Operational Supply Chain Management
Operational supply chain decisions are made hundreds of times each day in a company. These are the decisions that are made at business locations that affect how products are developed, sold, moved, and manufactured.
Operational decisions are made with an awareness of the strategic and tactical decisions that have been adopted in a company. These higher level decisions are made to create a framework within the company’s supply chain operation and to the best competitive advantage. The day to day operational supply chain decisions ensure that the products efficiently move along the supply chain, achieving the maximum cost benefit. A number of examples of operational decisions can be identified in manufacturing, supplier relationships, and logistics.
Companies make tactical decisions with regards to manufacturing, such as the adoption of kanban and just-in-time. However, if the local manufacturing site is unable to rely on certain supplier’s delivery times, the just-in-time method may not be suitable for some product lines. The local plant management may make an operational decision to keep certain items in stock to ensure that production is not halted. This inventory will increase costs, but a greater cost would be incurred if the production line was brought to a standstill due to a lack of items from a supplier.
Global suppliers and negotiated contracts are decisions made at a company level to take advantage of the company’s global buying power. This offers considerable cost savings, but local sites may have to make operational decisions with suppliers to ensure an efficient supply chain. In some instances, local negotiations with global suppliers are required to ensure the quality of the product. For example, in some countries, the quality of the product produced by a supplier is not at the same level as other countries. The local management would have to make an operational decision to negotiate with the supplier for them to create a product with higher quality to ensure the quality of the finished product.
Strategic and tactical supply chain decisions in the logistics process often focus on the use of third-party logistics companies (3PL). Many companies have identified the cost benefits of these 3PL companies and have integrated them into their supply chain. However, in some instances, these 3PL companies may not operate in all regions where the company requires logistics. In those cases, the local management has to make operational decisions on leasing local warehousing and negotiating with regional logistics companies.
Although strategic and tactical supply chain decisions are made to bring the greatest efficiencies at the lowest cost, the daily operations of the supply chain require that local management makes hundreds of operational decisions. These operational decisions are made within the framework created by the strategic and tactical processes and not made in isolation.
An optimized supply chain is one that allows the organization to ship what the customer wants to its customer when the organization's customers want their orders shipped. And to accomplish this by spending as little money as possible - in the cost of goods, in inventory costs, in logistics and manufacturing costs.
If your supply chain isn't delivering to your customers on time, while maximizing revenues and minimizing expenses - it isn't optimized. Optimize your supply chain by managing your suppliers, your logistics, and your costs.
Updated by Gary Marion, Logistics and Supply Chain Expert.