Every business has a supply chain, and some supply chains are longer than others. Even if you have a shop or kitchen in which you make everything from scratch, you still have to get your supplies from somewhere.
We tend to think of a supply chain as something resembling a chain—like this:
The customer, by the way, isn’t considered part of the supply chain because he doesn’t supply anything.
The supply chain is also called the value chain because each person at each link of the chain adds value to the product.
Actually, your value chain is far more complex than the illustration you see here. If supply chain management (SCM) were as simple as this illustration seems to show, SCM would be a very simple matter; and this lesson would not be necessary.
To take only one example, let’s look at the wheat farmer. He’s not at the beginning of the value chain; he’s actually somewhere near the middle. What’s more, you can now see that it’s not a simple chain; it’s more like a network. Each of the other links in your value chain is just as complex as this one—often more so.
What kind of problems could result in just this part of your value chain? Let’s look at a few examples:
1. Grain merchant: Over 80% of all grain is a genetically modified organism (GMO), or at least partly so. How can you be sure that your bread is non-GMO?
2. Pesticide manufacturer: Types of pesticides range from natural to fairly safe to hazardous. What about the pesticides used on the wheat in your bread?
3. Fertilizer distributor: How can you be sure that the fertilizer used to grow the wheat in your bread meets with soil and water regulations or your customers’ idea of what kind of fertilizer is acceptable (for example, natural)?
4. Farm laborers: Are the farm laborers treated according to fair labor standards?
If even one thing in your value chain goes wrong, it can hurt your reputation and your business. So, you see, SRM isn’t just a matter of watching your back or looking over your shoulder. You have to know what’s happening everywhere in the value chain.
Okay, so maybe you’re thinking, “Oh, it’ll be rough at first, locating only sources I can trust. After that—well, how complicated can it be? It can be very complicated. Like it or not, the world is now a global village and you’re faced with world-class competition. Some of your sources are likely to change from one month to the next.
Look at it this way:
Suppose you made and marketed a food item that had 20 ingredients. You buy each ingredient with three things in mind: cost, trust, and reward. For now, let’s focus on one: cost. After careful bargaining with your suppliers, you may find yourself buying from 20 different suppliers.
Your agreement with some may be for a few months; with others, it may be for only a month. The batch you make this month, then, would not be identical to the one you make next month, because you won’t have the same 20 sources next month. If only one source is different, the next batch will be slightly different.
With proper quality control, however, no one should be able to tell one batch from the next. They should all be of the same high quality.
Now consider that each of your sources has his sources. That further complicates things, doesn’t it?
Think of what happened to the American toy marketer Hasbro in 2008. In the United States, it was illegal to use lead paint for household purposes; and it was illegal to import household purpose items (including toys) containing lead. At the same time, lead paint was legal for most uses in China.
Hasbro sourced a Chinese company to do the finishing touches on some of their most popular toys. The Chinese company agreed to Hasbro’s demands that only a certain kind of paint would be used. This company subcontracted the paint job to another Chinese company under the agreement that the latter company would use only the paint provided by Hasbro’s source company.
This other company then used cheaper paint—which contained lead. In August 2008, hundreds of thousands of Hasbro toys were recalled, Hasbro lost millions of dollars in profits, and the CEO of the Chinese source company committed suicide. Under Chinese law, the dishonest company CEO had done nothing worse than violate a contract.
In September 2008, China banned the export of lead-contaminated products.
Among all of your sources and their sources, how can you be sure that not even one of them will accidentally or dishonestly do something wrong?
If one of your sources does something that can harm your company’s reputation or business, it probably is the result of one problem in one batch, caused by one source. Maybe the offending source was your source for only one batch: say, the one your company produced for October of this year. Did you, by chance, use that same source company for January or some other month? You don’t remember? Of course, you don’t!
How do you keep track of it all? Using pen, paper, and a pocket calculator, you can’t. Modern businesses have to rely on watchdog groups, government agencies, and information technology (IT).
Watchdog groups:
Watchdog groups are usually non-governmental organizations (NGOs) that watch the behavior of businesses to make sure they do what the group thinks that the businesses ought to do.
To give a few examples, environmental groups monitor businesses for environmental responsibility; labor groups monitor businesses for their treatment of workers; consumer watchdog groups monitor businesses for the safety and health of their products.
When an NGO sees something wrong in a company’s supply chain, they usually protest directly to the company. The company often appreciates the NGO bringing the problem to their attention. For that reason, many companies and NGOs work together on a problem instead of opposing one another.
In an earlier lesson, you learned that Starbucks works with rainforest preservation groups, labor groups, native rights organizations, and other NGOs to make sure that their company has a reputation for corporate social responsibility (CSR).
If NGOs are not satisfied with the company’s response, they may protest in public and ask people not to buy that company’s product. Then the company will have a CSR problem and can lose customers.
Government regulatory agencies
Governmental regulatory agencies also serve as watchdog groups, but they have the power of government behind them. They can use force, arrest businessmen, fine them, or, in some cases, entirely shut down the businesses.
Information Technology (IT)
In today’s business conditions, companies have found that they need to use information technology to keep track of their rapidly shifting supply chains. Large businesses often use radio frequency identification (RFID) for supply chain management (SCM). RFID, however, is too expensive for most companies and can be used only under limited conditions.
That strange-looking square didn’t come from a low-budget science fiction movie. It’s a means of storing information about a company’s product. It’s capable of linking to far more information than a bar code could possibly hope to achieve.
The Japanese invented QR Codes to keep track of items in their supply chains. Each batch of each product is assigned a different QR Code.
Someone with a cell phone camera can photograph a QR Code from almost any angle, even if part of the image is damaged, and gain information about the product or that particular batch.
Store shoppers or anyone anywhere along the value chain at any time can photograph the QR Code and download it to his computer. The image is then sent to a special website. All accessible information related to that particular batch of that particular product instantly becomes available to anyone anywhere along the value chain.
QR Codes aren’t just a monitoring tool. Some Japanese companies are using QR Codes as a subtle advertising tool. For example, you may want your customers to know more about the health benefits of your product than you can write on the package. QR Codes make an excellent link to further information.
A Final Word on Supply Chain Management (SCM)
We’ve spent most of this lesson discussing how supply chain management is necessary ensure quality control and to avoid CSR disasters. A word on supply chain negotiations is in order.
You succeed in business by giving your customers a product or service he demands at a price he’s willing to pay and of such quality and reliability as he expects (cost, trust, reward). That’s the basis of your negotiations with your suppliers.
You negotiate quality, quantity, cost, just-in-time delivery, service, and everything else that may give your business a competitive advantage. This is not a course on how to negotiate. It’s just a reminder that you mustn’t overlook anything in negotiations. If you overlook even one important point, your competitors may not.
Now it’s your turn!
Tell how you would monitor your supply chain. This should be included in your group’s final exam presentation.
No comments:
Post a Comment