May, 2009



Supply Chain Management

Oscar Baltodano

Welcome to my Supply Chain site.  The journey to excellence is never ending.  It encompasses every part and every process in a company.    The will to sustain such a journey depends on visible results delivered continually to all your stakeholders. For this reason, my journeys to Supply Chain Excellence begin with short projects that produce results quickly and grows into a longer business improvement program that assures success in the future.   This site enables you to understand what is Supply Chain Management and how you could gain business improvement that will deliver the best real gain now.  

What is Supply Chain Management?

SCM is about satisfying customer requirements.  The main objective of the supply chain is that the final product or service is produced and distributed at the right quantities, to the right place, at the right cost and at the right time in order to fulfill consumers needs.  SCM is about the integrated management of all the Supply Chain processes from suppliers' suppliers to customers' customers.  

Why Supply Chain Management ?

Around 20 years ago many companies started implementing technologies and strategies that allowed them to reduce costs and better compete in the international arena.   Jus-in-time, kamban, lean manufacturing, total quality management, and other became very common within the manufacturing industries, and a lot of of resources were invested in implementing these strategies.   In the 1990s, however, the businesses cashed the benefits of these implementations.  They reduced manufacturing costs dramatically.   Now, in the globalization era of the twenty first century, many are moving to the Supply Chain Management, in order to gain more competitive advantage and increase profit and market share in the emerging markets such as China in Asia and Brazil in South America.

Indeed, most of the companies spent a huge amount of money on supply chain related activities.  These numbers include the cost of plan, source, make, delivery and sometimes return of the raw materials and finished goods products from suppliers’ suppliers to customers’ customers. Unfortunately, this huge investment includes many wasteful practices in their supply chains such as lack of standardization,  inefficient sales and operations planning process, redundant stock, inefficient transportation, etc.    For instance, experts believe that many industries can save about between 10 and 20 percent of their annual operation costs, by using effective supply chains strategies.

The Challenge

We know that the supply chain is a complicated system of facilities and organizations with disimilar inconsistent goals.  This implies that finding the best supply chain strategy for a particular company poses significant challenges.   Matching supply and demand represent a major challenge for every company.  The difficulty stems from the fact that months before demand is realized, manufacturers have to commit themselves to specific production levels.  These advance commitments imply huge financial and supply risks.

System variations over time are also an important consideration.  Even when demand is known precisely (e.g., because of contractual agreements), the planning process needs to account for demand and cost parameters varying over time due to the impact of seasonal fluctuations, trends, advertising and promotions, competitors´ pricing strategy, and so forth.  These time-varying demand and cost parameters make it difficult to determine the most effective supply chain management strategy; that is, the one that minimizes system wide costs and conforms to customer requirements.

Many supply chain problems are new and there is no clear understanding of all the issues involved.  In the case of the high technology industries, product life cycles have being reduced significantly.  In particular, many computer and printer models have life cycles of only a few months, so the manufacturer may have only one order or production opportunity. Unfortunately, since these are new products, no historical data is available that allows the manufacturer to accurately predict customer demand.

Key issues in Supply Chain Management

The supply chain management issues cover a large range, from the highest level through the lowest level of the organization.  The top-level management makes the strategic decisions that produce a long-term effect on the company. These include decisions regarding the number, location, and capacity of warehouses and manufacturing plants, and the flow of material through the logistics network.  The middle management level makes the tactical decisions that produce a medium-term effect on the company, typically they includes purchasing and production decisions, stock and transportation policies, including the delivery frequency.  The day-to-day decisions are taken at the operational level, such as scheduling, making, routing, and truck loading.

SCM is in the same place that material requirements planning (MRP) and manufacturing resource planning (MRP II) were in the 1970s when Oliver Wight was evangelizing to the manufacturing masses. Now, it's the Supply-Chain Council  doing the evangelizing. Since its founding in April 1997, the Council has been promoting the Supply Chain Operations Reference (SCOR) model.  At the core of this model are five processes: plan, source, make, deliver and return. This process reference model is used to describe, characterize, and evaluate a complex management process.  It builds on the concepts of business process reengineering, benchmarking, and process measurements by integrating these techniques into an easily configurable cross-functional framework.

This is not ERP, SCM is broader than ERP.  SCM is a management process. You can define where it begins and where it ends. You can define its inputs and outputs. You can measure and predict its performance. And, you can actually change and manage it to improve that performance.

The role of technology in this, of course, is critical. The struggle is in getting the appropriate information and the appropriate IT to manage the supply chain. Remember, SCM is an end-to-end, horizontal cut not only across your business, but also across your customer's customer and their supplier's supplier.

Some key areas are:

  • Business Excellence

  • Demand Management

  • Master Scheduling (MPS)

  • Bill of Material (BOM)

  • Enterprise Resources Planning (ERP)

  • Manufacturing Resources Planning (MRPII)

  • Distribution Resources Planning (DRP)

  • Material Resources Planning (MRP)

  • Inventory Management

  • Plant Scheduling & Capacity Management

  • Master Data Integrity

  • Performance Management

  • Supply Chain integration and Strategic Collaboration with Suppliers and Customers

  • Product Design

  • Information Technology: Decision-Support Systems such as Enterprise Resource Planning (ERP) and Advance Planning Systems (APS).

  • Customer Value

Supply Chain Links

If you would like to contact Oscar send E-mail to oscar@baltodano.com

or write to:

Oscar Baltodano

Contiguo Casa de Cultura,

Diriamba, Nicaragua

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