Supply chain flexibility – the ability to continue to operate cost-effectively even in times of unpredictable and large fluctuations in demand – is a key success factor. The global recession dramatically removes the ability to forecast beyond three months. Therefore, flexibility becomes more critical in times of crisis. In this situation, effective integrated planning across the entire chain together with rapid response in short time intervals are extremely important.
In an increasingly competitive environment, it becomes impossible to achieve success by spending on traditional marketing alone. The difficulty in assessing the degree of feedback from traditional marketing leads to biased evaluation of results and futility in the planning process. As a result, it becomes impossible to determine by what means the final goal – attracting a buyer – was achieved, because it is not clear what investments in advertising to consider justified and effective, what methods to use to assess this effectiveness. Even attracting a buyer and not having adequate operations, companies will make wasted marketing expenditures, as they will stimulate demand that they are unable to satisfy. It is no coincidence that the service component has a significant share in the cost of products.
Supply chain management is becoming as important to companies as marketing once was. A supply chain exists only because there is a consumer demand for a product. Companies recognize the heterogeneity of consumers and offer not just one product, but a range of products aimed at different market segments. These goods may differ in a number of ways – novelty, image, price, quality, shelf life, etc. As well as configuration, supply chain parameters are determined by different characteristics of goods – these parameters are changed as necessary during the life cycle of a product, i.e. its development from “birth” (introduction to the market) to “death” (disappearance from the market). The speed of response to changes in demand is more important at the stage of product introduction to the market, when the uncertainty associated with the new product is high. At the same time, at the mature product stage, stable demand and high sales volumes dictate prioritizing reliability and cost reduction over speed of delivery and flexibility.
Supply chain parameters
On the one hand, effective supply chain management, if necessary, implies the existence of common performance indicators for all chain members, which allow tracking the chain development in the right direction. On the other hand, performance indicators should take into account both the specifics of the product and the stages of its life cycle.
The following supply chain parameters are distinguished:
Chain speed is the length of the cycle from the purchase of raw materials and supplies by the supplier of a good to the receipt of the actual finished good by the consumer. Chain speed is sometimes referred to as the length of the supply chain and is measured in days.
Chain reliability – the degree to which the established delivery dates are met.
Flexibility of the chain – the ability to adapt the supply chain in a timely manner in accordance with the changing demands of the consumer, for example, changing the share of sales of a particular product in the portfolio depending on demand or bringing to the market new modifications of the product. Good indicators of flexibility are the level and position in the chain of inventory and the frequency of product unavailability in the retail part of the chain.
Chain costs – the total cost of operating a supply chain, which consists of the costs of production, purchasing, transportation, warehousing, insurance, writing off obsolete and deteriorating inventory, financing the chain, and a host of others.
There is no doubt that an ideal supply chain should strive to achieve perfection in all of the above parameters: at the first whim of the consumer (flexibility) to deliver the goods to him quickly (speed) and exactly on the promised date (reliability), at almost no cost to all partners in the chain (costs). Unfortunately, there is no doubt that this scenario is somewhat utopian.