Question

describe how a supply chain management system works. if you were consulted by hyprone, which SCM system will you recommend? will you advise a pull-based or a push-based SCM system? state your reasons

Answer 1

Supply chain management involves the management of goods and services, right from the stage of raw materials to the final stage of finished products. It requires a collaborative effort from the various domains (Finance, Marketing, Operations, etc.) of an organization in order to improve the overall and long term performance of an organization.

The working of a Supply chain management depends on a few key elements as described below:

1. Integrating Various business functions

Integration of the various business functions and stakeholders of an organization is very essential for managing supply chain. Various functions should not work in silos and then later expect to collate their efforts. Long term benefits and improved efficiency of supply chain can only happen if all the functions are properly integrated.

2. Service after delivery

Supply chain management should have a system in place to regularly conduct quality and performance checks even after delivery so that services after delivery are satisfactory.

3. Reducing downtime

Supply chain management must be properly fine tuned in order to deliver the product to the customer without delay. Procurement of raw materials, manufacturing, processing and delivering all should be properly scheduled and executed so that there is minimum lag or downtime.

4. Financial Management

Finance/working capital becomes extremely crucial for the operations to take place. Amount payable and deliverable should be extremely well managed for a smooth functioning of any business operation.

5. Communication link between various levels of Supply chain

There must be healthy and regular interaction between different levels of supply chain in order to prevent issues like bullwhip effect which is one of the major concerns for any supply chain network. Information sharing regarding demand at point of sale becomes extremely crucial to reduce volatility in manufacturing so that the economies of scale can be achieved.

As hyprone is a pharmaceutical company, the system suggested (push or pull) should be accordingly decided. The high volatility and complexity of the pharma market makes it one of the toughest to strategize as far as supply chain management is concerned. Sudden and volatile customer demands makes case for a prolonged bullwhip effect in this sector which often is a real cause of concern. It is often seen that often when the overall actual demand variation is barely 5% but the manufacturing demand varies from 50% to 100% on a monthly or weekly basis due to demand fluctuation.

Now pull strategy can work pretty well when demand is level or uniform at the customer side, but the strategy fails to deliver when there are sudden peaks in demand. This is because safety stock buffer needs to be piled up beforehand which is costly and also because pharma items come with an expiry date. Push strategy can work well if the demand forecast accuracy is high but when the forecast runs haywire, the costs are likely to go up.

For hyprone the best approach would be to follow a hybrid strategy i.e. use the positive attributes of each system and customize their strategy accordingly. From pull system they can draw attributes like the reactive nature of the process, strict monitoring of work in progress and simplicity. From push system they can derive attributes like dealing with complex data systems and forecasting demands. This approach ideally can improve the system's ability to react better to spikes and volatility whoch could be caused by seasonality in demand or promotions. This in turn can improve the overall supply chain efficiency.