14 – Supply Chain logistics Administration

Introduction

The Logistics Function is critical to fulfilling any company’s twin goals of superior customer service and cost reduction. The goal of a logistics strategy should be to be proactive to gain a sustained competitive advantage in a volatile business environment. The new competitive framework of Logistics as a service function contains the following characteristics: responsiveness, dependability, relationship, and rationalisation. The primary driver of the supply chain is the idea that for a single firm to compete successfully in a market with expanding customer demand, escalating competition, and so on, it must seek partners ready to share risks and gains. It must engage in collaborative activities and work collaboratively to demonstrate higher performance. Through the supply chain, firms enter into inter-firm integrative and cooperative agreements. The supply chain’s strategic role is to ensure improved performance through linkages that would not be achievable if enterprises operated independently.

This entails integrating the operational operations of numerous businesses into a single, integrated supply chain system. It enables each firm to adjust for its own deficiencies and resource limits. They can accomplish this by collaborating with other companies that have complementary qualities. This allows all enterprises to direct their resources toward areas where they believe they can make the most significant difference. Relationship management fosters these types of processes.

14.1 Relationship Development Management

Maruti Udyog, India’s largest automobile manufacturer, is a pioneer in supplier relationship management. In 2005–06, their revenue was 12,481 crores, while their profit before tax was 1,750 crores. Maruti sold 561,822 vehicles in 2005–06, accounting for more than 55% of the market. Maruti Suzuki deals with around 7,100 components for its eleven primary models. 70% of its suppliers are located within a 100-kilometer radius of its Gurgaon plant. They meet more than 80% of Maruti’s requirements in terms of value, which were 7,150 crores in 2005–06.

220 recognised vendors supply the key components for Maruti. The top 80 merchants deliver 86 percent of the purchases in dollar value, while the other vendors only provide 14%. Maruti has also formed collaborative ventures with many of its suppliers. Joint ventures supply just 34% of the 86% of components supplied by vendors; other vendors provide the remaining 52% by value. These 80 vendors are thought of as strategic partners. Only 20 to 30 of them are joint ventures with Maruti.

Maruti has a variety of programmes with essential partners. Their priority is vendor productivity and quality. Maruti has a significant influence on increasing vendor productivity. They regularly organise Junkai VA or cost workshops with their merchants. Junkai is a Japanese term that translates to “visiting.” It comprises three parts known as Gs: Gemba, Gembutsu, and Genjitsu.

Maruti has also formed a group known as the Maruti Centre for Excellence. This crew always goes to suppliers to enhance them. They audit their suppliers’ operations and create a spider chart. The spider chart has 22 points. These 22 criteria are used to evaluate each vendor. They offer more business on the next new model to vendors that score more than 60% on the spider chart. Every seller makes every effort to exceed this standard.

They’ve also kicked off the second-tier progress in a significant way. This is the most recent effort they launched a year ago. As a result, the quality of the second-tier vendor has improved. They have also begun ‘green projects.’ All of the packaging has been converted to reusable packaging. Maruti has lately implemented a system of checking the pollution levels of each truck entering Maruti; if the pollution levels are incorrect, the car is returned. This demonstrates to their vendors that Maruti is concerned about the environment.

The Kaizen idea at Maruti is to make things smaller, fewer, lighter, shorter, and more beautiful. They practice it in their factory and have regularly taught it to their vendors. It reduces material utilisation while increasing yield. Along with the CII and USAID, they have launched a programme to assist their suppliers in obtaining ISO 14000 certification. They have also begun an ELV compliance programme. Though this is not required in India, the aim is that by the time the necessity comes to India, all of their vendors will be adequately able to handle it. They also have an initiative to reduce vendor finance costs. They form a queue with banks to ensure that their suppliers’ debts are shifted to cheaper interest rates, and so on. Maruti has grown more flexible and leaner as a result of these measures.

As you can see, excelling in supplier relationship management is complex and requires a lot of effort and work. It would be best to strike a balance between motivation and risk. However, the end result is worth it. In 2005–06, Maruti taught approximately 16 vendors, with a total savings of 1,580 man hours daily, resulting in over one crore rupees annually. From 2001 to 2005, they could lower component prices on the Alto by 29%.

What is true for Supplier Relationship Management is valid for all other supply chain partnerships. Relationship management is an essential aspect of SCM. It fosters long-term, reciprocal, and interdependent connections. Its goal is to improve the quality of interactions between organisations (e.g., buyers and sellers), and to take steps so that they can cooperate and communicate better, develop trust, and mutually develop the types of governance structures that are required to contribute to the supply chain’s efficiency.

This is the strategic role of the supplier-buyer relationship. It describes how such interactions are managed. It also covers why organisations join inter-firm collaborative supply chain arrangements and how they share risks and profits.

