SUPPLY CHAIN ​​MANAGEMENT: CONCEPTS, OPPORTUNITIES AND CHALLENGES OF IMPLEMENTATION

The period between 1980 and 2000 was marked by major transformations in management concepts, especially with regard to the operations function. The total quality movement and the concept of lean production brought together techniques and procedures such as JIT, SPC, QFD, SMED, Kanban and concurrent engineering. Widely adopted in almost all industrialized market economy countries, these techniques and procedures have contributed to a great advance in quality and productivity. In the wake of this whirlwind of changes, two other concepts emerged and have been exciting productive organizations.

The first of these, integrated logistics, emerged in the early 80s and evolved rapidly over the 15 years that followed, mainly driven by the information technology revolution and the growing demands for performance in distribution services, mainly a consequence of production movements. lean and JIT. Although still in evolution, the concept of integrated logistics is already quite consolidated in the productive organizations of the most developed countries, both conceptually and in terms of application. The second of the concepts, Supply Chain Management – ​​SCM, or Supply Chain Management, began to develop only in the early 90s. Even at an international level, there are few companies that have managed to implement it successfully, and academic level the concept can still be considered under construction. There are even some professionals who consider SCM as just a new name, a simple extension of the concept of integrated logistics, that is, an expansion of the logistics activity beyond organizational boundaries, towards customers and suppliers in the supply chain.

In contrast to this restricted view, there is a growing perception that the concept of Supply Chain Management is more than a simple extension of integrated logistics, as it includes a set of business processes that go far beyond activities directly related to integrated logistics. . Furthermore, there is a clear and definite need for process integration in the supply chain. New product development is perhaps the most obvious of these, as several aspects of the business should be included in this activity, such as: marketing to establish the concept; research and development for product formulation; manufacturing and logistics to run operations; and finance for structuring financing. Purchasing and supplier development are two other activities that go beyond traditional logistics functions, and which are critical for the implementation of SCM.

What seems clear is that this new concept is here to stay. The extraordinary results obtained by the companies that have already managed to implement it successfully are a guarantee that this is not just a managerial fad, but something that is increasingly attracting the attention of top management in the largest and most modern international companies. Preliminary research on the gains that can be obtained by correctly using the concept indicate that companies have achieved substantial reductions in operating costs in the supply chain. The sectorial movements organized with the aim of taking advantage of the SCM, such as the Efficient Consumer Response – ECR in the consumer products and food retail sectors, and the Quick Response – QR in the clothing and textile sectors, have also demonstrated the potential for reducing of costs and improvement of services in the chain. In the case of the ECR, for example, the estimated savings in the USA were of the order of US$ 30 billion.

In Brazil, the SCM wave began to spread in the late 90s, driven by the integrated logistics movement that has been accelerating in the country. Greater proof of this is the ECR Brasil movement, started in mid-1997, and which only in November 1998 presented the first results, from the pilot project phase, which pointed to a great potential for cost reduction.

Although much has been said, little is known about the true meaning of this new concept, and especially about the barriers and opportunities for its implementation. The purpose of this text is to contribute to a better understanding of this powerful, but still little known, management tool.

THE CONCEPT OF SUPPLY CHAIN ​​MANAGEMENT – SCM

To better understand the concept of Supply Chain Management, or SCM in English, it is essential to first understand the concept of distribution channel, which is already quite consolidated and has long been used by marketing. A fundamental instrument for the efficiency of the process of commercialization and distribution of goods and services, the concept of distribution channel can be defined as the set of organizational units, institutions and agents, internal and external, that perform the functions that support marketing. products and services of a particular company.

Marketing support functions include purchasing, sales, information, transportation, inventory storage, production scheduling, and financing. Any organizational unit, institution, or agent that performs one or more marketing support functions is considered a member of the distribution channel. The various members participating in a distribution channel can be classified into 2 groups: primary members and specialized members. Primary members are those who participate directly, assuming the risk of owning the product, and include manufacturers, wholesalers, distributors and retailers. Secondary members are those who participate indirectly, basically by providing services to primary members, not assuming the risk of owning the product. More common examples are transportation, warehousing, data processing and integrated logistics service providers.

Distribution channel structures have become more complex over the years. Figure 1 shows a very simple distribution channel structure, characteristic of the period prior to the 50s, when the marketing concept was poorly developed and the idea of ​​market segmentation was little used. Prior to this period, the presence of specialized members was not widespread. Relations between the main members of the channel were distant and conflicted. There was a strong trend towards vertical integration as a way to maintain control and coordination in the channel.

With the evolution of the marketing concept, and more specifically, market segmentation practices and the continuous launch of new products, along with the emergence of new and varied retail formats, distribution channels are becoming increasingly complex. On the other hand, the increase in competition and the increasing instability of the markets led to a growing trend towards specialization, through unbundling / outsourcing. What many companies are looking for in this process is the focus on their core competence, transferring the majority of productive operations to specialized service providers. One of the main consequences of this movement was the growing importance of logistics service providers.

