Let’s learn about Integration with Other Business Processes. Logistics and SCM interfaces with other corporate functions, the major ones being with production, marketing and finance. There are many occasions when the importance of these corporate relationships has been emphasized, not least because of the move to a cross-functional, process-oriented view of the supply chain. This importance is particularly valid where the planning of corporate strategy is concerned.
The interrelationships of logistics with other functions, is as
- With production – Production scheduling, Production control, Plant warehouse design, Raw material stocks, etc
- With marketing – Customer service, Packaging, Distribution centre location, Inventory levels, Order processing, etc
- With finance – Stock-holding, Stock control, Equipment financing, Distribution cost control, etc
The need to include the planning of logistics and distribution into the overall corporate plan is thus self-evident. Even within this strategic framework it can be seen that distribution and logistics factors should provide a vital input. Within the strategic planning process, such elements as market analysis and policy determination cannot be derived without an understanding of customer service requirements and channel choice alternatives. With any policy assessment exercise and in any subsequent determination of competitive strategy, knowledge of key logistics elements is essential. Any factors related to the procurement, storage and movement of goods must, of necessity, be relevant to the determination of a company’s business processes
Integration by Function
- Many companies approach integration on a function-by-function basis, focusing first on functions for which integration offers the highest returns. Although the focus differs from industry to industry, inventories, procurement, inbound logistics, manufacturing operations, and distribution of products and services are the functions most frequently integrated. All-inclusive approaches encompass functions ranging from raw materials extraction through manufacturing and distribution to the customer and back. A ”closed loop” approach includes asset stripping and the rework or recycling of products returned by customers. It is an important function of Business Processes
- A well-integrated supply chain must be open to “functional shiftability” (i.e., the assignment of functional responsibility to members of the supply chain best positioned to perform those functions at the lowest overall cost or in the shortest cycle time). Realignment of such activities within the supply chain should be reflected in a commensurate shift in benefits and risks.
Integration by Process
- The effort required to identify key functional activities and their interrelationships has caused many companies to change from integrating and managing supply chains by functions to integrating and managing them by process (process management). These companies typically use business process architecture to analyze processes and supply chain relationships in successive levels of detail. Viewing the supply chain as a set of integrated process capabilities rather than as separate corporations and functions can provide critical insights that can be used to improve performance. In this way, complex activities can be coordinated to great advantage between functions and redundant or non-value-added activities, such as administrative or multiple entries, can be eliminated. It is an important function of Business Processes
- Integration is most beneficial when it occurs across multiple processes that have significant effects on supply chain performance, such as information technology, marketing, and finance. Integration across multiple processes can enable customization of the supply chain according to delivery channels, manufacturing requirements, or market segments.
Logistics and Customer Service
Customer service policy is an on-going process of increasing both the quality and number of links between the manufacturing organization and the customer. The whole emphasis in today’s service intensified businesses are to increase a series of both human and information based technological relationships between customer and the organization so that better customer services and satisfaction to the customer can be realized. It is an important function of Business Processes
From a more comprehensive viewpoint that regards customer service as the combination of the firm’s activities, performance standards, and philosophy, the elements of customer service can be grouped into three distinctive phases of the interface between the firm and its customers, as
- Pre-transaction elements – They are characterized by non-routine, policy-related activities that require management input due to their significant impact on product sales.
- Transaction elements – They are those activities that are most commonly associated with customer service. Therefore, when emphasis has been placed on customer service, transaction elements receive the most attention from management.
- Post-transaction elements – Post-transaction elements of customer service focus on post-sales support.
Manufacturing/logistics issues at the interface for better customer service are as follows
- Forecasting Demand: Product forecasting in the short to midterm contribute to the process of ensuring the availability of stock for customers. This includes the use of distribution requirements planning wherever appropriate. For the longer term, forecasting at the product group level is crucial for manufacturing capacity and flexibility decisions
- Customer and Supplier System: Organizational systems will need to be directly related to the issues of how to bind the customer more tightly to the organization and how effectively integrate suppliers into the overall supply chain with the objective of enhancing customer oriented service
- Plant Configurations: Both cost structure and service levels impact heavily on location, nature and operating performance of manufacturing facilities, central warehouses and branch warehouses. In the longer term, and in conjunction with other factors (systems, supplies), the plant/branch configuration is a major structural input to reducing overall supply chain costs
Logistics and Marketing
An organization is able to distinguish itself from its competitors by offering a total service with logistics forming an essential part of the total value chain. The most prominent components of interaction between logistics and marketing include
- Pricing: Since the costs involved in bringing the product from its warehouse to the selling counter is included in the pricing, the right strategy in logistics can increase or decrease the price
- Product Design: If the product is bulky, a special warehouse will be needed. Example – If apples have to be transported a cold storage is required
- Customer Service: Customer if doesn’t get the product at the right time, he may switch to some other brand. Thus marketers and logistics people work together to ensure delivery of the product according to customer needs
- Market and Sales Forecasts: Forecasting can only be done after logistics department provides the planning and in detail supply chain activities on paper to the marketing team
- Location and Number of Warehouses: Though this is a question that logistics has to answer but it entirely depends on the marketing team because they know the demand and supply
- Inventory guidelines: Inventory policies have an important bearing on operational costs and the extent to which desired levels of customer service are achieved. Under this component the policy should be developed jointly
- Processing of orders: Orders can only be fulfilled once the logistics team has made sure the product is available for selling at the right place and right time
- Distribution Channels: The level of logistics resources required is greatly affected by the decisions to deliver direct to the customer or through intermediaries. Example – If the marketing team thinks they want to use more money on advertising and less on the commissions given to the channel partners, logistics group might have to cut down on the supply chain to meet the requirements of the company.