14.1.1 Relationship Management

Relationships have historically been regarded as immaterial. For over a half-century, there has been a dispute concerning the worth of tangible and intangible assets to firms. Many believe that intangible assets are essential in today’s competitive market and can provide a competitive edge and above-average financial returns.

When we talk about intangible assets, we primarily refer to two types: relational and intellectual. Relational market-based assets are the outcomes of a firm’s relationship with key external stakeholders, such as distributors, retailers, end-customers, other strategic partners, community groups, and even governmental agencies; and intellectual: intellectual market-based assets are the types of knowledge a firm possesses about the environment,

Relational assets have become increasingly significant to enterprises due to the internet’s impact on shifting the market and its value drivers into stakeholders’ aspirations and ambitions. Organizations have become increasingly aware of the importance of relationship management as a source of competitive advantage.

This critical duty has fallen mainly within the purview of the supply chain. The supply chain is essentially an organization’s customer-focused, value-maximizing function. In recent years, it has also become a strategic weapon for competitive advantage. Relationship management may be the most demanding of all supply chain managers presently conducting operations.

Relationship management aims to improve operations and supply chain performance by enlisting the help of other companies. Underlying the difficulty is how effectively trust is institutionalised between customer and supplier, especially when trust is most vulnerable to breakdown.

Over time, trust is built by doing things together and in a coordinated manner. There shouldn’t be any big surprises. Surprises wreak havoc on relationships. If this occurs at any link in the supply chain, the consequences can be disastrous for all other supply chain members. Failure is unacceptable when the stakes are so high. This is evidenced by the gradual increase in businesses emphasising relationship management.

Organizations must manage connections on all fronts to develop an effective and successful supply chain—with their upstream suppliers, internal suppliers, and downstream customers. In each of these partnerships, the buyer and seller must consider each other as partners, assisting each other to the greatest extent feasible.

Relationships with a cooperative attitude imply long-term commitment, collaborative quality work, and buyer support for the supplier’s managerial, technological, and capacity growth, as well as vice versa. Establishing strong supply chain partnerships in India may be difficult, as it is in Japan. However, concentrating on these ties is even more critical in such circumstances.

The supply chain relationship management processes can be categorised into the following categories based on their focus:

1. Customer Relationship Management (CRM): All processes focus on the firm’s customer relationship.
2. Internal Supply Chain Management (ISCM): All internal firm processes.
3. Supplier Relationship Management (SRM): All operations centre on the interface between the company and its suppliers.

Supply Chain Macro Processes

14.1.2  Customer Relationships Management (CRM) Focus

CRM is a method for learning more about customers’ wants and behaviours to build closer relationships. CRM processes include those that aid in the collection of a wide range of data on customers, sales, marketing efficacy, responsiveness, market trends, order management, and call centre management. Its primary goal is to build client demand and make order placement and tracking easier.

Relationships in the supply chain are not restricted to external vendors. Personnel from internal suppliers are also included in supply chain connections. Furthermore, systems and procedures like quality information, client order information, or point-of-sale information, among others, help strengthen relationships. Personnel in many functional areas who join the supply chain network gather or generate this information and data. You should also include any supply chain activity that necessitates the involvement and feedback of other company functions, suppliers, and customers.

For example, in process selection, engineering and information technology assist in identifying and developing the required technologies. Personnel, often known as human resources, identify the skills and training programmes needed to make the system “operate.” Marketing and customers give information indicating that the procedure fits the customers’ needs. Finance can tell you whether or not the methods have improved. It can also assist when processes necessitate a significant resource investment by suggesting ways to obtain the funding.

14.1.3  Internal Supply Chain Management (ISCM) Focus

As the Figure depicts, the organisation has a complicated network of critical ties. The ISCM processes, exclusive to a particular business unit, must address these issues. Aside from collaboration with various functional areas, efforts should encompass internal production and storage capacity planning, demand and supply forecasting, and internal fulfilment of actual orders.

ISCM focuses on the internal supply chain to break down internal barriers and promote corporate integration. Its responsibility is to achieve the company’s and the supply chain’s goals and objectives.

The organizational design significantly impacts the success or failure of the ISCM integration endeavour. Organizational design encompasses various elements, including organizational structure, communication methods, labour division, coordination and control, and authority. Modifications and alterations are sometimes required for corporate integration.

Internal Relations

Functional groups (engineering/R&D, manufacturing, and sales/marketing) all have a role in developing, building, and selling items for the supply chain in the most efficient way possible. This collaboration is desirable because it increases the supply chain’s ability to match supply and demand properly. However, many businesses discover that the various functional units communicate relatively little. For example, marketing and production may have conflicting forecasts when developing plans. Multiple components of the company must work together to align purchasing, processing, and logistics. ISCM focuses on internal development. The goal is to meet the demand produced by CRM processes in a timely and cost-effective manner by eliminating costs associated with sourcing and transportation.