The combination of greater complexity and less control, a consequence of unbundling, has led to increased operating costs in distribution channels. The growing number of players working in a competitive and poorly coordinated environment is the main reason for rising costs. The solution to this problem necessarily involves seeking greater coordination and synchronization, through a process of cooperation and information exchange. The advancement of information technology, combined with the telecommunications revolution, created the ideal conditions to implement efficient coordination processes. It is exactly this coordination effort in the distribution channels, through the integration of business processes that interconnect its various participants, which is being called Supply Chain Management. In other words, SCM represents the effort to integrate the various participants in the distribution channel through the shared administration of key business processes that interconnect the various organizational units and channel members, from the final consumer to the initial supplier of raw materials. cousins.

In short, SCM is a systemic approach of reasonable complexity, which implies high interaction between participants, requiring simultaneous consideration of several trade-offs. SCM goes beyond organizational boundaries and considers both internal and inter-organizational trade-offs regarding who should take responsibility for inventory and at what stage of the channel the various activities should be performed. Just as an example, we can compare the existing trade-offs between direct and indirect distribution options by a given manufacturer. In a channel structure where the manufacturer distributes directly to the end consumer, as Dell Computer does, the company has much greater control over the marketing functions. However, the cost of distribution tends to be much higher, requiring a high sales volume from the manufacturer or geographic saturation in a regional market. In the case of indirect distribution, external institutions or agents (transporters, warehouses, wholesalers and retailers) assume most of the control and risk, and for this reason the manufacturer receives a lower value for his product.

On the other hand, a manufacturer offering inconsistent low availability and delivery times tends to force the wholesaler to carry more safety stock in order to be able to provide an acceptable level of service to the retailer. In this case, a lower logistical cost for the manufacturer would be achieved at the expense of other channel members, likely resulting in a less efficient and effective supply chain. One way to avoid this unwanted trade-off between channel members would be through changing the structure, or through the adoption of new procedures or technologies. For example, the adoption of an automated order processing system to replace an archaic system could allow for an improvement in the level of service, reduction of inventory, reduction in transport and storage costs, acceleration of the cash cycle and increase in return on investment. the investment.

The adoption of the SCM concept encourages, through the process of coordination and collaboration, the search and identification of opportunities of this type and their joint implementation.

THE OPPORTUNITIES OFFERED BY SCM

Although it is an evolving concept, whose use is still restricted to a group of more advanced companies, SCM is already on the agenda of most managers of large international companies. Articles in the trade press such as Fortune are heralding SCM as the new source of competitive advantage. In professional meetings, the concept became a special highlight. Of the 200+ sections at the 1997 CLM Congress, about 25% of the presentations incorporated the words Supply Chain Management. The enormous interest in the subject is fully justified in terms of both the already known successful examples and the level of complexity and lack of coordination of the vast majority of distribution channels that exist today.

Milliken, the largest fabric producer in the US and one of the first companies to adopt the SCM concept back in the 80s, achieved extraordinary results in its project with Seminal, a clothing manufacturer, and Wal-Mart, the largest American retail chain. In just over 6 months from the start of the collaboration process, based on the exchange of sales and inventory information between channel members, Miliken managed to increase its sales by 31%, while increasing its turnover by 30%. stocks of products sold in that channel. The exchange of information made it possible to eliminate long-term forecasts, excess inventory and order cancellations.

Wal-Mart, in turn, has achieved excellent results in terms of growth and profitability, largely due to the leverage it has achieved with its differentiated relationship structure in the supply chain. Dell Computers is another company that, through the reconfiguration of its supply chain, has been able to respond almost immediately to its customers' customized orders. The result has been extraordinary growth and profitability. In 12 years the company has grown from a backyard venture to a $12 billion corporation. In 1998, its sales grew from US$ 7,7 billion to US$ 12,3 billion, while profit jumped from US$ 518 million to US$ 944 million. Dell's success is so great that the company was ranked as the best performer in the information technology sector by Business Week magazine in 1998. Dell is certainly one of the companies that has advanced the most in the concept of SCM, by establishing a direct distribution, offering mass customization and such an advanced degree of outsourcing partnership that it can be called virtual integration.

A series of studies carried out in the US in recent years has confirmed the opportunities for gain with the adoption of SCM. A Mercer Consulting study showed that companies that successfully implement SCM best practices tend to excel in reducing operating costs, improving asset productivity, and reducing cycle times. Another recent study carried out by MIT identified as the main benefits of SCM the reduction of costs of inventory, transport and storage, improvement of services in terms of faster deliveries and customized production, and revenue growth due to greater availability and customization. The companies analyzed in the study reported impressive gains: 50% reduction in inventories; 40% increase in on-time deliveries; 27% reduction in delivery times; 80% reduction in out-of-stocks; 17% increase in revenue.

IMPLEMENTING THE SCM CONCEPT: BARRIERS AND SOLUTION ALTERNATIVES

Considering the enormous benefits that can be obtained with the correct use of the SCM concept, it is surprising to see that so few companies have implemented it. The reasons for this are basically two. The first derives from the relative newness of the concept, still in formation and little spread among professionals; and the second with the complexity and difficulty of implementing the concept. SCM is an approach that requires profound changes in rooted practices, both at the level of internal procedures and at the external level, with regard to the relationship between the various participants in the chain.

