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The relationship between, and the importance of, a Value Chain; a Supply Chain and Supply Chain Management.

SUPPLY CHAIN

By Dr Myles Wakeham and Annie Beckerling

The recent outbreak of the Covid 19 pandemic has highlighted the importance of Supply Chain Management (SCM), as a sudden increase in demand for certain products and a complete standstill in demand for others has left many suppliers reeling. However the man in the street can still find it difficult to distinguishing the features that contrast a value chain, a supply chain and finally supply chain management (SCM).. Although there is a strong relation amongst these three activities, there are key differences that make them stand apart from one another.

Essentially, a value chain is a set of activities that a firm performs in order to deliver need-satisfying products or services to a defined market or markets. It is also known as a high-level model of how businesses receive inputs and then processes such inputs via the conversion process (operations) into finished goods and services. This is achieved by adding value to the inputs in such a way that the morphed final offerings will hopefully satiate varying customer needs, better than the competitor. The ultimate objectives of the value chain are the appeasement of both customer needs and wants (in the form of superior goods and services), and, as importantly, revenue and profits for the enterprise.

Created by Michael Porter in 1985, the value chain consists of primary and support activities. Primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and service. The key goal of these activities is to create value that exceeds the cost of performing the activity, thereby generating higher organisational sales and profits. Support activities on the other hand comprise procurement, human resources, finance, technology development, and the firm’s infrastructure. These ancillary activities within Porter’s Value Chain, assist the primary activities by forming the foundation of the organization on which the primary activities operate. A support activity such as financial management for example is of great importance for primary activities as without finance, these activities cannot be performed. Likewise, without effective Human Resources Management, the organisation will not have the requisite human capital to produce the required goods and services, market them and finally distribute them to…

  • The right organisation.
  • At the right time they are need.
  • To the right person who will be using the goods; and
  • At the right price so that their delivery to the targeted end-customer via fellow supply partners will enjoy the value that the offering has been designed to deliver.

The strength that underpins Porter’s Value Chain Analysis is its approach, as it focuses on the customers as the central theme of the business rather than on departments or people. Being a system approach to operating a business, the system links other systems, people, departments and activities to one another and demonstrates how the approach impacts on value creation, costs and profits. Consequently, the analysis makes a clear picture of where the sources of value and loss of revenue can be found in the organisation.

The supply chain is the network of individuals, firms, technology and resources that are involved in the creation and distribution of offerings from the source of the inputs (raw materials, components and so on) via the distribution network to the final consumer. The main challenges of the supply chain, or better still the supply network, are the ever-changing needs of the consumer, its complexity (especially international supply chains), supply risk and as importantly supplier risk. The recent outbreak of the Covid 19 pandemic has underscored the importance of a smooth-running and seamless supply network as without it operating effective and efficiently, more people would have been struck down by the virus. This would have undoubtedly increased the morbidity and mortality rate throughout the world as well as the negative impact the outbreak has had on the global economy.

Supply chain management (SCM) is about creating value. Early efforts at managing supply chains often focused on cost reduction in order to make the chain leaner. Unfortunately, these efforts sometimes reduced the ability to create value thereby negating the key purpose of the supply chain. In essence, there is more to creating value through effective SCM than simply wrestling costs out of supply chain’s primary or support activities. Being an agile supply chain in a modern context, is probably more important than wrangling lower costs as it translates into quicker market entry and better customer service.

There should be value-creating activities that reinforce supply-partner and customer centrism. Because there can be many supply partners in the equation, managing supply chains requires a balancing act among competing and oftentimes self-serving interests. To illustrate this, note the following example. The seller of raw materials (supply chain inputs) would naturally like to enjoy the highest possible price he can muster from the manufacturer in order to maximise profits. The manufacturer on the other hand might probably demand to procure the goods at the lowest possible cost in order to be competitive in the marketplace after he has incurred the time and cost to produce the goods. It is these conflicting requirements that require supply partners to be flexible so that these opposing needs may be realize.

The above is underpinned by the advent of the recent Covid 19 virus and how the interest of supply partners can differ, even in a life-threatening emergency such as the pandemic. In the USA, where the outbreak has reached mammoth proportion, Federal and local governments competed for life-saving Personal Protective Equipment (PPE) hoping to procure such goods at the lowest possible prices. However, because of supply and demand issues, and pure unadulterated opportunism, sellers put up the prices of their PPE goods to exorbitant levels in order to maximise profits at the expense of the people who were ill and dying in hospitals and old age homes. The sad reality is that there was no cohesion and coordination on a macro scale regarding to the procurement and delivery of such essential equipment, apparel and medication. Instead of Federal Government (central government) acting as the catalyst for the acquisition of such goods and services, it competed against states and hospitals, thereby increasing the cost and delaying the delivery of the imported life-saving offerings from Europe and the East.