14.1.4 Emphasis on Supplier Relationship Management (SRM)

The macro process of SRM seeks to plan and manage supply sources for various commodities and services. Supplier relationship management (SRM) is a complete strategy for managing an organization’s connections with suppliers. Its goal is to streamline and improve the processes between a company and its suppliers. This is comparable to customer relationship management (CRM), which facilitates and enhances the company’s and customers’ operations.

SRM represents the need to integrate the entire supply chain – and to do so in a way that preserves flexibility, opens its business infrastructure to the ideas, knowledge, and networks of others, and allows it to shed supply chain segments that partners can better manage. SRM practices establish a consistent frame of reference for effective communication between a company and its suppliers, who may employ different business processes and languages. SRM processes involve evaluating and selecting suppliers, negotiating supply conditions, communicating with suppliers about new products and orders, and integrating with the expertise of others.

The three macro-operations are all aimed at the same customer. The firm’s organizational structure, however, significantly impacts system integration. Marketing is often in charge of the CRM macro process, manufacturing is in charge of the ISCM microprocessor, and purchasing is in charge of the SRM.

The supply chain’s collaboration and coordination costs rise in tandem with the rate of change in the marketplace. To remain competitive, a proactive approach to managing client needs is required. This necessitates supply chain flexibility while decreasing hidden expenses and transaction costs.

Example: Accelerating information sharing electronically can help partners cut manufacturing cycle times. Inventory can be seen in real-time, reducing forecasting errors. This will help achieve the goals of delighted customers and affordable costs.

14.2 Operational Performance

Supply chain management considers operational elements such as purchasing/supply organisation to be the integrating mechanism in the firm’s internal and external exchanges. Operations managers must respond imaginatively to internal customers’ needs while maintaining a mutually lucrative relationship with suppliers. The internal exchange function of purchasing stresses an organization’s interlocking relationship between input, throughput, and output.

The purchasing and supplier organisations’ external exchange connection is interactive. Both buyers and sellers are active in commercial marketplaces, undertaking identical responsibilities such as preparing specifications to requirements, locating counterparts, negotiating, and attempting to regulate transactions.

Supplier marketing techniques influence customer purchasing strategies and vice versa. Purchasing is more than just buying in the context of an engaged buyer-seller interaction, just as marketing is more than just selling.

Managing and integrating internal/external and upstream/downstream supply chains are operational tasks. If the operational function is to contribute to corporate goals and strategies effectively, its practitioners must become wholly integrated into the customer-employer-supplier chain. SCM has three key operational dimensions:

• Strategic procurement aligns procurement duties and supplier performance with the firm’s corporate and business strategy.
• Supplier-base management, also known as strategic purchasing supplier relationship management, manages the structure and culture of supplier relationships.
• Create a lean supply organisation by energising teams with adaptable architecture and responsive information systems.

Typically, the following activities are included in an organization’s operational dimensions:

• Get the fundamentals right: Getting the fundamentals correct decreases the amount of time spent interfering on an as-needed basis in day-to-day tasks. It also alleviates concerns regarding efficiency and reactivity. If the day-to-day operations go well, purchasing will have the time to take a more strategic approach.
• Use cross-functional short-term project teams: These short-term projects can help to unfreeze existing views regarding how activity is carried out. A cross-functional approach enables consideration of further upstream concerns, such as material specification, strategic make/buy analysis, etc.
• Develop the organizational architecture that will support it. Organizational support for strategic operations often focuses on five elements: leadership, organizational structure, people development, performance assessment, and information systems. Typically, organizational reforms include the formation of a corporate-wide purchasing leadership group. Organizational structure and decision-making are generally altered to allow for the formation of an effective network. Other changes include upgrading the organization’s capabilities, adopting suitable performance indicators, and creating a centre-led structure with regular cross-functional project teams.

14.3 Financial Performance

The overarching measure of the suitability of supply chain structure might be the evaluation of financial performance, including the compilation of profit and loss statements. Financial evaluation should consider operational and dynamic characteristics to capture comprehensive financial drivers and consider the real-world functioning of the supply chain. The review would be thorough rather than partial performance.

Financial evaluation using the profit and loss account is significantly more influential since it reflects the overall effect rather than immediate local consequences. Measuring financial impacts can be complex since many financial drivers within a business must be captured. Financial impact measurement at the corporate level is uncommon, and the reported cases of such measurement in a supply chain setting are more abstract.

