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The Supply Chain department in a typical sales and marketing company will have the following functions: 
  • Logistics 
    • Forecasting & Product Ordering
    • Supplier (factory) management
    • Inbound freight control
  • Local Operations
    • Warehouse management
    • Product Customisation
    • Distribution to customers
  • Customer Service
    • Customer order processing
    • Customer Issue management
    • Invoicing & Crediting

Some of the functions listed above may belong to another department depending on the specific organisation. Click here to view a typical organisational design. 

A typical Supply Chain organisation will consist of the functions listed below. The size of the department will be highly dependent on the magnitude and strategy of the company. Several functions may be combined in the case of smaller operations. The Supply Chain Manager will usually report the the General Manager of the company. In some cases it may be part of a wider operations organisation


Demand Forecasting and Product Ordering

Companies may choose to set up their forecasting model in essentially one of two ways:

  • Non-consensus forecasting
  • Consensus forecasting

Whichever method they choose the sales forecast is arrived at through a process  involving several functions. This means that sales, marketing and finance are usually contributing in addition to supply chain. The process is usually supported by a forecasting tool. 

In the non-consensus system the financial forecast (business plan, budget etc) is separate from the logistics forecast. There may be some checks to ensure that they are not too far apart, but essentially they are two set of numbers, with the financial forecast not necessarily available at individual product level.

In the consensus forecasting method there is only one set of numbers (forecast) for both logistics and financial purposes. This has to be down to individual SKU (stock keeping unit) level to ensure usefulness for ordering purposes. Financial and reporting considerations may distort the forecast from a logistics point of view.

Companies may choose to set up their demand model in essentially one of two ways:

  • Self-managed inventory (SMI)
  • Vendor (supplier) managed inventory (VMI)

Is is possible to have a mixed model, this is however always essentially based on one of the above methods.

In the SMI concept the responsibility for the inventory will stay with the company. . Based upon the forward sales plan logistics is responsible for converting these into actual orders taking into account the existing inventory and stock in transit. The supplier will receive a fixed order with the required delivery date. There will be no visibility of stock levels and actual sales plans. The advantage is that the company maintains full control over stock and orders. The main disadvantage is the the supplier receives no information to help in prioritisation in case of capacity issues. This usually leads to structured or ad-hoc additional processes to manage these issues.

In the VMI concept the supplier is made responsible for the product availability and delivery planning. The data that is provided is usually the sales forecast and inventory levels. This method requires a quick response manufacturing capability and a relatively stable forecast to work well.

Supplier Management

Irrespective of which demand model the company uses the management of suppliers is key to providing high levels of product availability. 

In most cases the suppliers will be factories belonging to the same company or external contractors. Regular contact and information exchange with the suppliers is important in case of production issues or extraordinary demands. In some cases there are standard forums (meetings via person or telephone) set up to improve relationships with suppliers. If there are none then we should initiate and organise these.

Measurement of supplier performance is usually not very structured. Everyone seems to 'know' who the problem and model suppliers are, however facts and data are usually only ad-hoc. Therefore it is recommended to define and introduce a Supplier Evaluation Process.

Inbound Freight Management

The inbound freight management may either be organised and paid for by the supplier (it is integrated into the cost of goods) or have to be managed by the logistics function. Even in the latter case company policy or regional service provider selection may dictate the vendor to use. If not then it is up to logistics to select and operate the most cost-effective and secure solution for both full truckload (FTL) and less than truckload (LTL) shipments. In case of more exotic sources or destinations non road shipment methods are also used (typically air and sea).  Service providers should be measured through appropriate performance indicators.

Local Operations

Warehouse Management

The warehouses used by the operation can either be operated by the company (in-sourced) or operated by an external service provider (outsourced). In the first case there will be an extensive organisation maintained by the company (down to the material handlers). In most cases the warehousing operation will be outsourced to a logistics service provider (LSP) who are contracted to provide all services on either an open-book or closed-book basis. It is more frequent to have a closed book approach. Even if the warehouse is outsourced the company has to manage this external provider who usually takes on a number of clients. This way resources are shared, however there is also a kind of 'competition' for these. Therefore maintaining good relationship with the LSP through regular visits and strong controls via agreed performance measures is good idea. Appropriate specification of the Warehouse Management System (WMS) and communication with the company system is also a key success factor. 

Product Customisation

Product customisation covers essentially the following areas:

  • Legally required customisation (language stickers, permit numbers etc.)
  • Customer required packaging (special case counts, customer specific packs)
  • Promotional packs (duo packs, packs with gifts etc.)

In the FMCG industry the percentage of packs that are customised can easily exceed 50% of all products even if some special packs are produced directly by the factory. It is therefore a major operation to ensure that all customisation takes place in the form and time frame that is required. Appropriate IT solutions have to be in place to ensure that the packs are appropriately tracked and their status is identifiable. While the legal and customer required part of the operation is usually simple and once started is carried out as routine, the promotional packaging is very complex and requires a cross-functional effort. This frequently involves low volume customer-specific promotions with nearly all functions (finance, sales, trade marketing, marketing, supply chain) becoming involved at some stage. 

Distribution to Customers

Distribution to customers may be domestic or international (in case of regional warehouses). While international shipments are usually larger in size and more controlled the domestic shipment schedule may involve a large number of small drop-size shipments. The shipment activity is normally outsourced, frequently to the same LSP who provides the warehousing services. Performance measures have to be in place to measure the sucess of this activity, track the status of pallets and to ensure appropriate handling of return goods.

Customer service

Customer Order Processing

Customer order processing is the activity of registering customer orders into the transaction system of the company, ensuring that the products are properly identified and that the appropriate pricing is applied. Traditionally orders arrive via fax and telephone both directly from customers and from sales representatives. The trend is towards electronic submission in the form of e-mail, sales force automation systems and most importantly EDI. When processing electronic transactions accurate translation of SKU's is key. While this is usually based on EAN codes, manual checking is frequently required as promotional products may keep their original EAN codes etc. Appropriate application of proces (especially with promotions) is also very important.

Customer Issue Management

Most customers will routinely turn to the customer service in case of any kind of issues. Customer service staff have to be trained to appropriately handle and answer these enquiries. In some opeartions customer service may become more active and take on a proactive role calling customers and taking orders. They may also be involved managing the inventory of customers. 

Invoicing & Crediting

Invoicing and crediting is task that is sometimes done in the Supply Chain, frequently it is carried out by finance. The most important issue is to ensure high invoice accuracy through precise pricing and quantity adjustment. Appropriate measurements should be in place to evaluate invoice accuracy.

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