Question

In healthcare, the benefits of a robust Supply Chain Management (SCM) program seem obvious, but what are the limitations or down-sides? Why isn't every organization implementing it? How much do these SCM systems cost to implement and maintain? Can a small organization afford to participate?

Answer 1

What is SCM?, supply chain management is “all about integrating and coordinating all the functions, activities, transactions, and people interconnected in an integral value chain through which products or services – whether physical or virtual – constantly flow back and forth from supplier and manufacturer to distributor and, finally, to consumers.”

Benefits

Implementing effective supply chain management using powerful SCM solutions will allow businesses to optimize the three key flows in the supply chain: product flow, information flow, and financial flow.

Improved product and material flow

Time-to-consumer is a crucial indicator of product flow efficiency. The less time it takes for goods to reach the end customer, the more efficient the product flow. However, there are many other factors to consider such as the quality of the materials or goods that reach customers, the supply and demand balance, shipment options and costs, and inventories.
Effective supply chain management enables companies to improve product flow through accurate demand and sales forecasting and also improve inventory management to arrest the bullwhip effect and avoid underproduction. SCM also minimizes delays and allows full traceability and visibility into the movements of goods from the supplier to the customer. SCM enables working strategies that can accelerate time-to-market and optimize business speed, while ensuring high level of product quality.
Seamless information flow
“The effective SCM requires not only the integration of material flows but also the integration of information flows in the supply chain. Today, with customers constantly demanding for real-time response and easy access to product and other supply chain content, information flow should be uninterrupted. Intermittent and insufficient information flow due to a fragmented supply chain can lead to poor supplier and customer relationships and huge costs – to the tune of £1.2 billion per year, according to Oracle.
Companies with effective supply chain management can remove the bottlenecks to supply chain information flow. It can help them evaluate the quality of information sharing, then implement solutions to best fill the gaps. SCM helps design effective best practices to facilitate different types of supply chain information that usually come in different formats and structures. SCM also enables accurate, timely, complete, and relevant information flow to avoid missed opportunities and possible risks.
Effective and seamless information flow addresses information distortion and miscommunication and promotes enhanced collaboration and relationship value among supply chain stakeholders. It also helps improve visibility into all transactions and accelerate generation of supply chain insights through past reports creation.
Enhanced financial flow
Another pain point for supply chain players is how to improve cash flow in the value chain, which involves “thousands of invoices and payments in a given year.” The unpredictability and variability of financial inflows and outflows can add more complexity to the inherently complex supply chain financial flow.
According to Visa, generally, financial management challenges are (1) slow processing due to manual and silo processes; (2) unreliable, unpredictable cash flows because of lack of timely information; (3) costly processes due to compliance and lack of employee empowerment; (4) high Days Sales Outstanding (DSO) caused by invoice reconciliation delays; and (5) suboptimal credit decisions due to manual processes for setting optimal limits.
Implementing supply chain management can help companies address all these cash flow challenges, allowing them to carefully evaluate their current processes, identify the weakest links that slow down and hamper financial flow, and determine the right solutions to address the problems.
By optimizing product, information and financial flow, companies can proactively create and seize new market opportunities and mitigate risks that can negatively impact their entire business. With an effective supply chain management system in place, enterprises can comprehensively and continually assess their processes, identify and fill all the gaps, lower costs, competently evolve with ever-evolving supply chains,andd enable quicker decision making.

Data-Driven Supply Chain Management

To maximize the potential of SCM, however, companies should embrace a data-driven approach because data is at the core of every supply chain transaction and is fundamental to product, information, and financial flow optimization. A data-driven approach to SCM enables seamless integration of business elements, schema-on-read approach to data management, and real-time data transparency.

Data-driven SCM can be achieved by leveraging Liaison ALLOY™ Platform, which embodies a new approach to integration called Data Platform as a Service (DPaaS). DPaaS is a cloud integration and data management model named for its ability to provide PaaS functionality at the point of data analysis, without the hassle of the underlying data capture, integration, or management mechanics.