A comprehensive supply chain design methodology must have the proper scope, detail, and assessment to measure the design’s performance and be useful for implementation across the supply chain. Even though other supply chain metrics can be employed, financial performance is the most potent; financial measures take a global, all-encompassing perspective of the organisation rather than selective, localised measurement. Balanced scorecards can be used to examine finance, customers, processes, and areas for learning and growth. However, from a hierarchical standpoint, finance is at the top due to market performance that is aided by business processes and sustained through learning and development. It is suggested here that while operational/business process metrics are essential, they should be supplemented with financial analysis.

The financial perspective addresses the issue, “How should we appear to our shareholders to succeed financially?” and is often tied to profitability. Some examples include Return on Investment (ROI), Return on Capital Employed (ROCE), and economic value added (EVA).

14.3.1 Asset Utilization

The concept of asset utilisation is related to collaboration. Many transportation corporations have begun accumulating equipment asset information through web portals, community networks, and location-tracking technologies in response to rising financial, customer service, and environmental demands. This search, which is still in its early phases, is an attempt to connect and administer their equipment networks more effectively. This focus is valid, and some transportation corporations are currently implementing it.

The future appears to point to the concept’s practical application. With rising financial, customer service, and environmental demands, this has the potential to become a tool for managing equipment supply and demand. By exchanging equipment with any transportation provider on demand, anywhere in the world, company resources will be optimised while customer happiness will improve. As this comes to fruition, transportation providers can provide higher-value end-to-end services, boost consumer appeal, and reap the multi-fold economic benefits of increased asset utilisation.

14.4 Social Performance

In response to numerous financial mismanagement by significant corporations (SOX), the United States Congress passed the Sattanes-Oxley Act in 2002. Although the law primarily focuses on financial reporting by firms to their shareholders, it became apparent shortly after its passage that it also has significant consequences for logistics and supply chain management, particularly in how performance is assessed and reported.

14.4.1 Supply Chain Safety

Supply chain security refers to initiatives to improve the security of the world’s cargo supply chain, including transportation and logistical systems. It blends standard supply chain management principles with security requirements imposed by risks such as terrorism, piracy, and theft. Some analysts are worried about the overkill of supply chain security.

Typical supply chain security activities include credentialing supply chain participants, screening and validating the contents of cargo being shipped, advising the destination country of the contents, and ensuring cargo security while in transit through locks and tamper-proof seals.

Upon arrival, the cargo is inspected.

International trade is a significant contributor to global economic growth. Cargo supply chains are complicated in today’s globalised world, involving a large number and variety of stakeholders. Unfortunately, these supply networks are prone to exploitations such as theft, pilferage, and, in the worst-case scenario, exploitation by terrorists to achieve their own goals. As a result, protecting against such eventualities is critical, as the global trade system cannot afford the implications of a devastating strike.

As the saying goes, a chain is only as strong as its weakest link. Securing the supply chain entails securing each node and link along the chain, resulting in a chain of responsibility extending beyond each node and its links. The supply chain must be secured, beginning with the safe and secure packing of the shipment. Steps must be taken to dissuade or provide warnings of any tampering with the shipment as it advances progressively from the point of packing to the ultimate site of deconsolidation.

Several countries and international organisations have developed programmes that include standards and best practices for guaranteeing cargo security, processes, and persons involved in all supply chain movements. Here are a few examples of supply chain security programs:

• Customs-Trade Partnership Against Terrorism (C-TPAT) of the United States;
• The European Union’s Authorized Economic Operator (AEO) programme;
• New Zealand’s Secure Exports Scheme; and
• The World Customs Organization’s Framework of Standards to Secure and Facilitate Global Trade (ISO/PAS 28000, 28001).

REVIEW QUESTIONS:

1. How can you elucidate supplier relationship management by providing an example for better understanding?
2. Can you discuss the two types of intangible assets and their significance in business operations?
3. How can you explain, “Trust is developed by doing things jointly and in an aligned fashion over some time”?
4. Can you highlight the classification of supply chain relationship management processes based on their focus?
5. Describe the Supply Chain Macro Processes in detail.
6. What is the definition of CRM (Customer Relationship Management) and what is its importance in modern business practices?
7. Provide a brief overview of the Internal Supply Chain Management (ISCM) Focus.
8. Can you explain the interactive nature of the external exchange relationship between purchasing and supplier organizations?
9. Discuss the operative dimensions of organizations and their relevance in business management.
10. Highlight the three primary operative dimensions of Supply Chain Management (SCM) and their significance in optimizing business operations.
11. Elaborate on Asset Utilization and its role in enhancing efficiency within the supply chain.
12. What is the concept of supply chain security, and why is it essential in today’s business environment?