How do you determine which business processes are most vital for a company?

Note: The content of this article is just scratching the surface in order to provide a overall view of Supply Chain Management.

When starting to build a prototype system in SAP ECC, it is important to get ‘the bigger picture’ on the company’s main purpose for existence. Do not be surprised that it always boils down to the same answer, irrespective of the company in question: A company has to make a profit. And in order to do so, it needs to focus on customer satisfaction, innovation and risk aversion.
Customer satisfaction seems very obvious, as without consuming customers the company will have no inbound cash flow to pay for all the costs.
Innovation is important because the company needs to react to the ever changing surroundings. A satisfied customer today does not automatically result in a satisfied customer tomorrow.
Finally risk aversion is even more vital for long term success, especially because it tends to be neglected. A company has to comply with the laws and regulations, needs to insure against potential financial claims that cannot be paid from its cash reserves and focus on diversifying the product range.

Now that we know WHY a company exists, Supply Chain Management takes a closer look on HOW to achieve customer satisfaction by a) supplying a high quality product or service and b) deliver what has been requested ‘in full’ and ‘on time’.
Immediately it triggers the need for forecasting, manufacturing, storage and transportation strategies. These strategic decisions need to fit in an overall management of the associated information, goods and money flows.
Whatever is decided, keeping the overall costs as low as possible while remaining flexible within changing environment is the core challenge linked to Supply Chain Management.

Let’s take a closer look on the various Supply Chain Management strategies.

The forecasting strategy is dependent on the type of product or service that the company is offering. Is there a trend in demand identified? Does demand have a seasonal influence? Is the trigger for buying linked to a marketed hype? Which product has reached which phase in the product life cycle? Are there any new products in the pipeline? Does a competitor aggressively gain market share?
It is obvious that forecasting requires a special skill to understand the current positioning of the company and to predict the future.
Of course you can also choose not to forecast and be totally responsive to received customer orders only. But that might be too much of a risk. Therefore it is important to know the manufacturing strategy.

The manufacturing strategy is primarily linked to the time a customer is willing to wait to get the finished product or service delivered. When you want to buy comfortable running shoes, you expect it to be available in the local sports store immediately. But when you order a brand new car, then it depends on your specific wishes whether to accept one available in the showroom or wait for your desired model to be manufactured and shipped to the dealer. Of course you are prepared to wait much longer when ordering a plane. It is important for the company to have an idea of the acceptable lead time between ordering and delivering.
An extreme short lead time requires a ‘make-to-stock’ attitude, resulting in building stock in anticipation of a sale.
When a finished product does not need to be available instantly, then it could be acceptable to implement a ‘assemble-to-order’ process. In this case the manufacturing of sufficient semi finished products prior to a customer sale is important.
When the product is so specific that it requires the customers input before manufacturing can start, then a ‘make-to-order’ approach is the only sensible option available.
Of course it is also possible to outsource all the manufacturing, leaving the appropriate manufacturing decision up to your supplier. But be sure you make solid contractual agreements regarding quality of the product and service provided.

Regarding storage and transportation strategies, the basic question is whether to outsource these activities. Normally the company needs to focus on its strengths and that is normally in the area of research and development, manufacturing and sales. So it is obvious that many companies do not want to become an expert regarding storage and transportation.
However, when the decision is made to do these tasks ‘in-house’ then it obviously requires the need for specific capabilities. For example, when you decide to take control over the storage of your products then you would need to control and execute warehouse management processes such as picking, packing and loading.

When demonstrating a very basic Supply Chain Management prototype via the model company called Sir Juke, the following decisions were made: