The three basic entities of the supply chain are the suppliers, producers and the customers. Apart from these entities there can be suppliers suppliers or customers customers which differ based on the ingredients of the product and the distribution channel by which the product reaches the end user.
Purchasing and supply chain management is a critical aspect in the success of any business venture. This is a well planned activity which involves both short term planning and long term planning by a business house. Developing a strong supply chain involves the process of making the right decision to buy the right product at the right time for the right price and to cater the finished product to customer at the right time at the right place and at the right price.
Effective Supply chain management
An effective purchase and supply chain management will ensure the continuity of production and will be able to respond to market changes quickly. Some of the other benefits lie in improved quality, scope for innovation in the products and also reduction in the total costs.
In any corporation, an effective supply chain alone is not enough for the economic success of that business house. Many companies have outsourced their manufacturing facilities to distant places or even different continents. The working of these units can directly or indirectly affect the benefactor company. Any activities at these outsourced which are not acceptable by the socio-economic or environment standards can directly impact the mother company and may even topple their brand image. As such it has been absolutely necessary to develop a purchase and supply chain management that is coherent to the sustainable conditions. The supply chain should meet the needs of the present without compromising the ability of future generations to meet their needs. The corporation should develop an effective supply chain keeping in mind the environmental, social and economic responsibilities.
Developing sustainability in the supply chain
Social and environmental issues cannot be seen differently from economic success. There is a close connection between financial goals and social environmental goals for success over long term. To achieve financial goals the supply chain management has to be aligned to the social and ecological goals.
As a first step it is important to understand the existing supply chain strategy of the company. A thorough introspection is to be done on all the processes followed in procurement, production and supply. A blueprint of all the micro processes in the supply chain needs to be laid down in minute detail. All these processes need to be assessed as per the policies and standards as laid down by the authorities in the respective areas and a detailed report of the assessment needs to be reviewed by the senior management.
Any process that is not coherent with sustainability need to be reviewed with regard to the operations and timelines. A detailed plan needs to be prepared in consultation with the person responsible for those processes that are not adhering to standards and the inputs for immediate and long term corrections must be provided. Such procedures must be changed and the implications of these changes must be checked. Indicators need to be developed to measure the key performance and also the success rates of these changes.
A reward and incentive program can be added to the key result area of the employees for their efforts to maintain sustainability in their process. Training must be given to employees on the importance of maintaining the corrections done in the supply chain. The cost and benefit assessment is to be done after developing the supply chain and also there must be an ongoing system for monitoring and assessing the success.
A properly structured supply chain management gives a company the opportunity to influence its suppliers and customers. Customers demand that their needs be fulfilled only by a sustainable organization and are generally not willing to promote those companies which are not environmentally or socially responsible. On a broad level customers are looking for eco friendly companies that use control mechanisms for pollution and are promoting recycling and reusing. Companies are expected to be socially responsible by avoidance of child labor and adhering to minimum pay policies.
REACH
EU has developed a new chemical policy called REACH for Registration, Evaluation, Authorization, and Restriction of Chemicals. REACH as a single regulation replaces current EU legislation for supply of chemicals to the EU market. This aims to improve of human health and environment and also provide transparency in the manufacture and supply process. REACH will impact manufactures, importers, distributors and consumers. Such a policy has created legal implications for a company to register the materials used and communicate throughout the supply chain which creates a transparency within the supply chain. This also creates a duty of care with every player in the supply chain. All the players in the supply chain need to prepare for REACH which can ensure the sustainability in the supply chain.
Integrated approach to purchasing supply chain leading to real sustainability.
Purchasing, manufacturing, marketing and distribution cannot be operated independently along the supply chain and needs to be integrated towards the organizational goal. If these are operated independently with individual objectives not aligned to the organizational objective, it will lead to conflicts.
Let us consider a product X to be manufactured by a company. Purchasing of raw material is based on the historical data and buying patterns in the past. A sudden demand arising for the product X will not be catered to. Manufacturing unit of X is oriented to maximize throughput and lower cost without considering the impact on the inventory level or the constraints in the distribution capabilities. Effective supply chain management is a strategy by which integration among the separate units can be achieved by the flow of communication, data and other necessary resources between these units.
To check the sustainability of the integrated supply chain we can consider the following entities of the supply chain of product X, which are 1) the suppliers of raw material for product X, 2) Purchasing of raw materials from the suppliers, 3) Production of X, 4) Storage of X, 5) Transportation of X. 6) Customer awareness
1) Check suppliers
Producer of X being a sustainable organization evaluates systems assessing supplier stance on specific sustainability related issues. A rating system has been introduced to grade the suppliers as per their adherence to REACH and also their manufacturing process that must adhere to the legal and sustainability standards. Only those suppliers whose grades fall on the higher side are considered. The assumption is that there are a large number of suppliers for the raw material.
2) Purchasing Raw material
There are two broad classifications of raw materials available for the production of X. The ones those are recyclable and non-recyclable. Even though the non-recyclable raw material increases the total cost of production by 10, this is not compromised owing to their eco-responsibility. Local purchasing is preferred for benefiting the local population and to reduce travel distance which in turn reduces environment impact and cost.
3) Production of X
Six sigma processes are followed to reduce energy consumption at the factory. Control mechanisms are intact to check emissions, water wastage and waste volumes. Safety standards are far above the required standards at the factory and quality safety equipments are provided to protect the employees. Design and development is given a process to reduce wastage. Packaging of the product is using recycled paper. Office operations has strict checklists to reduce paper usage through double-sided copying and printing, use of e-mail and buying recycled office supplies.
4) Storage of X
All the warehouse staff has been given adequate training for utilization of space and reduction of resource consumption at the warehouse. The concept of paperless invoicing has been followed using the integrated software to reduce the use of paper. A renewable energy source like solar energy has been used to power major power consuming devices. Periodical on the job training has been provided to staff to reduce wastages out of miscarriages.
5) Transportation
Minimize the distance by a robust routing system. Transportation of X is done from the ware house only a full-load basis. Long distance transportation are done using rail to destinations possible or to the nearest rail destination. We have also reduced employee car miles through teleconferencing and trip consolidation, encouraging the use of carpooling and mass transit by employees.
6) Customer Awareness
The packaging of product X clearly mentions the cause of the company towards a greener planet urging the customers to improve sustainability in their activities and to recycle and reuse in their daily activities by giving a message from a famous environmentalist.
Conclusion
An effective supply chain management is not the only requirement for the success of a product and company in the market but it should be a sustainable one which should oblige to the social and environmental requirements. While developing the supply chain the organizational goals should align with the social and environmental goals. Existing process must be checked for sustainability and non conformance should be corrected. The existing policies and standards must not only be met but should be exceeded to create a green -brand image in the market place. An integration approach should be followed by all element of the supply chain to achieve sustainability. A close connection between the financial goals and social and environmental goals is a prerequisite for success over long term. Only corporate houses which manage their supply chain bearing in mind sustainability in all processes can be a good corporate citizen.
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