by Merlin Hernandez


With economic upheavals predicted to continue through the next five years, and erratic consumer spending patterns, businesses are facing major challenges – fast- changing environmental conditions, heightened competition, depressed revenues, and the struggle to stay in business. Manufacturers need to pay attention to lean supply chain efficiencies through lean manufacturing strategies for continuous process improvement, elimination of waste, reduced costs, better prices, and a focus on customer value. A well-designed supply chain also leads to higher productivity and greater capacities.

Strong supply chain planning will depend on the ability to have demand-driven sourcing and procurement relationships that are collaborative. Technology like Supplier Relationship Management (SRM) software and an RFID inventory management system would allow more accurate forecasting while supplier, customer, marketing and manufacturing data will be more accessible throughout the system. It connects the company’s B2B needs directly to suppliers for the kind of demand visibility that facilitates better planning and delivery throughout the system.

Providing sales forecasts to suppliers helps to ensure material availability. With suppliers in the loop, there is an opportunity to implement a Just in Time inventory control system.  The system sets up a process in which a pull from finished goods inventory will initiate similar actions upstream in the manufacturing and ordering processes.  Suppliers can also be asked to carry an established safety stock of inventory to avoid stock outs. 

An Enterprise Resource Planning (ERP) system like SAP will integrate forecast information with the bill of materials (BOM) for each product to generate a material requirements plan (MRP) for an effective business-to-business interface that can also send purchase orders directly to supplier electronically. Inventory receipts will be more readily integrated into the system in real-time, through application of RFID technology.  Customer orders can flow through the system consuming inventory on input. The SRM tools can also accommodate confirmation of product shipment for immediate revenue recognition for financial accounting purposes.

There is a strong correlation between supply chain efficiencies and financial performance. Performance is based on inventory turnover (time, sales), COGs and ROI. This makes lower inventory with JIT delivery and fast turnover as well as cost efficiencies and profitability the business of supply chain management. Effective Supply Chain Management is the tool that leverages the supply chain to competitive advantage through heightened responsiveness of the company’s supply networks to environmental and market changes. Along with on time deliveries, low costs, superior product, and strong customer service that ERP/ SRM technology brings, managing the customer relationship is considerably easier. The key is to apply an integrated, end-to-end total systems approach to managing the entire flow of information, materials, processes, and services.

Building profitability into an enterprise begins from good forecasting and partnership with customers and suppliers, through increased productivity, lower costs, and enhanced inventory management, to total customer service for value creation strategies throughout the entire supply chain.

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