SCM can be defined as the design, planning, execution, control, and monitoring of supply chain management systems, with the objective of generating value by synchronizing supply with demand and measuring performance on an international basis. Where once it was considered to be a philosophy, in today’s terms it has become an essential business activity that is designed to ensure the delivery of superior value-add services so that all the players in the chain may benefit there from.

The supply chain, not only links organizations e.g. suppliers, producers, and customers. It produces upstream and downstream flows, which move products, information and payment (cash) out of and into organisations.

The value chain however integrates a variety of supply chain activities throughout the product/service life cycle; from the marketing function determining customer needs and wants, operations converting inputs into goods and services and finally to outbound logistics, which consists of order processing, warehousing and distribution. The main intent of a value chain is to increase the value of a product or service as it passes through stages of development and distribution before reaching the end user. So, through effective supply chain mapping and streaming, organisations in the supply network can accurately direct their mutual efforts at providing value-add services to the next-in-line customer. The above hopefully illustrates the relationship of the three critical business activities, their relevance and as importantly how they provide value to all the members of the network, including the end consumer.

Green Logistics – It’s the Same Idea, Just A Cleaner Method

Green Logistics web

Estimated Reading Time – 3.5 Minutes

It’s time to face the truth – if we don’t take better care of our planet, it won’t take care of us for much longer. Global warming is no longer ‘the next generation’s problem’ – it’s happening now, and we need to stop it before it’s too late.

Logistics has been one of the biggest waste-producing industry out there. According to a report, the transport industry is on the list of top 5 sectors that produce the most human-induced pollution. Overall, the road transport sector produces an estimated 72 percent of the logistics industry’s carbon dioxide emissions.

The Industry Is Changing – Here’s How

Today the main objective of Logistics remains the same – to move things from point A to point B. But the intent is to do it better, in regard to emissions, carbon footprint etc. This move toward a greener way of transport is known as Green Logistics or Eco Logistics.

How the logistics industry can become eco-friendly:

  • Use environmentally friendly packaging materials that can be returned and reused. This will not only save the company money but will also reduce the amount of discarded packaging waste. A good example would be to use wooden pallets that can be returned and reused multiple times.
  • Aim to fit more into one box by arranging items in a particular way.
  • Instead of driving long distances to deliver small loads, wait until there is a considerable number of items to avoid wasting fuel.
  • Before setting off to deliver goods, determine the best (and fastest) route to each destination.
  • Make use of reverse logistics, the practice of refurbishing, recycling, and ultimately reselling returned products.
  • Choose the best transportation method. Believe it or not, air transportation causes the most environmental damage. The best options are rail and road transportation.

Tip: To make road travel even more eco-friendly, ensure that delivery vehicles are always clean. This increases fuel efficiency.

Why It’s A Great Idea to Go Green

If you’re still not convinced as to why eco-logistics is the best option, here are just a few of the benefits that businesses can enjoy.

  • Businesses that showcase their dedication to environmental preservation will not only see an increase in customer satisfaction and revenue but will also enjoy a competitive advantage.
  • Businesses will save money by eliminating the use of packaging material and reducing supply chain costs.
  • There will be more job opportunities due to an increase in the logistics process.
  • And finally, employees will be more productive knowing that they are doing their part to help save the environment.

 

These three brands are among a multitude of others that have already started going green –

“We utilize our expertise to make your logistics greener and more sustainable – giving you an edge over the competition. We can also help you find ways to apply circular-economy principles to eradicate waste and retain more of the value that goes into your products.” – DHL South Africa

Sustainability at Nike is more than a single-product principle. It’s an ethos we are embedding and scaling across our company and infusing into every brand, every category and every product from start to finish. In doing so, we are creating a culture of sustainability across the company.” – Nike

“Our products, services, processes and facilities are planned and operated to incorporate objectives and targets and are periodically reviewed to minimize to the extent practical the creation of waste, pollution and any adverse impact on employee health or the environment. Protection of health and the environment is a Company-wide responsibility of employees at all levels” – Ford

If you would like to help save our planet, become part of the exciting and ever-expanding supply chain industry with a fully accredited BCom in International Supply Chain Management from IMM graduate school. Don’t miss out! Applications for 2020 are still open! Enrol today:  https://imm.ac.za/online-application/

LOGISTICS – What is it and why is it so important?