The fundamental dimensions of customer service are Availability, performance and reliability
Definitions of Business Processes
- Availability: Availability is the capacity to have inventory when it is desired by a customer. The three measures to check availability are stock out frequency, fill rate and order shipment
- Stock out frequency: Stock out frequency is a measure of how many times demand for a specific product exceeds availability. Stock out frequency is a starting point in measuring inventory availability
- Fill Rate: Fill rate measures the magnitude or impact of stock out over time. If a customer orders 50 units and only 47 units are available, the order fill rate is 94 per cent (i.e., 47/50)
- Order shipped complete: order shipped complete is a measure of times that a firm has the entire inventory ordered by a customer. Order shipped complete establishes the potential times that customers will receive perfect orders
- Base stock: determined by forecast variance requirements and held to support basic availability
- Safety stock: To cover demand that exceeds forecasted volumes and to accommodate unexpected operational eventualities. Safety stock exists to accommodate forecasted and cushion delivery delays during base stock replenishment
- Operational performance speed: Performance cycle speed is the elapsed time from when an order is placed until shipment arrival viewed from customer’s perspective. Typically, faster the planned performance, the lower the level of inventory investment required by customers
- Consistency: Consistency refers to a firm’s ability to perform at the expected delivery time over a large number of performance cycles
- Flexibility: Operational flexibility refers to a firm’s ability to handle extraordinary customer service requests such as product modification or customizations for specific markets or customers, new product introduction. A firm’s overall logistical competency depends on the capability to “Go an extra yard’’
- Malfunction/Recovery: During service failures, capability to have contingency plans and to anticipate the service breakdowns and have recovery
- Reliability: Logistics quality is all about reliability. Ability to comply to levels of planned inventory availability and operational performance is key to provide reliable service
Metrics for Integration with Other Business Processes
Participants in a supply chain are unlikely to achieve their collective goals unless their performance measures (metrics) and incentives are aligned. Hence, metrics and incentives must be clearly and carefully defined, mutually agreed-upon, and monitored by all participants. Participants should be held accountable for some of each other’s performance measures. It is an important function of Business Processes
To date, very few companies have succeeded in assessing the performance of their supply chains as a whole. Nevertheless, performance should be measured both on a highly aggregated basis and within specific segments. Although specific metrics must be tailored to the circumstances, the following metrics can be used for high-level assessments:
- profitability
- decision response time (time to make and implement key decisions throughout the chain)
- return on investment
- return on assets
- technology (the status of and ability to deploy value-enhancing technologies)
- product development time (the elapsed time from concept through initial delivery)
- shared risk (the extent of risk minimization and sharing throughout the chain)
- planning (the extent to which both strategic and short-range planning are performed in a coordinated and cooperative manner throughout the chain)
- quality (effective planning for and delivery of quality products, including appropriate measurement of results by all participants)
- customer satisfaction
- waste (reductions in scrap, rework, waste, and pollutants from the supply chain and plans for further reductions and recycling)
- transparency (the extent that participants are aware of activities throughout the supply chain)
Detail metrics should be selected for monitoring key functions, processes, and capabilities throughout the chain. Each participant’s detail metrics should roll up to an overall measure of supply chain performance. The roll-up should be designed to show how each participant in the supply chain contributes to overall performance. Otherwise, individual firms may take unilateral action to improve their financial or competitive position, which may compromise the performance of the supply chain as a whole. Although detail metrics differ from industry to industry, the ones listed below, which are often used by large corporations to monitor their internal operations, should be considered. It is an important function of Business Processes
General:
- time to market (the speed at which the organization identifies and delivers new products to the marketplace)
- inventory levels and capacity utilization
- market to collection (the speed with which receivables are converted to cash)
- customer services (measures of after-market support to customers)
- management for results (the efficiency and effectiveness of management)
- infrastructure (the up-time and efficacy of information systems, training, and other support processes)
- return to available (measures of velocity, asset utilization, costs and revenue generated from reworking the product in the returns channel)
Delivery:
- delivery-to-commitment date (measures of meeting commitments)
- lead time (customer waiting period)
- faultless installations (installation errors; customer call-backs)
- faultless invoices (error rates in processing invoices)
- forecast accuracy (accuracy in predicting market demand)
- customer inquiry resolution time (elapsed time to resolve customer inquiries)
Flexibility and responsiveness:
- response time (measures of the responsiveness of supply chain processes or functions)
- productivity flexibility (measures of productivity changes as a function of market demand)
- re-planning cycle (time required to create and implement modified production plans)
- release-to-ship date (elapsed time between release of new or modified products and their shipment to customers)
- materials lead time (elapsed time between placement of an order and receipt of materials)
Logistics:
- logistics cost (product distribution costs)
- obsolescence (reduction in inventory value due to expiration of shelf life or changes in technology)
- warranty costs (rework, repair, replacement, shipment, and legal costs associated with defective products delivered to customers)
