Supply Chain has become a critical ingredient for the success of any organization. There was a time when corporations used to have five suppliers for each item to mitigate the risk of missing supply of parts. However, the cost of mitigating the risks due to variation and interruption in the supply of parts exceeded its benefits. As a result, supplier-relationship became an important aspect of reducing costs. Committed supplier relationships reduced some supplier risks but created other risks requiring contingency planning.
Improving supplier relationships led to more trust in suppliers, thus began outsourcing, which became a global phenomenon for a cost-competitive advantage. Growing outsourcing required better control of suppliers, and their lower tier suppliers, which organizations achieved through auditing the supplier quality management systems and ensuring critical processes were in place to receive the quality of outsourced work from suppliers and its next tier suppliers. There came the concept of a supply chain where a customer is attempting to ensure effective controls across and at all levels of suppliers for receiving good quality.
Initially, corporations outsourced components following by sub-assemblies, assemblies, full products, and even the design of a new product. Now, whether an entrepreneur or a Fortune 50 company, both depend on managing its supply chain as a significant aspect of value creation. To reduce the Carbon footprint, corporations are also looking into the reverse supply chain partners, where the obsolete or discarded products are returned to the supply chain partner for re-use, recycling, or repurposing.
Working with a supply chain partner is an act of modifying one’s business model in terms of vertical or integrated versus distributed operations. Over thirty years, managing the supply chain has become a new business process, a specialization requiring special skillset. Supply chain management has become a growing area, more in the innovative Silicon Valley, where new products are frequently developed. Managing a supply chain has many challenges, including customer requirements, roles and responsibilities, product and process knowledge, functional ownership and customer care, logistics, and communication, as discussed below.
Managing a supply chain starts with a decision to outsource one’s business process needs, which must ensure that the customer takes time in articulating the requirements thoroughly. Most companies focus on the functional product or the process requirements, and the other requirements become a second thought. In the global economic environment, customer requirements can be complex and many. However, I have not seen academic or industry work in standardizing a set of customer requirements necessary to supply the expected product in a timely manner and at an excellent performance level. Typically, requirements are incrementally communicated that puts the pressure on the supply chain to perform sometimes unrealistically, resulting in compromised deliveries.
Establishing a supply chain requires product knowledge, product structure, bill of material, intended manufacturing processes, expected performance levels, and finished product characteristics. Then, the product could be either outsourced to or manufactured in collaboration with a key supply chain partner, who would manage the entire supply chain. Otherwise, one can identify various supply chain partners and manage them at the systems or subsystem level. Once all the supply chain members have been identified, the required manufacturing mindset, expectations, and standards must be established uniformly across the entire supply chain.
"Managing a supply chain starts with a decision to outsource one’s business process needs, which must ensure that the customer takes time in articulating the requirements thoroughly"
In outsourcing a business process, including manufacturing or design, an important customer expectation is to pass the ownership to its supply chain partner. This requires a knowledgeable partner with excellence in process management and product quality and response time. Customer worries about the performance of its primary and secondary supply chain partners. A customer expects its primary supply chain partner to take care ideally of its end-to-end needs without any measurable effort by the customer, and have confidence in various processes to evaluate, qualify and manage lower-tier suppliers and ensure performance at every step. Besides, to prevent potential risks in case of a defective or questionable product, the supply chain must address the problem promptly to maintain customer confidence in the supply chain.
Another major issue in working with a supply chain, especially with global exposure, planning for the cost and issues associated with logistics. Sometimes, the logistics cost could exceed the cost of the product. Logistics must be planned optimally considering various modes and impact on product performance. Logistics may include handling, storage, preservation, shipping, delivery, and inventory management. Inter-continental or cross-national movement of goods can be a challenge due to the social and political environment in a country.
A customer expects its supply chain to be functioning like its extension, and the supply chain must frequently experience being in its customer shoes. Customers must treat their supply chain as its operations, while the supply chain must consider customer objectives its objectives. Good customers strengthen their supply chain through better communication, training, and early involvement. Customer and supply chain must ensure all requirements have been identified, project risk analysis has been performed, and supply chain processes, including controls and records, have been clearly identified. No matter the scope of the operations, a periodic review shall be conducted to ensure a smooth supply chain. Finally, it helps a customer to recognize the performance of a supply chain and reward it with growing opportunities.
Praveen Gupta is Director of Quality at Stephen Gould Corporation in the Fremont office, where he leads quality and supply chain management systems to keep customers happy. Praveen is a Fellow of ASQ and Certified Six Sigma Black Belt. He also teaches the Management of Innovation course in the Fall Semester at San Jose State University