Internally, it becomes necessary to break the organizational barriers resulting from the practice of management by silos, which is characterized by the simultaneous pursuit of several conflicting functional objectives, to the detriment of a systemic view where the result as a whole is more important than the result of the parts. Breaking this ingrained culture and convincing managers that they should be prepared to sacrifice their individual functional goals for the benefit of the whole has proven to be a challenging task. Achieving it implies abandoning the management of individual functions and seeking the integration of activities through the structuring of key processes in the supply chain.

Among the business processes considered key to the success of SCM implementation, the 7 most cited are listed in Table 1 below:

Briefly, these 7 key processes have as main objectives:

1. Develop teams focused on strategic customers, who seek a common understanding of product and service characteristics, in order to make them attractive to that class of customers.
2. Provide a single point of contact for all customers, efficiently handling their queries and requests;
3. Capture, compile and continuously update demand data, with the aim of balancing supply with demand;
4. Fulfill customer orders without errors and within the agreed delivery time;
5. Develop flexible production systems that are able to respond quickly to changing market conditions;
6. Manage partnership relationships with suppliers to ensure quick responses and continuous performance improvement;
7. Seek as early as possible the involvement of suppliers in the development of new products.

Experience has shown that assembling teams to manage processes in the supply chain is a major management challenge. To do so, a dedicated effort by committed people, who have the virtue of persistence, is absolutely necessary. Teams serve to break down organizational barriers and should involve all those who participate in activities related to placing and distributing products to market. The most successful companies extend their reach beyond their organizational boundaries, involving external players who are partners in the supply chain. Members of these advanced teams coordinate, communicate, and cooperate intensively.

One of the first questions for anyone looking to make the switch to teams is who should be on the Supply Chain team. The idea is that there would be a permanent group of key members and a group of sporadic participants, who would be convened when necessary. The fact is that organizations have so many peculiarities and differ from each other in so many ways that it makes no sense to think of a single solution for all situations. The set of key functions that are typically represented on teams are typically: logistics, sourcing/purchasing, manufacturing, inventory management, customer service, and information systems. Other functions that occasionally participate are marketing, sales, promotions, and research and development.

At the forefront of this team management process are usually logistics or purchasing/supply professionals. However, to lead a process like this, any executive must act as a facilitator and integrator of the diverse demands and interests, often conflicting. To be able to take on this role, any professional should broaden their understanding of the other functions of the business.

There is a set of characteristics that tend to contribute to the success of SCM teams: the establishment of clear goals and targets in key areas (delivery time, availability rates, inventory turnover, on-time delivery); the determination of the role of each team member in the pursuit of objectives; establishing an implementation strategy; and the formalization of quantitative performance measures to measure the results achieved.

While team building is important, realizing its full potential will only occur if the company can connect with external players in the supply chain. These participants include suppliers, distributors, service providers and customers. Figure 3 presents a schematic model of the SCM concept based on process management, adapted from Lambert, 1998.

Given the collaborative nature of a supply chain, selecting the right partners is crucial. What you want are companies that are not only excellent in terms of their products and services but are financially solid and stable. The partnership relationship in the extended chain must be seen as a long-term arrangement.

It is also very important to remember that the extended supply chain needs an information channel that connects all participants. Most large companies have the technology requirements to do the extension. The problem is that they are using them incorrectly. Ideally, the information that becomes available when the consumer makes the purchase should be immediately shared with the other participants in the chain, that is, carriers, manufacturers, component and raw material suppliers. Giving visibility to real-time point-of-sale information helps all stakeholders more accurately manage true market demand, which allows them to substantially reduce inventory in the supply chain.

From what has been seen previously, it is evident that the implementation of the SCM concept requires significant changes both in internal and external procedures, mainly with regard to the relationship with customers and suppliers.

In Brazil, the main effort to implement the concept is being made within the scope of the ECR Brasil movement. Leading the way are food and beverage manufacturers on the one hand, and supermarkets on the other. Although the potential for reducing costs in the chain is enormous, a set of profound changes needs to be made. In the case of supermarkets, for example, there is a wide range of old practices that are very ingrained and that can be considered as barriers to the smooth running of SCM projects. Among these practices, the following stand out: the relationship with suppliers, still strongly dominated by the policy of monthly arm wrestling with product prices; the vast majority of products are still received directly at stores, which makes it difficult to control receipts and evaluate supplier performance; companies are still organized into functional silos, with purchasing, logistics, and store management being managed independently and in isolation; the workforce currently available does not have the necessary training or qualification to operate based on the new requirements of the SCM; information technology still has serious deficiencies, especially with regard to data analysis software, and also procedures for maintaining product and supplier records.

There are many challenges, but enormous opportunities for implementing the SCM concept in Brazil. It's time to roll up our sleeves and engage in this new opportunity that will certainly increase the competitiveness and profitability of those companies that dare and come out ahead.