LOGISTICS – What is it and why is it so important

The world we know wouldn’t function as smoothly without the logistics industry. Everything you buy in the store had to get from the supplier to the retailer at some point. Building material had to be transported to site before a structure was built and food is transported from the supplier to the retailer.

The term “logistics” was originally used by the military to describe how it obtained, stored and moved its equipment and supplies. The term as we know it remains the same but with the rise of consumerism and subsequent growth of more complex supply chains, it has evolved. It refers to the process of coordinating and moving resources such as equipment, food, inventory, materials and even people from one location to another.

Inbound vs. Outbound logistics

The two main categories of logistics are inbound logistics, which refers to all the processes of the gathering, handling, storing and transportation of inbound materials, and outbound logistics, which involves the collection, maintenance and delivery of products to the customer.

The other categories of logistics are:

  • Third Party Logistics: a company’s use of third-party businesses to outsource elements of its distribution.
  • Fourth Party Logistics: a company’s ability to outsource the entire management of its supply chain to another company.
  • Green Logistics: the process of minimizing environmental damage done by logistics operations
  • Digital Logistics: digital logistics management systems that enable the optimisation, visibility and collaboration between stakeholders in the end-to-end supply chain.

Logistics management vs supply chain management

Even though the terms “logistics” and “supply chain management” go hand in hand, they refer to two separate aspects of the process. As mentioned above, logistics is concerned with the process of coordinating and moving resources, but supply chain management uses a more holistic approach. CTMC defines supply chain management as “all collaboration between companies that connect suppliers, partners, manufacturers, wholesalers, retailers, and customers to optimize efficiencies that improve competitive advantage”.

Read: 6 Important tips for effective logistics management here: https://cerasis.com/effective-logistics-management/

Types of logistics management

There are four main types of logistics management: supply, distribution, production and reverse logistics. Each type focuses on a different aspect of the supply process.

Supply

Supply management involves the planning and coordination of materials or products that are needed at a certain place and time to support the receiving company’s production or activity.

Distribution

Distribution manages how a supplied and stored material is distributed to its required recipient. It involves the loading, unloading and transportation of material, the tracking of stock and accountability of use, which is the recording of how the material is used and by whom.

Production

BizFluent says that production logistics manages the stages of combining distributed supplies into a product. This can involve the coordination required in a manufacturing or assembling process.

Reverse logistics

Lastly, reverse logistics involves the return of material and supplies from a production process. It plans for the removal of excess material and its re-absorption into a stock supply. For example, if there are bricks left over on a building site, it will be removed and returned to the supplier and reclaimed as stock.

Why logistics is so important

Logistics is an integral part of any company, especially those that produce and distribute products and materials. Having said that, the logistics industry is important for the following reasons:

It helps to create value. Providing value extends further than the quality of a product, it also refers to its availability. Effective logistics management ensures the continued availability of products and materials to consumers, thereby creating and increasing the value a business offers.

It helps to reduce costs and improves business efficiency. By partnering with other businesses that offer transportation and storage, companies can reduce their operational costs while maintaining and increasing business efficiency.

It ensures the timely delivery of products to the correct location. Good logistics management ensures the quick and safe shipping, storage and delivery of products to customers.

In short, logistics is about providing the right goods to the right recipient in the right quantity at the right place at the right time. In an article by NHFS, a shortage of skilled workers is cited as one of the challenges in the South African freight industry along with climate change and regional connectivity.

The IMM Graduate School’s supply chain and export management believe the future could be in the hands of the young logistics professionals. Find out more about our logistics short course here: https://www.immsc.co.za/online-course/logistics-short-course/

Six important tips for effective logistics management

The IMM Graduate School | Six important tips for effective logistics management webWhat do you think about when you hear the word “logistics”? If you think it’s the transport of goods from point A to point B, you’re half way there.

What does Logistics mean?

Logistics is the detailed organisation and implementation of a complex operation. A supply chain comprises all the activities associated with the flow and transformation of goods, from the raw materials stage through to the final consumer. It’s a sequence of events intended to satisfy a customer or end user, and it’s made up of various core elements or processes, including manufacturing, distribution, transport, warehousing, inventory control, materials handling and procurement. With so many elements and processes involved, logistics is a little bit like juggling… When the system’s working properly and you’re in a good rhythm, everything slots into place. But when one balls drops, the entire thing can come crashing down. The key to any effective supply chain is setting up systems that ensure a smooth process from manufacture to distribution.

