this pivot to exert the leverage influence? Based on this problem and starting from the global view of supply chain, the author sketches the main outline of supply chain by means of structured analysis, hoping to produce some positive inspiration or thinking.

Supply Chain Overview
The supply chain is an integrated network in structure. Through the management of the information flow, product flow and capital flow in the engineering process, the raw materials are made into products or services and delivered to the end customers. The main goal of the supply chain is to maximize the overall value of the supply chain. The figure below is a typical horizontal supply chain diagram.
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Figure 1 Typical horizontal supply chain

The information flow, product flow and cash flow covered in the above diagram can be controlled by the three macro processes in the supply chain, which are supplier relationship management, internal supply chain management and customer relationship management.
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Figure 2 Supply chain macro process

Supplier relationship management includes the evaluation and selection of suppliers (Two main criteria:1. TCO and COGS; 2. Alignment with supply chain needs), negotiation and building a multi-level partnership and other activities. The main technology that enables these activities to be effectively implemented
is SRM, which includes five modules of interfaces to the internal EPR system, external interfaces, SRM analysis, service, and procurement.

Customer Relationship Management is a series of activities that follows the marketing(e.g. traditional 4P theory)with the customer segments as the center. With CRM technology, it mainly carries out the work in four fields: Account management, sales force automation, business intelligence, and marketing automation.

Finally, internal supply chain management is a series of activities of design, planning, execution, and control, which focus on strategic objectives. In general, there are three major components, as shown in the following figure.
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Figure 3 Supply chain management overview

· Alignment of Strategies
One of the main functions of the strategy is "positioning": positioning the relationship with other things, and its own attitude.

Business strategy is plan for choosing how to compete: three generic business strategies are least cost, differentiation and focus. Organization strategy identifies how a company will function in its environment. Four types of organizational strategy: customer focus, forecast-driven, demand-driven and product-driven.

Supply chain strategy is to define how the supply chain function. It mainly considers the four aspects of “value proposition”, “core competence”, “cost structure” and “revenue model” in the supply chain, and then determines the level of corresponding “efficiency” and “responsiveness”.

Obviously, these different levels of strategic areas need to be aligned to each other to achieve sustained success, which means that there must be a common goal - that is, the consistency of each other's position, and it needs to be implemented in the business model of the enterprise.
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Figure 4 Business model

· Planning
The supply chain strategy is specified within planning activity. The planning phase can be classified into five domain.
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Figure 5 Supply chain management planning

On the basis of “business analysis”, the “network design”, “product design” and “IT information system planning” of the supply chain are carried out.

Meanwhile, the “metrics” should be defined on the basis of the established goals. Of course, there are many ways of measuring, such as the Balanced Scorecard, the SCOR assessment framework and the Gartner supply chain excellent operating capacity indicator system. But in general, the most important are the three major indicators of customer-focused, financial and operational.

· Control
Control activities mainly realize the daily management and control through the prioritizing of resources and the “input and output control” on the basis of the established plan, and then timely report and balance the deviation.

Backbone of Supply Chain Management

Supply chain management activities can be divided into three parts as shown above. If they are fragmented, it will obviously not fit in with the main goal of the supply chain: to maximize the overall value of the supply chain. Then a strong central link, operation planning and control, which is the core part of supply chain management activities, is needed to coordinate the activities of all functional units or fields.
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Figure 6 Operation planning and control (APICS Body Of Knowledge)

Risk Management

Opportunities coexist with challenges. With the upgrading of supply chain maturity, the scale and scope of supply chain also expand gradually, and the trend of globalization is obvious with a great deal of uncertainty. In the relatively advanced supply chains, low inventory is maintained by lean production and
JIT concepts. In the event of an irresistible emergency, production disruption is prone to occur due to lack of raw material or components.

Currently, the supply chain function risk management maturity levels are as follows:
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Table 1 Supply chain risk management maturity (APICS Body Of Knowledge)

Although the supply risk control is relatively mature, but the emergence of a series of innovative technologies (such as Artificial Intelligence) has increased the uncertainty of its risk control measures. Meanwhile, the current market environment is changing rapidly with frequent occurrences of “Black Swan
event” and “Grey Rhino”. Therefore, improving the supply chain risk management is an important leverage to gain competitive advantages.

Based on the understanding and practice experience of the COSO risk management framework and the ISO 31000 risk management standard, the following “risk management thinking framework” was summarized, trying to
embrace the uncertain risk with the certain mode.
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Figure 7 Risk management thinking framework

How to find out the “inflection point of the compound interest
curve”?

The image of the exponential function shown in the below figure is very similar to the curve of compound interest in economics. It has been growing very slowly for a long period, but when reaching the key “inflection point”, it grows sharply and has a qualitative leap.
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Figure 8 The curve of compound interest

As the pivot of the global resource allocation, the supply chain can only play its role efficiently on the basis of an appropriate leverage. And just as the “inflection point of the compound interest curve” mentioned above, finding of the critical point of the leverage also needs accumulation of time and grasping of opportunities.

In strategy, the longest way round is often the shortest way home
—Liddell Hart

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