A supply chain indicates the network of facilities and distribution available to an organization to procure and distribute materials. Effective supply chain management not only benefits an organization by sourcing materials and transforming those into finished products but also by distributing the same to the end users in the most cost-effective manner. Supply chain management principles are applicable both for the manufacturing and service industries; however, its extent and manners differ from organization to organization.
In inventory control, supply chain management helps, as it ensures procurement of items only at times of necessity and also offers cost-effective products and services to customers on real-time basis, following the logic of just-in-time. By lowering the costs of inventory and distribution, supply chain management greatly extends help to an organization.
Supply Chain Decisions:
Supply chain decisions can both be strategic and operational. Strategic supply chain management issues are aligned with the overall strategies of the organization, and usually viewed from the long-term perspectives. Operational supply chain management issues are taken for the short-term, focusing more on day-to-day activities. Some of the strategic and operational decisions influenced by the supply chain considerations are—(a) location of the unit, (b) production process, (c) inventory control (d) transportation (distribution).
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Location Decisions:
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Location decisions are concerned with the concentration of production facilities, stocking points and sourcing in appropriate places. It involves a long-term resource commitment on the size, number and the possible paths for the flow of products and services to the customers.
Location decisions have a significant impact on the bottom line (profitability) and the top line (sales and revenue) of the organization.
Production Decisions:
Production decisions are concerned with the items to be produced in different plants or units of the organizations, when organizations have the presence in number of locations. Such plant- or unit-wise production scheduling has significant impact on the sales and revenues, costs and the overall customer services.
Inventory Control Decisions:
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These decisions refer to inventory control issues in the organizations. Effective supply chain management can reduce the level of inventories of raw materials, semi-finished and finished goods. Such decisions make use of push or pull deployment strategies, policies on control, optimum level of stocks, ordering and re-ordering level, safety stock level and even on the location of stocking.
Transportation Decisions:
The choice of mode of transport to ship materials is also strategically linked with the inventory control decisions. Customer service levels and geographic locations play vital roles in such decisions.
Lead Time:
Lead time is the time required between the moment we are aware about the need for stock and the actual replenishment of stock. It can either be internal or external. Internal lead time is the time period after the need for additional stock is realized, and the order is placed. It includes the time taken to review the demand, trade inquiries, tenders, quotations and the final approval from the higher authorities. External lead time is the time taken by the supplier to supply the materials after it receives the order.
Just-In-Time:
Just-In-Time (JIT) concept enhances the excellence in manufacturing operations. It ensures wastage minimization. Wastage minimization is achieved ensuring movement of materials at right place at right time. JIT ensures minimization of the non-value-adding activities, by proper synchronization of all operational activities, focusing on elimination of wastage on labour, materials and costs.
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In fact, it is also considered as another quality improvement step. Inventory control in materials management can be achieved through JIT practices, when organizations focus on vendors development and source the materials on as and when required basis. Wal-Mart’s less than 1 per cent inventory carrying costs is basically possible for successful JIT practices.
Every Wal-Mart store is visited by all vendor representatives during closure hours to replenish the materials on shelf spaces to ensure that optimum quantity of items are available for next day’s trading. EOQ is also another tool for JIT practices. Indian organizations are, however, not so far successful in implementing JIT, resulting unnecessary wastage and rising cost burden. JIT benefits the organization in terms of colossal costs savings and strengthen its competitive advantages.