Logistics is a complex business function.

The more steps there are in your logistics plan, the more efficient your entire process needs to be. If several different materials need to be supplied to a certain location at different times, your supply chain not only needs to be efficient, but also able to quickly respond to problems as they arise. The larger your operation, the more difficult this becomes, and the more prepared your business needs to be. To help your supply chain run as smoothly as possible, here’s our top five tips for effectively managing your logistics.

The manta for logistics and supply chain that many logistics managers around the world live by is the ‘7-rights’:

  1. Move the right materials/products
  2. In the right quantity
  3. In the right condition
  4. At the right time
  5. To the right place
  6. At the right cost
  7. To the right customers, associates, suppliers or stockholders

Cerasis.com share six important tips for effective logistics management and network optimisation. We have summarised them for you:

Proper Planning – The first step to accomplishing a task is planning. Now, planning encapsulates various factors. It involves procuring the goods, storage facilities, and delivery of products to the exact location.

Adopt Automation – In the age of automation, technology plays a major role in increasing the efficiency of an organisation. Automation has a vital role in the business process optimisation. Business process software can be integrated that provides timely updates regarding the movement of goods.

Value Relations – The team is an essential aspect of an organisation, especially in the supply chain function. Whether it’s the delivery guy or the warehouse manager, everyone should be perfect in their respective field of work. For this, you need to invest in proper training of the employees. Regular training workshops keep the employees updated with the latest trends in the logistics industry. This helps in increased efficiency and satisfaction of the clients.

Warehouse Management – Effective logistics management is incomplete without proper warehouse management. Warehouse operations are considerably dependent on the type of goods. The logistics firm should aim at developing the warehouse inventory so that there is minimum wastage of goods. Moreover, maximise the storage capacity of the warehouse. Usage of vertical storage columns is recommended.

Efficient Transportation – Transportation department can be analysed to decrease the expenses of the logistics firm and at the same time, it can be revamped for faster delivery of the products. Following factors should be considered for efficient transportation:

  • Determining the best delivery route.
  • Cost-effective packaging that ensures low investment and safety of goods as well.

Measure and Improvise – Logistics network optimization is incomplete without integrating measurement, analysis, and feedbacks. When you deploy new strategies in the system, you need to measure the output. This is important as it intimates the success or failure of the strategy.

The impact of the product lifecycle on business logistics

According to Jooste (2014), marketing is defined as “… the process by which organisations satisfy the needs of consumers by creating, communicating and delivering value for customers in the form of ideas, goods and services to facilitate satisfying exchange relationships, in ways that benefit both organisations and customers”.

Pienaar and Vogt (2012) posit that business logistics is “…concerned with the inbound movement of materials and supplies and the outbound movement of finished products. The goal is the delivery of the finished products required by the marketing department to the point where they are needed and when they are needed in the most economic fashion.”

So, in terms of Pienaar and Vogt’s definition, logistics’ key function is to convey inputs into the organisation in the form of materials and components etcetera and then deliver the end-goods that were developed by means of the transformation process (operations) to consumers at the right time, the right place and price to the right person in the right condition and quantity. The relationship between the two functions is that of co-dependence; marketing cannot survive without logistics and logistics has no place in the economy without the need-satisfying offerings that are uncovered and designed under the umbrella of the marketing effort.

Essentially, marketing is focused on four key elements known as the four Ps: product, price, promotion and place (distribution), whereas business logistics is made up of several activities such as demand forecasting, site selection and facility design, procurement, materials handling, packaging, warehouse management, inventory management, order processing, logistics communication, transportation, reverse logistics and customer service.

Addressing needs and wants

Every logistics activity, as mentioned above, is required by marketing to convey inputs into the organisation and to deliver the outputs that have been developed by operations for targeted customers in such a way that the needs and wants of such customers may be satisfied in a cost-efficient manner.

All products have a lifecycle; some are of long duration, like Coca Cola, and others extremely short (e.g. a fad). The traditional product lifecycle (PLC) has four stages; the introduction stage where new products are introduced in the market, the growth stage which is characterised by robust sales and profits, the maturation stage where sales have peaked and finally the decline stage where the demand for the offering starts to diminish as the market becomes saturated with the organisation’s goods and those of competitors.  In order to elongate the life expectancy of the product or service, marketing utilises the marketing mix variables (4Ps) to try to generate sales but like anything in life, the product will experience an eventual sad demise.

