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Monday, 22 November 2010






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Supply chain and the rules of the game

This article is a continuation of the writer’s intention to make public awareness of the ‘supply chain’ process and for the benefit of students who would like to take-up career’s in this field which is today developing a good demand in the manufacturing sectors due to ‘globalization’.

Supply chain management is a difficult game to master. It requires you to move a great many pieces in a very specific ways, and you have to choreograph those moves to make each piece arrive in the right place at the right time.

It’s also a game that plays out on grand scale, with a playing field that spans the entire planet. Fortunately, the rules of the game - the descriptions of the pieces and the ways they move - are simple enough to be summarized in a few pages.

In a nutshell, supply chains consists of production and storage facilities connected by transportation lanes, and they exist to support the flow of demand, supply and cash.

The difficulty of managing supply chain comes primarily from the complexity that creeps into their structure and the variability that characterizes their flows.

It’s this complexity and variability that makes an easy game hard to master.

Facilities and links

A supply chain is a network of facilities, connected by transportation lanes, Facilities, Production facilities, storage facilities. Transport lanes are mode of transportation; they include roadways, railways, waterways, sea lanes, air lanes, and pipelines. Viewed in the largest context, supply chains consumers of the finished good, the people who actually put those goods to their intended purpose.

Facilities contain controlled quantities of materials called inventories. Production facilities hold inventory in three different forms: Raw materials inventory consist of materials ready for utilization in the production: work-in-process (WIP), inventory includes all materials currently being worked on: and finished goods inventory holds completed products ready for shipment.

Storage facilities vary: Warehouses usually contain only a single kind of inventory, but distribution centers that do the final assembly all three kinds.

Cross docks, which are used only to transfer goods between trucks, do not contain any in separately managed inventory. Retail stores also vary in, this regard.

Custom bicycle shops have all three types if inventory warehouse-style stores contain only one and some appliance stores carry none at all.

Lanes are used by vehicles and containers

Lanes are used to move inventory between facilities along a particular mode of transportation, using a combination of vehicles and containers.

Some vehicles, such as a truck and railway engines, can be decoupled from their containers, whereas other such as delivery vans and tanker ships, have container holds the cargo built in.

Decoupling is an important consideration because it offers more flexibility in routing, dispatching, temporary storage, and other transportation activities. In case of pipelines, the functions of the vehicle and the container are merged with the lane itself, with pumps providing the motive force and pipes containing the inventory in transit.

Transport modes offer trade-offs

Each mode of transportation offers a unique mix of speed, cost, availability, and capability. For example, shipping by air is fast, expensive, available from all large cities, and limited to small and lightweight packages.

By contrast, shipping by sea is slow, cheap and availability only to cities with ports, and virtually unlimited with regard to size and weight.

There are also different volume trade-offs within each mode. In trucking it is much cheaper to send full truckload (FTL) shipments than to use less-than truckload (LTL) shipments, and the FTL option offers tighter control over the routing and timing of the shipment.

However, using FTL shipments requires building up more finished goods inventory and may cause delays in shipments. Similar trade-offs apply in the other modes.

Shipments can use multiple modes

Shipping within a limited geographical region normally uses a single mode from source to destination. For larger distances, including most international trade, shipments generally use two or more modes, a practice known as Intern-modal transportation.

For example, a shipment might travel by rail to the nearest seaport, cross the ocean by ship, and travel rest of the way by truck. Inter-modal shipments are usually enclosed in steel containers that can be transferred between specially fitted rail cars, container ships, and tractor trailers.

Like facilities, transportation lanes contains inventory. This in-transit inventory bridges the gap between the shipping facility’s finished goods inventory and receiving facility’s raw material inventory. In-transit inventory is different from other forms, in that it is unavailable for use. Is at high risk of loss from theft and accidents, and is subject to delays due to vehicle breakdown and lane congestion. Along with raw materials, work in progress, and finished goods, In-transit inventory represents the fourth major type of inventory.

The distinction between in-transit inventory and the two inventories it connects is often blurred in practice. Trailers or railcars are frequently used to store finished goods at production facilities until full loads are produced, In which case the goods are still part of the plant’s finished goods inventory.

But if the storage is brief and the destination of the goods is determined by the choice of containers, the goods in the container may be treated as inventor in transit as soon as they are loaded.

Similar issues come up at the destination. Where full containers may sit for days or weeks in a yard before being unloaded. In one rather perverse practice, railway care are actually kept on the move, circling in wide arcs around the facility, until there is space to park them in the yard.

This is a very expensive way to hold inventory.

Package carriers are viewed as a mode

Although they don’t make use of a separate transportation medium, package carriers such as UPS and FedEx are commonly viewed as a distinct mode when making transportation decisions. In reality, these carriers use a mix of air and highway transport to deliver their packages, using their own fleets of aircraft and trucks.

As a practical matter, however, it doesn’t matter how a package is conveyed because that decision is out of the shipper’s hands, so using a packages carrier is viewed as an alternative on a par with shipping by air, land or water. The trade-offs discussed for the other modes also apply to package carriers.

They are fast, relatively expensive, available in most locations, and limited to relatively small, lightweight products.

Demand, supply, and cash

The essential goal in managing a supply chain is to achieve an orderly flow of goods from extractors to consumers.

It should not be surprising, then, that the deepest roots of the discipline can be found in transportation management, which is responsible for moving finished goods to the next link in the chain.

Over time, transportation management merged with a related function, materials management, to form the broader discipline of logistics, which handles the flow of materials all the way from suppliers through the three internal inventories already explained in this article to the end customer.


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