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Part - V

Many organizations that fail to adequately fund the effort rarely realize the potential of SCM. Companies that pursue the Form 3 approach soon realize that there is a multiplier affect the deeper one goes into the various tiers of suppliers. It is essential that purchasing develop a critical path through the tiers. As an example: If a buying company has 100 suppliers and each of these suppliers has 50 suppliers that have 25 suppliers each of their own, purchasing faced is with a supply chain of 125,000 organizations. Purchasing can afford to follow only the most critical materials and components in the supply chain with full attention.

Form 4: Order Fulfillment. SCM is responsible for incoming orders through delivery to the customer including order adjustment. This includes order entry/customer service, stock picking, packaging, outbound freight, returns and adjustments. Often this function reports to marketing or even to the Chief Operating Officer in the case of mail order firms.

Form 5: Sales. Some companies focus predominantly on the sales and customer side of the game. Therefore, their supply chain begins with order entry and picks up again when the ordered goods are shipped. This approach manages finished goods inventories, warehouses, distribution network, and outward bound logistics, and retailers or end customers. The more effective chains include gathering end customer demand patterns, returned goods, quality and product performance feedback. Often there is little attention paid to the value of inventories in the process.

Form 6: The Full Chain. Managing the process from raw material to recycling the finished product will probably involve several management titles and requires transparent communications links. When executed well, this is a powerful profit contributor to the organization. First, the current system must be measured in terms of accumulated lead time and total inventory investment as well as quality measures and costs throughout the process. Second, assign a Rupee value to lead time. For this effort, it simplifies matters if we assume that at each tier within the supply chain each supplier will hold one week’s worth of inventory for each week of lead time of its supplier and that inventory costs 1.5% per week or 75% per year. Buyers often run into resistance from their finance departments when using such high numbers for the cost to carry inventory. In those cases it might be prudent call the 1.5% an inventory or lead time tax. In any event, the amount of cost involved is significant and it gives a constant, unbiased measurement.

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* Contributed by -
Amit Mishra,
PGP 19188,
Indian Institute Of Management, Lucknow.