Although the traditional PLC as reflected above is an accurate indication of a product’s lifecycle, which starts at market entry and ends at the death of the offering, it is not a true reflection of the entire process because it is void of one of the most important stages; the product conceptualisation and development phase. It is this important juncture (when the product is perceived, conceived and born), that triggers the commercialisation of the offering and its ultimate absorption into the marketplace.

 An organisation that is well-versed in product life cycle management will have the ability and skills to optimise logistics and SCM to benefit its bottom line. Product lifecycle logistics is an approach to treating the supply chain as a continuous network or circle and, in the process, to improve customer service, lower supply chain costs, and where possible, bring in an additional income stream if the form of investment recovery by means of the disposing of dead stock and effective waste management.

The key to realising these savings as well as exceeding customer expectations is to recognise the relationship between the supply chain, business logistics, marketing and the PLC. This will provide a better understanding of the business and if used correctly, it can be used in combat with business adversaries as a result of a competitive advantage.

In the same way, lead time management, in the form of order-to-delivery cycle and the cash-to-cash cycle, will reduce the time it takes to satisfy customer needs and likewise the time it takes an organisation to convert an order into cash. Both forms of lead time management will provide the organisation, compared with slower rivals, with a competitive advantage.

The critical need to improve South Africa’s logistics

The heads of IMM Graduate School’s supply chain and export management believe the future could be in the hands of the young logistics professionals, a view backed up by experts speaking at the recent Transport Forum held at Stellenbosch University.

 

“Can a logistician be referred to as a professional?” ask Dr Beverley Waugh and Dr Myles Wakeham from the IMM. “We seek to equip school-leavers, and employees and employers already in the workplace, with knowledge and skills to perform their specialised tasks and fulfil their professional roles in the supply chain, in the best possible way for their own development, the profitability of their organisations and the value of the supply chains in which they operate. To do this, they need to be professionals in logistics!

 

Logistics affect national and global wellbeing

And it doesn’t end with the individual, the organization or their overall supply chain. National and global economic wellbeing is also impacted. Speaking at the Transport Forum held at Stellenbosch University in August 2018, Professor Lauri Ojala asserted that logistics performance is critical to the national performance of economies, and that trade logistics are a key element of global economies.

He noted that logistics should thus be a cross-cutting policy concern in all countries, focusing inter alia on measuring supply chain efficiency, identifying problem areas, and providing key information necessary for supply chain managers. South Africa, for example, could benefit from raising logistics competence levels. Ojala pointed out that although performance with regard to costs and processes was very important, reliability within supply and service delivery was ranked even more important by logistics professionals. While cost-cutting was always on the agenda, concerns regarding sustainability, service, and competence were higher on the agenda. Traditional trade and transport facilitation remained at the core of logistics performance.

At the same meeting, Professor Jan Havenga identified the rising cost of logistics as a major concern for South Africa. He noted that government needed to be aware of this and involved in addressing various issues in the inefficient supply of logistics. South Africa has a “built-in” problem because of the overland distances involved in local logistics, and the fact that economic density is spread and mostly situated away from the ports: “South Africa is a spatially challenged country and its ton-kilometre productivity is among the worst in the world,” said Havenga.

Logistics management in South Africa therefore involved “more effort to do the same thing better!”. Havenga asserts that as a result of much South African transport usage being outsourced to blue-chip logistics service providers, the country has up until now been able to achieve and sustain fairly good logistics statistics. The South African logistics service provider industry has achieved excellent results and logistics managers have been well trained. However, he noted that skills in South Africa was becoming one of the greatest challenges, especially the shortage of logistics service provision skills. It was agreed that a stronger concentration on a few strong centres of excellence was necessary to address this.

In addition to these points, Professor Stephan Krygsman identified the need for governments to create an enabling environment for education and research, long-term planning, infrastructure for transport, for example, and so on.

South Africa needs skilled logisticians

Krygsman noted that South Africa is underperforming, not necessarily because of infrastructure, but due to inadequate skills, needed in part to “translate the benefit of infrastructure to increased economic output”. Transport infrastructure is a necessary but insufficient condition for economic development: An educated and trained labour force is also needed. In addition, Krygsman identified key problems in the supply chains of organisations in South Africa as including unnecessary regulations and documentation, and inadequate coordination between industry and ports – leading, for example, to congestion in ports resulting in unnecessarily high capital and other costs for the organisations involved. The cost of doing business and inefficiencies were unnecessarily and unacceptably high.

All role players in the South African supply chains must focus on making it easier and more efficient to do business. Adequate skills are needed for this, and these requirements are urgent for the welfare of the country and its people overall.