Supply Chain Demystified Part-1

Life has taught me more about Pricing and Supply Chain Management than did my MBA. It has taught me to buy the goods at the point where they are produced. Because more number of partners (vendors/goods suppliers) in supply chain increases the cost of the product. That’s the reason why I prefer to buy my clothes from a Factory outlet or get them tailored. Same applies to Milk also (no naughty thoughts please). I go to the direct dealer near my house, so that I can buy them at MRP, where as door step delivery costs an additional 50 Paisa/ Packet. Today as usual I reached the shop early in the morning escaping the ferocious street dogs. A man buying a bagful of packets smiled at me. I thought I should say some thing. So I said to him smiling “Seems like you have a big family!”.” No” he said amused “I run a canteen here”. The next day I saw a lady buying packets in bulk. I could not resist asking her so I asked “Seems like you run a canteen!”. “No...” She retarded saying “It’s for my family”.

Now, coming back to the point, managing the Supply Chain is not an easy task. Not that I could not score an “A” in SCM, but really it is tough. As the production needs to be maintained in sync with the fluctuating demand without having a higher lead time of delivery. SCM encompasses all the activities of Procurement, Production and Marketing divisions. A scope of an ideal supply chain is considered from your vendor’s vendor to customer’s customer (in a typical B2B scenario). So when you have so many organizational entities, intermediaries and partners, it’s sure that whatever efforts you put to match the demand with the supply, you will still be in a mess.

Production is a controllable factor but not the demand. There are lots of factors that cause huge fluctuations to Demand. The major factor is “Economy”, the leading indicator of the (demand) fluctuation. Let me give an example that can etch in your mind. Recently Pfizer had announced one year free supply of medicines to jobless youth in the country. Needless to say that Viagra was the most sought after than any other drug. Now put yourselves in the shoes of Supply Chain Manager of a Firm that manufactures Latex. Will you be able to react to the increased demand for condoms? First of all will you be able to understand the fact that it affects your demand? Since Pfizer is in a totally different sector. There are certain Freak economic Theories like “Lipstick Theory” and Condom Economy (No, I am not talking about the size of economy pack), which says that whenever there is a dip in economy, there will be a raise in the sale of products like lipsticks and condoms. I will leave the causes of this phenomenon to your guessing. But now you know what goes up when every thing goes down.

To summarize this post, the first rule of attaining Supply Chain Efficiency is to have a simple and short SC. This makes the supply chain more resilient and cost effective. The other factors that affect SC efficiency are Infra Structure, Information Technology, Climate and other miscellaneous factors like Forecast errors, vendor delays etc. As this is a vast subject, we can discuss this by parts. So let’s take a break here.