Supply chain management is an important process as you know, because an optimized supply chain results in lower costs and a much faster production cycle. In today’s blog, we will learn in detail about the three root concepts of supply chain management.
1. System Concepts:it emphasizes interdependence not only between function within an organization and also among multiple organization that collectively deliver products and service to the customer for example those that Concept the supplier’s buyers from result in unintended losses and wastages.
A focus on efficiency and cost reduction at individual function level to exclusion of its impact on other function may lead to increased costs at another level within the organization, resulting in sub-optimized performance in the level of service provided to the customer beside lowering the overall value delivered to the end user.
For instance, companies-where production drive sales- may engage in large production runs to minimize set-up costs, without realizing the cost involved in carrying large inventories of finished goods that result from such an approach and which impact the profitability of the company.
Similarly, a failure to appreciate the inter-company interdependence can have adverse impact on the performance of the entire chain.
In situation where transporter linking manufacture and wholesaler choose to consolidate loads to utilize the vehicle carrying capacities to the maximum, and thereby save on transportation costs, may cause delays in replacement, resulting in loss of sale and revenue that may exceed the saving in transportation costs.
What matters therefore is not the functional-level performance or the link-level performance in the chain but the collective performance of the entire chain, which warrants identification and removal of both the intra and inter-company wastages and non-value added activities from the entire material flow.
2. Total cost concept: Flowing directly from the realization the businesses ought to be viewed as integrated systems an interconnected chains or networks involving multiple links, it has to be appreciated that value delivered to the customer can be maximized only if the total cost incurred by all the links in the chain or network serving the customer is minimized.
Once again we fin that function-level cost reduction or link-level cost minimization is of little consequence if the overall cost to the customer remains high, making the chain as a whole non-competitive the concept emphasizes the need for inter-company co-ordination,
co-operation, and collaboration in all activities from design and development to manufacturing and distribution to optimize the total cost, and thereby, maximize the value delivered to the customer.
3.Trade-Off Concept: the ‘’trade-off’’ concept enjoins upon the decision makers to explore the possibilities of choosing among alternatives or combination of alternatives in fulfilling a supply chain objective to minimize cost.
Faster transportation through a more expensive mode may be acceptable if it helps lower inventories carried and increases responsiveness to a time sensitive customer.
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