There are two major things that make supply chain management difficult. One is the design of a strategy that can apply at the whole supply chain system. The other one is dealing with uncertainty.
Systemwide strategy
Systemwide strategy in academic words: global optimization, means the strategy should be able to optimize the supply chain system globally.
It is not easy to minimize the cost and maintain or improve the service level for a single factory, let alone a whole supply chain system with hundreds or thousands of suppliers in different continents.
There are many tradeoffs that you need think about when design a systemwide strategy.
Plant size & Inventory tradeoff
Finding the optimal plant size and inventory level can be a complex task.
If a company overestimates demand and builds a large manufacturing facility, it runs the risk of high fixed costs and excess inventory. On the other hand, if the company underestimates demand and builds a small facility, it may struggle to keep up with customer orders.
Similarly, holding too much inventory can tie up valuable resources and increase the risk of obsolescence. However, having too little inventory can increase the chance of running out of items and losing sales.
Inventory and transportation cost tradeoff
It is not easy to find the right balance between carrying enough inventory to meet demand and minimizing transportation costs.
The more inventory you have in your warehouse, the longer you can wait before replenishment. Instead of trucking or air freight, you can choose a slow but cheaper way to transport products.
If you carry only just enough inventory and employ a just-in-time production strategy, then you’ll need to get your product or supplies immediately or within a strict time limit, otherwise, your production will go on break and your shop won’t have any goods for sale.
Product variety and sales tradeoff
As businesses strive to meet customer demands for greater product variety, they often face the challenge of maintaining profitability.
Offering a wider variety of products can increase sales and customer satisfaction, but it can also lead to increased costs due to more complex production processes and inventory management.
Inventory and customer service tradeoff
having excess inventory can lead to unnecessary costs, such as storage and obsolescence. On the other hand, having low inventory levels can result in stockouts and lower customer satisfaction.
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Uncertainty
Despite advancements in technology and data analytics, supply chain management continues to be a challenging and unpredictable field. This is mainly due to the uncertainties that come with managing the movement of goods and materials across a complex global network.
Geopolitical uncertainties
Tariffs, trade agreements, sanctions, and political unrest can all impact the flow of goods across borders.
Environmental uncertainties
Natural disasters, climate change, and other environmental factors can disrupt transportation and logistics operations. due to the unpredictability of the environment, and weather so transport times will never be certain.
Economic uncertainties
Fluctuating demand, changing market conditions, and financial crises can affect production and supply chain thus, customer demand can never be accurately forecast.
Why is supply chain management difficult?
One major challenge is the systemwide nature of the supply chain, which often spans across multiple geographies and involves numerous suppliers, manufacturers, distributors, and retailers.
Another challenge arises from the global nature of today’s supply chains. Companies increasingly rely on global sourcing, manufacturing, and distribution to optimize costs and stay competitive. However, managing a global supply chain involves dealing with a host of issues such as varying regulation, tax, and custom.
Uncertainty is another factor that adds to the complexity of supply chain management. Businesses must make forecasts for demand, production, and inventory based on numerous variables, including customer preferences, market trends, and economic conditions. However, uncertainty in any of these variables can lead to inaccurate forecasting and inefficient use of resources.
What are the 4 major decision areas in supply chain management?
These decision areas are planning, sourcing, making, and delivering.
Planning involves making decisions related to demand forecasting, inventory planning, and production planning.
Uncertainty is one of the biggest challenges faced in the planning process, as there are numerous external factors that can impact demand and supply.
Sourcing is the decision area that focuses on selecting and managing suppliers.
Managing relationships with suppliers and mitigating risks associated with sourcing are major challenges in this area. This includes dealing with issues such as supplier bankruptcies, quality control issues, and ethical concerns.
Making is the decision area that deals with the production process.
The major challenge in this area is to manage production efficiency while maintaining quality standards. Factors such as automation, technological advancements, and employee training are key to success in this area.
Delivering is the decision area that involves transportation and logistics.
This includes choosing the right mode of transportation, managing distribution networks, and ensuring timely delivery. Capacity constraints, fluctuating fuel prices, and global regulations are all factors that impact the delivery decision area.
What are the 3 C’s in supply chain?
The 3 C’s stand for “customer,” “cost,” and “complexity.”
Customer
The first C in supply chain management is all about understanding and meeting the needs of your customers. This includes factors like product quality, delivery speed, and customer service.
Cost
The second C in supply chain management is focused on managing costs throughout the supply chain.
This includes not just the cost of goods themselves, but also the cost of transportation, warehousing, and other logistical expenses.
Effective supply chain management requires balancing the need to keep costs low with the need to maintain quality and meet customer expectations. This can be especially challenging given the uncertainty and volatility of markets and supply chains.
Complexity
The third C in supply chain management refers to the many different moving parts involved in a modern supply chain.
From raw materials sourcing to final delivery to customers, there are a wide variety of players and processes involved in getting products from point A to point B.
This complexity can make it difficult to manage the many different risks and challenges that can arise along the way, from supply disruptions to quality issues to regulatory compliance.
What are the 6 barriers to supply chain management implementation?
1. Resistance to Change – Resistance to change is one of the biggest barriers to successful supply chain management implementation.
2. Communication – Lack of communication can cause misinterpretation and misunderstanding, which can hinder the flow of goods and services through the supply chain.
3. Coordination – Proper coordination of activities within the supply chain is vital to ensure efficient operations.
4. Technological Limitations – New technology, such as artificial intelligence, the Internet of Things, blockchain, and predictive analytics, is essential for efficient supply chain management.
5. Cultural Differences – Cultural differences can play a major role in supply chain management, especially for companies that operate in multiple regions around the world.
6. Lack of Supply Chain Integration – Supply chain management is a complex process that involves many different stages, departments, and stakeholders. Integration of these processes is key to achieving successful supply chain management implementation.
