1- FOREIGN DIRECT INVESTMENT
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BUSINESS EXCELLENCE THRU: SUPPLIER PARTNERSHIP
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HOTEL INDUSTRY
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PROCTER & GAMBLE IN PAKISTAN

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BUSINESS EXCELLENCE THRU: SUPPLIER PARTNERSHIP

 

Business excellence can be achieved through e-supply chain management

 

By ALY KHAN
Sep 02 - 08, 2002
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In the movie Jerry McGuire, Jerry's sole client, Rod Tidwell tells Jerry, " Show me the money" Is this a favourite phrase of your CEO? (Surely this is the phrase of our finance minister and my Income tax officer who considers giving refund as bad for health). Supply Chain activists know that integration and improvement initiatives, such as supply chain management can bring financial benefit.

"Where is the money"?. Too often we believe that the financial impact of lean supply chain management is linked to reduced operating expenses or reduced working capital. Yes they do contribute to financial benefits, but they represent only apart of the story. The real benefit of a lean supply chain is creating capacity for growth. Supply chains create growth by matching capacity to actual demand through rate based planning and execution(RBPE). This tool helps supply chains use their capacity more efficiently, which allows companies to reallocate capacity to new growth products. This produces a more efficient and productive use of inventory and resources, which is the foundation for financial benefits at the company wide and product line level.

TECHNOLOGIES ALONG THE SUPPLY CHAIN:

Managers use information technology to acquire, process and transmit information for effective decision making. Computer Integrated Manufacturing describes a new version of manufacturing technologies. Communication, transportation, material handling , EDI and storage technologies supports the supply chain.

LEARNING MODES:

One way to learn supply chain is to become a chain smoker, ignore what Ministry of Health says, try to buy a pack of cigarettes before the earlier pack finishes. The only problem with this type of learning is that you will be taking the fastest route to the next world. The other way out is to head for Business schools in Gulf where supply chain is offered in all MBA programmes. Oil supplies management requires lot of utilization of this concept. Some schools here also can do the needful.

Try the following outdated case studies for good illustration.

CHAPPARRAL US STEEL PLANT:

Started operation in 1973. The president of the company fosters innovation and strives to keep the company on the leading of technology ( unlike us where modernization, balancing and revamping is still a dream.). Chapparal philosophy reflects the latest advances in world wide steel making. A customer orientation runs throughout the organization and decision making is pushed to the lowest levels of the organization with an emphasis on action rather than on bureaucratic procedures. For instance production workers are often included in the selection, purchase, and installation of major pieces of production equipment.

The management recognizes the value of long term relationships with its suppliers. Chapparal doesn't buy in large quantities just to gain quantity discounts. It buys much of the material it needs in spot markets, and its purchase department watch them closely, buying in quantity when spot prices are low. The company doesn't use long term contracts because of the volatility of raw material prices.

The new computerized order system allows customers direct access to check inventory levels, open orders, and pricing, and eventually will let them place orders electronically. The quick response time allows customers to get by with lower inventory levels, giving the plant a competitive edge.

The performance at Chapparral is monitored by production per hour, yields, alloy used per ton, electricity per ton, and tons per hour per employee. Tons produced is the number that matters the most. A sign at the entrance shows yesterday's tonnage. Running at full capacity is the best way for the plant to make money. Can we learn from it?

HOSPITALS PURCHASING MANAGEMENT:

The purchasing policy is to monitor the inventory for the various items and place replenishment orders when the inventory gets low enough. There are two separate types of inventory : surgical inventory maintained by and used in surgical services to support only their activities, and supply to support the patients wards. How does this compare with the inventory management system at our hospitals like Civil and Jinnah or Abbasi Shaheed hospital. These hospital are not run by professional managers and if they are evaluated on Purchasing management practices they are likely to get F grade.

SUPPLIER PARTNERSHIP MISAPPLIED

Supplier partnership is misunderstood in number of organizations here( mostly Public Sector or Government joints, Railways inclusive) In their mindset supplier partnership means currency taken under the table from the supplier for improving account status, previously it used to be rupees now it is (dollars), lately its changed to Eurodollars or sometimes ARY gold. In some organizations purchase/users have reservation talking to suppliers during working hours lest somebody may see them involved. But once away from office it's a different ballgame, suppliers are invited to almost all the parties including mothering-law birthdays.

A company called Worldcom.dot.gone with its headquarters in republic of Togo, in its bankruptcy claim has stated that it used to get more calls for parties than for the supplies and in some cases the invitation card RSVP is changed to No regrets, with instructions at the bottom of card. Please do not forget to bring a present.

One of the seasoned campaigners to implement this concept was Ex Chairman of a major industry now enjoying jail authorities hospitality, his concept of partnership was to give suppliers his lockers key with instruction " Fill it up". In one instance lockers were so loaded with suppliers money, that money was spilling into neighbouring lockers the owners of which did not bother to complain.

LOOKING FOR PLUS:

It is estimated that an organization spend more than fifty per cent of its sales on the purchase of raw materials, spare parts, and services. Therefore, supplier quality can substantially affect the overall cost of a product. Customers and suppliers have the same goal to satisfy the end user. Because both the customer and supplier have limited resources, they must work together as partners to maximize their return on investment.

In our scenario procurement decisions are typically based on price.

Awarding contract to the lowest bidder and result quality and timely delivery are sacrificed. Another force changing supplier relations was the introduction of the Just in time(JIT) concept. This call for materials and components to reach the production operation in small quantities when they are needed and not before. The benefit of JIT is that inventory related costs are kept to a minimum.

Partnering is a long term commitment between two or more organizations based on trust and shared vision.

SOURCING: there are three types of sourcing, sole, multiple and single. Sole implies that the organization is forced to use only one supplier due to patents, technical specifications.

Single sourcing is a planned decision by the organization to select one supplier for an item when several sources are available. Xerox eliminated 90% of its suppliers and improved supplier quality from 92% to 99.97% in six years.

SUPPLIER SELECTION: an organization must decide whether to produce or outsource a particular item. To ensure proper selection look for ISO 9000 certification of supplier.

FINALLY:

The reason why Walmart a network of stores is at the top of fortune 500 global organizations in term of revenues is because of its excellent e-supply chain management. In Pakistan Siemens (German outlet, which does not requires its executives to read Hitler's love letters) an Electrical appliance manufacturer under the leadership of young Pakistani Electronic Engineer is promoting a software called SAP which has very good features for inventory management. Leading Car manufacturer, and some multinational in chemicals have bought this system. Some companies are using Oracle and are quiet happy with it.

In one industry spare parts management of parts running in thousands including several types of bearings is managed through locally developed software which has stood test of time. Pharmaceuticals prefer using Enterprise Resource Management as their inventory tool.

Business excellence can be achieved through this version of paradigm shift called e-supply chain management specially in Automotive sectors, Heavy industries, Pharmaceutical, Defense etc. Business schools can place a greater emphasis in teaching this as part of course in Total Quality Management or Operations management. Pakistani software companies can make a fortune by developing software related to Supply chain management. So students of computers science & engineering future still awaits you. Try to be at the top.