Supply Chain Management: A dazzling orchestra without a conductor

Richardus Eko Indrajit, Contributor, Jakarta

To correctly comprehend the concept of supply chain management or SCM is not easy; more so to implement it.

Probably one simple way to understand this new paradigm is by analogizing with the way Indonesians living in a kampong or densely-populated area extinguish a fire in their neighborhood.

Normally, the crowd will hastily make a human chain stretching from the burning house to the source of water. And they will quickly pass on buckets of water to put out the fire.

Through the process, each of the people in the line plays the same important role to make their efforts the most effective and efficient. If someone slows down or carelessly spills the water, it will definitely take longer to put the fire out.

The same principles apply to SCM. The house on fire denotes consumers who are always demanding products of better quality, at lower prices and speedy delivery, while the people in line represent independent companies working in synergy to produce and deliver products, starting from the manufacturing centers -- the upstream point, to the end customers -- the downstream point.

In the SCM concept it is obvious that a product can only be sold at a lower price if the manufacturing and distribution process at each of the companies in the chain is done efficiently. Similarly, the quality and delivery speed also depend on their efficiency. Consumers can finally enjoy high quality products that are delivered promptly if each of the companies in the SCM link works at the maximum speed and with high quality standards.

Thus it does not mean much when a supermarket succeeds in increasing the speed of its services while, on the other hand, its partner is slow in distributing its products. Likewise, it is no use for a wholesaler to have a good warehouse system to maintain the quality of products, when eventually the retailers are careless and sloppy in storing them.

In both cases, the consumer ultimately become the victim and is not satisfied with the service and products. Consequently, they will look for another place with a better SCM system that offers cheaper and better products with a faster delivery service.

Resembling an orchestra without a conductor, where each musician does his best to play his instrument according to the musical score provided in order to please the listeners' ears, each company in the SCM system also does its utmost in carrying out their specific assignment to satisfy the customers.

This illustration shows that the only way to develop an effective and efficient SCM is by establishing a strategic partnership among the entire companies in the chain from the upstream to the downstream points.

Historically, the SCM concept was born when companies' managements were desperately looking for a way to maximize their own resources. The feeling of despair was due to the fact that most top executives were focusing only on their own internal resources, without ever attempting to work in partnership with external entities, which could actually enhance their performance significantly.

To illustrate this better, let's view some major publishing houses and bookshops in the country like Gramedia, Gunung Agung, Andi Offset and Kanisius.

At the downstream point, not all of them have their own stores in the provincial capitals, and far less in the regency cities and subdistricts. However, this does not mean that they do not have the opportunity to establish a network of book retailers, because they can work in conjunction with the local subdistrict offices, telecommunications kiosks, schools and public clinics based on a profit sharing or franchise system.

After taking care of the downstream business, the company has to focus on the distribution process. Rather than investing a huge sum of money in purchasing and maintaining its own transportation system, it could hand over the distribution to the most reliable and cost-effective courier company. Or it can get a company specializing in handling book distribution.

Having settled the distribution problem, it is then time for the company to start thinking about the printing plant that it owns, as a number of outside printers have recently cropped up in the market and can provide printing services that are cheaper, faster and of a higher quality than the company's own internal facilities. Based on simple logic, the company has no more reason to maintain such costly and ineffective printing equipment.

Things become more interesting once the management discovers that other segments of the printing process are no less costly, such as editing and layout.

In many cases, the number of manuscripts certainly far exceeds the number of permanent employees in the two sections. In view of their competence and skill, the editing can actually be assigned to senior university students of the language department, while the graphic design students can look after the layout. This outsourcing to higher education institutes will certainly remove another chunk of the company's costs.

At this stage, finally only a few people will remain in the company. Their simple daily routine will be just checking e-mails for manuscripts in soft copy from writers, returning the unapproved files and sending material to universities for editing and layout. These will then be printed by outside printing partners, distributed nationwide by couriers and sold by various distribution channels in most of the subdistricts in the country.

In today's world, a company need not necessarily own and operate the whole upstream to downstream points. In fact, each and every process, which is not the company's core business, should be handed over to outside companies and a strategic partnership should be formed.

This "Collaboration to Compete" scheme will be the key to success for any company in the current highly competitive market.