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Supply Management Snapshots

Updated on May 22, 2010

This article gives snapshots of Supply Management, how supply management strategies are developed and how Buyers are responsible for developing supply management strategy. I have also touched upon procurement process, logistics role in efficient supply management and some sustainable initiatives of key players in global supply management.

How Buyers go for shopping

Buying or procurement process begins with negotiation of prices. Low prices are obtained by booking the orders in bulk. This helps in lowering of prices. e.g. if a company is operating in several countries and same raw materials are being used in all or several countries then the negotiating of prices with suppliers is done by combining the forecast of all the countries.

e.g. a company A is operating in Pakistan, China and Indonesia. Now if all the sister companies go on buying a raw material X separately then they would not be able to get quantity discounts as efficiently as they would have if the volumes were combined. So price is negotiated by combining the volumes so that cost is reduced.

Once cost is negotiated Buyer starts to buy the raw material as per PRs (Purchase Requisition). Email is sent to the supplier asking him about PFI (Proforma Invoice). It lists the price and quantity of the raw material that is needed. An indent is then raised and Bank contract or letter of credit is initiated, depending upon the mode of payment agreed between the parties.

Imports & Supply Logistics

Imports & Logistics part of Supply Management ensures that goods are cleared from the port on time. They look after the shipment of FOB (Free on Board) cargoes as well. Only those goods can be imported that are on the positive list of Customs authorities. Countries can place restrictions as to what goods or raw materials can be imported from a particular country in order to save their own markets or to restrict trade due to unfriendly diplomatic relations, Customs authorities pass what they call "positive list" of those items that can be imported from a specific country. Each item or raw material is identified with its H.S. code (Harmonized System code). The list contains the names of items with their H.S. codes.

Importance of H.S. codes


Most of the countries of the world use H.S. codes in foreign trade these days. H.S. codes are the unique codes allotted to unique goods. H.S. codes are important for the following reasons:

1. They help importers to find out whether they are allowed to import certain goods from a particular country or not.
2. They are used to calculate Customs duty for a particular good.
3. They are used to calculate tariff.

With one supplier only, one can expect supplies with kinks and knots.
With one supplier only, one can expect supplies with kinks and knots.

Strategic Supplier Development

Its necessary that the Supply Manager should have more than one suppliers at hand to fulfill the supplies.

Having one supplier for one material is extremely risky. Even the most reliable suppliers can have problems that can lead to delays in material shipments. In order to obviate any supply delays there should be more than one suppliers. Having more suppliers is costly. Buyers have to look for trade-offs amongst several options. They have to develop the supplier before using any of its products. They ensure that their supplier is making the best quality material in
the safest possible manner. Supply Mangers have to audit the suppliers several times to ensure that everything is OK. Plant trials are then carried out to test the chemical stability of the products made out of the material supplied by the approved supplier. Products are kept under observation for their complete shelf life and closely monitored for their chemical stability. This complete process, which is a part of supply management strategy, consumes time and money. But once they are through with this process, seamless supplies are ensured.

Supplier development is the most important part of procurement process.

Environment And Supply Management

Industries are getting more productive than ever. They are making more products than ever produced. With the increase in population, the demand for different types of goods has increased to astounding levels. This translates in to an even greater waste and impact on environment. From Supply management's perspective it means more shipments have to be made to make more goods.

Some initiatives by some key players of global supply chain are mentioned below:

Green Supply Management Initiatives

Walmart

By optimizing the their truck routes and loading methods Walmart saved 140 million miles of driving which in turn saved 200,000 metric tonnes of CO2 from being released into the atmosphere while saving $200 million in 2008. They are now working toward their goal to double the efficiency of their fleet by 2015 compared to our fleet in 2005.

Unilever

In 2010 Unilever plans to move around 30% of freight, in Europe, by ‘off road networks’ such as rail, sea and inland waterways, generating savings of 9,000 tonnes of CO2 emissions – equivalent to a truck driving round the world 240 times (9.5 million km).

P&G

Since September 2008, P&G Brazil has bypassed most of the 4,000 kilometers of road. The new route takes product via the Amazon River to the Atlantic coast where it embarks on an ocean journey, then a rail ride, and finally a short road trip to the distribution center. This route is 40% longer but it’s more environmentally sound than truck transport alone because the river and ocean portions of the trip reduce CO2 emission by at least 60%.

Sources for above statistics:

http://www.unilever.com/images/sd_UnileverSDReport170310_tcm13-212972.pdf

http://walmartstores.com/sites/sustainabilityreport/2009/en_logistics.html

http://www.pg.com/en_US/downloads/sustainability/reports/PG_2009_Sustainability_Report.pdf



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