“Tailored to solve today’s complex data problems while building a robust foundation for tomorrow’s unforeseen challenges, Liaison ALLOY™ fosters a seamless flow of information within the supply chain for greater flexibility, scalability, accuracy, governance, and visibility.

Limitations

Extensive Training and Planning Required
SCM connects with Just-In-Time inventory to increase efficiency and decrease waste in modern industry. But implementing SCM takes extensive planning and training, often more than a company anticipates. For the system to work, companies that are part of the supply chain must complete the training before implementing an SCM system. A company’s SCM implementation can fail because of a lack of sufficient training for employees and a lack of understanding by management of how complicated implementation can be. The expense of training and implementation also can cause top management to give less than full commitment to SCM in an attempt to save money, which can reduce or eliminate its bottom line impact.

Inaccurate Info Wreaks Havoc
SCM depends on supply chain management software, but too often different parts of the supply chain are working on different software programs, preventing a seamless integration.

The software is meant to forecast parts distribution needs, but if the information entered isn’t accurate, neither is the forecast. The system also can be plagued by employees bypassing the SCM system to manually manage ordering and inventory with fax machines and spreadsheets. If the training isn’t enough to make employees comfortable using the system, then the system only gives an incomplete picture of a supply chain’s status.

Enterprise resource planning software is meant to integrate all of the company’s information into a single application, which benefits SCM applications by having a single source for up-to-date information. ERP software, however, is expensive and difficult to implement as well.

Lack of Strategic Implementation
A 10-year research project conducted at Australia’s University of Melbourne discovered that supply chain integration clearly benefited successful businesses, yet its adoption was not widespread. Adoption occurred more in response to short-term pressures rather than as a result of strategic planning and long-term goals. The report concluded that implementation of supply chain management “often lacks cohesion, strategy and forward thinking. Instead, managers focus on local, short-term business benefits for their own organization, rather than on strategic supply chain integration."

Lean Supply Chains are Vulnerable
Supply chains are lean by design. Larger inventories were more expensive to house, but they did create a buffer for unexpected events. If surprise demand for a product occurs due to an unpredictable trend, a supplier could run out of stock of a vital part, resulting in production delays and wasted resources as a manufacturer waits on a supplier or attempts to find a new one.

More unexpected, and with greater negative impact, would be natural disasters including earthquakes and hurricanes, labor strikes, or terrorist attacks that could instantly cut the supply chain. Without sufficient contingency planing, a natural or man-made disaster would be an economic disaster for the last link in the chain.

Small organisation

To remain competitive, small firms have to offer superior quality goods at the lowest prices possible. The need to minimize product costs makes effective supply chain management vital. There are costs involved in every process of the product life cycle, and it is the responsibility of management to ensure that these costs are kept low, so the company can continue to pass along these savings to the consumer.
Reduced Costs
Supply chain management involves identifying those processes that increase cost without increasing the value of the final product. These processes are wasteful and do not add value, and should be eliminated whenever possible.

Increased Efficiency
Resource wastage is a common source of increase production costs. Often this is due to improper planning. A company that employs supply chain management is able to achieve efficiency of its operations since only those value adding activities are encouraged. This ensures that the organization’s processes flow smoothly and output keeps inline with the company's needs.

Increased Output
A company that employs supply chain management can foster close-knit relationships with its suppliers and customers, ensuring the timely fulfillment of orders. A company known for its timeliness and responsiveness will attract more customers, and will grow as a result of increased output and sales.

Increased Profits
Businesses exist to make profits. One of the most efficient ways of increasing a company’s profits is by ensuring that costs are kept as low as possible. The application of supply chain management by a small company leads to cost reductions due to elimination of wasteful processes. Since these are operating costs for the company, the savings on these costs reflect increased profits by the company.