Supply Chain Management (SCM), driver or barrier? Part 1 of 3

Hello!! Thanks for being here once again. How are you? Come on, cheer up and take a break.

Let’s continue checking out and understating all the factors related to SCM.

As we saw in the previous paper, concepts in SCM such as Demand amplification, chaos and parallel interactions will affect your SCM process.

In the previous article, it was explained how demand amplification works, also known as the “Bullwhip effect”. It is where the retailers and suppliers observe that while customers demand for specific products does not vary (oscillate) much, inventory and back order levels fluctuate considerably across their supply chain.

Let´s go deeper and review each concept.

Stock outs

Stock out costs are incurred by failing to supply products or services to customers. If they are external customers, they may take their business elsewhere. On the other hand, if customers are internal, stock outs could lead to idle time at the next process in your manufacturing site. At the end, external or internal customers will be dissatisfied.

These factors are product stock outs created by suppliers and/or category planners who mismanaged shelf space, promotions, new product introductions or supply chain managers who misjudged long-term demand, faulty in-store ordering and/or replenishing practices. You better watch them all.

Erratic re-ordering

The second concept is erratic re-ordering. It is important to know first, how a re-ordering system works, in order to understand what an erratic one is. The re-order level is defined as the level which the inventory will have reached when a replenishment order needs to be placed, but the inconvenience here is to assume that the demand and the order lead time are perfectly predictable. Keep in mind, there is a world always moving up and down.

Poor customer service

The third concept is poor customer service. How can customer service be related with supply chains? Well, a supply chain is a value system concept, is a network of independent firms and chains that are involved in the production and marketing of particular products and services. This network of value chains targets customer satisfaction. Establishes that the customer is the original driver of the entire supply chain; all the risks that an organization faces as part of its supply chain are traced directly back to the customer.

Hold on. I know massive chunks of information. But I told you we will take it easy.

That is all for today.

In the meantime, take care and keep walking on my friend.

j.maldonado.gtz@gmail.com

Jorge Maldonado. Egresado de la Universidad Autónoma de Nuevo León como Ingeniero Administrador de Sistemas. Cuenta con una Maestría en International Logistics and Supply Chain Management en la Universidad de Glamorgan South Wales en Reino Unido. Profesionalmente se ha desarrollado en empresas de manufactura y tecnologías de información.