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Other than the idea of this revolutionary technology,
if you were to think about given that we're thinking about
bullwhip effect and all of the things that supply chains need to think about,
the idea of alignment among supply chain part players is very important.
Before we close off this idea of supply chains,
we should think about,
what does alignment mean?
And alignment simply means that all of
the players in the supply chain are moving in the same direction.
They have common objectives.
In our companies, when they when they outsource and they build their supply chain,
it's easy to overlook the fact that you're not
communicating what the objectives are for you,
as well as for your suppliers and your buyers,
and you're not exchanging that information.
So, it becomes important for you to do that.
And the way you can do that,
is if you talk more, you communicate more.
What are the key ideas here?
Visibility, trusting your buyers and suppliers,
and designing contracts, designing incentives,
such that everybody's objectives are aligned.
They're going after the same types of things.
Those are important aspects to think of as you are building your supply chain.
And there are some programs that have become popular,
in the sense of aligning supply chains.
Vendor Managed Inventory in supply chains.
We like to use three letter acronyms, so VMI.
Supply chain is SCM;
VMI is Vendor Managed Inventory.
Vendor managed inventory simply means that,
as PNG as the supplier for Wal-Mart,
PNG is managing the inventory in the warehouses,
or in the stores of Wal-Mart,
Or in the stores of Sam's Club.
It's the the supplier,
this large supplier managing the inventories in
the stores where the product is being sold.
The other idea, not quite a three letter acronym here,
we're talking about a four letter acronym, is CPFR.
It's collaborating right from the stage of your forecast,
not just exchanging information about your daily sales,
your weekly sales, but also in terms of forecasts.
What do you expect as a retail store?
And talking to your supplier,
to your large supplier and seeing what they expect.
The advantage there is that,
you get the idea of consolidated information.
You get the idea of planning for the future in a much better way,
when you have consolidated information across your suppliers and buyers.
Moving beyond the idea of the Bullwhip effect.
Even if we can take care of the Bullwhip effect,
or let's say that we don't have to worry about the Bullwhip effect anymore,
the idea that supply chains and need to be age out and adaptable,
is becoming more and more prevalent in the academic literature,
as well as with the practitioners.
What do we mean by agility adaptability?
And here, the simple idea is that agile means being able to flex,
depending on how demand changes.
So day to day changes,
weekly changes in demand,
and how a supply chain is able to flex to that.
And adaptability means more in terms of the long term.
Talking to suppliers in terms of new product development.
Talking to suppliers in terms of what is coming in terms of anticipated demand.
So, if these two components are being thought about,
or being kept an eye on,
it helps in general for the supply chain performance of any company,
of any kind of supply chain.
We're talking more generally than simply looking at the Bullwhip effect.
And more generally than looking at a particular type of supply chain.
All types of supply chains would benefit from these two aspects.
Finally, to close off this lesson on Supply Chain Management,
you can think of contracts,
you can think of incentives,
you can think of trying to get your buyers and suppliers moving in the same direction,
based on things that you build structurally into your relationship with the supplier.
But there is this other perspective of Supply Chain Management that says,
there is nothing to beat the idea of building partnerships with supply chain;
building relationships with supply chains based on mutual respect.
You select a supplier based on
the idea that they're willing to work with you for a long term.
And then, you basically have open books that you share with them.
They share their cost structure with you.
You share your new product development and it becomes a mutually beneficial relationship.
What happens there is you are trying to get
the benefit of the specialized knowledge of your suppliers,
but at the same time you're not trying to keep them distant from you.
You're sharing information with them,
and you're getting access to your information.
So there's the idea of having a supply chain relationship.
Now what this means, is that you reduce your supplier base.
This idea actually goes sort of counter to the idea of risk hedging.
You say, I'm going to have
fewer suppliers for my core products and I'm going to work very closely with them.
Not simply going to have multiple suppliers,
because of what if one supplier is not able to deliver, I go to the other one.
I'm not going to think about it that way,
I'm going to think about it more from working with that supplier.
Providing continuous feedback at all levels meaning, at the day-to-day level,
in terms of continuous improvement of their processes of things that go wrong.
So, if I'm a buyer and if there are defects in the components that are coming in,
I'm simply not saying,
you better send me better components,
you're saying, well let me work
with you in terms of what is the problem with the components.
Where are, we either not communicating to you what our needs are,
or how we can help you with the development of that component,
in terms of reducing the problems with that component?
So, providing the feedback to your supplier.
Having better capabilities from your suppliers.
Even having supplier alliances.
Putting your suppliers together in terms of,
if you're buying the same component from multiple suppliers across the world,
then putting them together and saying,
let's learn from best practices from all the suppliers, right?
Share information even across what
would have been conventionally thought as competing suppliers;
two suppliers that are competing to sell the product to you.
You're thinking of developing their capabilities
based on cooperation between you and them,
and among the suppliers.
Sharing information systematically and continuously all the time.
And, as we saw earlier,
involving them in continuous improvement.
Not just saying you need to have better quality,
and not just saying you need to have lower costs in terms
of helping them of their quality,
in terms of helping them in terms of their cost reduction.
You work with them. You help them with their cost reduction programs,
and then share the benefits of
this enlarged pie that you're able to make of better profits for the whole supply chain.
So, that's Supply Chain Management for you.
Gopesh AnandAssociate Professor of Business Administration
