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In the most general sense, the "push" model literally pushes product
upstream to ensure each customer in the supply chain has the product they
need. Some common product segments we see the "push" model used in are
household goods like toilet paper, laundry soap, or commodity products such
as oil or electricity. They are products, which in most cases we today cannot
live without advantage of the "push" model is control and predictability for
the supply chain. Many companies have historically relied on the model
for this reason. If demand for products such as bath soap is stable,
then the manufacturing and transportation process can be structured
to closely control material movement and holding. Inventory is also
much easier to manage, maintain and control as all that is needed is an
optimal reorder point at which replenishment occurs. The downstream
produces the product to fulfill the replenishment requirements, and the
model can be stabilized. The disadvantages of the "push" model are high
penalties in terms of lost profits, and higher inventory holding costs
throughout the supply chain. For example, with a "push" model, when a
product becomes obsolete, the entire inventory must be sold at a large
discount or taken as a loss. Commonly retailers face this problem at the
end of a season, holiday peaks, or fashion season.
Pull Model
As customer preferences are increasingly pressuring manufacturing
operations, companies are now moving more to "pull" models in
supply chain material movement. In the "pull" model, the system is
fundamentally changed where production only occurs once an order
is placed, instead of maintaining inventory to satisfy the order
immediately. This means the downstream operations are triggered
by upstream requirements, and hence material flow occurs much
differently. Here is the basic design of a "pull" model:
Components
As we can clearly see from the model, inventory in the "pull" system
can be greatly reduced. No longer are there warehousing and storage
locations between the supplier and manufacturer, and manufacturer
and retailer. Instead, product moves upstream only when required by
the final customer demand order, so inventory in all cases, raw
material, work-in-process and final product inventory, is minimized
between the different stakeholders in the supply chain. This is a very
basic overview, where different models may provide different
outlooks on how inventory is managed.
Above figure represents the processes in a supply chain that are divided into
a series of cycles, each performed at the interface between two successive
stages of a supply chain. This means that each cycle is decoupled from other
cycles via an inventory so it can function independently, optimize its own
processes and is not hindered by problems in other cycles. For example, a
cycle that replenishes retailer inventories by delivering products from the
manufacturers end-product inventory and a cycle that takes care of
replenishing the manufacturers inventory by producing new end-products. A
cycle view of the supply chain clearly defines the processes involved and the
owners of each process (hence roles and responsibilities).
It spans: all customer interactions (order entry through paid invoice), all
physical material transactions (supplier's supplier to customer's customer,
including equipment, supplies, spare parts, bulk product, software, etc.) and
all market interactions (from the understanding of aggregate demand to the
fulfillment of each order). It does not attempt to describe every business
process or activity. Specifically, the model does not address: sales and
marketing (demand generation), product development, research and
development, and some elements of post-delivery customer support.
This model is designed to support supply chain analysis at multiple
levels.SCC has focused on the top three process levels, which are industry
neutral. SCOR does not attempt to prescribe how a organization should
conduct its business or tailor its systems/information flow. Every organization
that implements supply chain improvements using the SCOR model will need
to extend the model, at least to Level-4, using industry-, organization- and/or
location-specific processes, systems, and practices.
SCOR Structure
SCOR is a reference model. The purpose of a process reference model, or
business process framework, is to describe your process architecture in a
way that makes sense to key business partners. Architecture here means the
way processes interact, how they perform, how they are configured and the
requirements (skills) on staff operating the process.
The SCOR reference model consists of 4 major sections:
Performance: Standard metrics to describe process performance and define
strategic goals
Processes: Standard descriptions of management processes and process
relationships
Practices: Management practices that produce significant better process
performance
People: Standard definitions for skills required to perform supply chain
processes.
Performance
The performance section of SCOR consists of two types of elements:
Performance Attributes and Metrics. A performance attribute is a grouping of
metrics used to express a strategy. An attribute itself cannot be measured; it
is used to set strategic direction. Examples of business strategies applied to
supply chain are: 'Superior performance for Supply Chain Reliability' or
'Advanced performance for Agility'. Metrics measure the ability of a supply
chain to achieve these strategic attributes. Superior performance for
Reliability can thus be expressed in a performance objective:
Perfect Order Fulfillment: X%.
Reliability is the performance attribute; Perfect Order Fulfillment is the
metric. Benchmarking is a commonly used method to calculate the value of
X in the Reliability example.Reliability, Responsiveness and Agility are
considered customer-focused. Cost and Asset Management Efficiency are
considered internal-focused. All SCOR metrics are grouped within one of the
performance attributes. Each Performance Attribute has one or more level-
1/strategic metrics. These level-1 metrics are the calculations by which an
organization can measure how successful it is in achieving its
desired\positioning within the competitive market space.
Performance Attribute Level-1 Strategic Metric
Reliability
Perfect Order Fulfillment
Responsiveness
Order Fulfillment Cycle Time
Agility
Upside Supply Chain Flexibility
Upside Supply Chain Adaptability
Downside Supply Chain Adaptability
Overall Value at Risk
Cost
Total Cost to Serve
Asset Management Efficiency
Cash-to-Cash Cycle Time
Return on Supply Chain Fixed Assets
Return on Working Capital
Level 1
The model is based on five different management processes. The processes
Source, Make and Deliver of the company, together with those of clients and
suppliers, form a "supply chain" planned as a whole by the different actors in
the process Plan. Additionally, in all the "contact links" Deliver-Source is
included the process Return, for the management of returns.
PLAN: Processes that balance aggregate demand and supply to develop a
course of action which best meets the established business rules.
To plan the acquisition of prime matters in Source, to plan adequately the
production in Make and to fulfill the clients requirements in the delivery in
Deliver, it is necessary to be conscious of the demands variability along the
whole chain to avoid the unwanted effect Bullwhip (Accumulation of high
inventory levels in the stages of the supply chain that are farer from the final
client, which face great variability of demand in comparison with the
distributors or retailers). For this is necessary to establish narrow relations
with suppliers and clients to plan production in agreement to the demand of
the final product. When the product is perishable, it is necessary to have a
constant supply system. Every day it is necessary to have fresh inputs,
necessary for the production of the day or the week. Likewise, the capacity
of the productive process must assure a volume adapted to satisfy the
internal demand and that of exportation; as for the distribution, the
deliveries must be focused to satisfy the delivery times, preserving the
quality. Under these considerations arises the need to plan the production
according to the different types of demand, for which is indispensable to
share information in benefit of all the parts involved (from the suppliers
supplier up to the clients client).
However, for selected companies that produce raw ingredients and sell
processed consumer products, such as dairy co-operatives, problems exist.
Inventory planning assumes control of at least one end of the chain either
demand or supply. Inventory planning for agricultural businesses is very
difficult. If a business can know exactly the quantity and quality of the
harvest, the business can then plan the inventory that balances supply and
demand. If not, the company quickly loses its ability to manage the chain
optimally. The best it can achieve is sub-optimal performance.
SOURCE: Processes that procure goods and services to meet planned or
actual demand. The prime matters are an essential part to assure the quality
of the final products. Thats why quality standards must be established by
the suppliers, to satisfy the final clients. However, the chain must recognize
that uncontrollable events will affect the product procured. In the case of
agricultural products, input quality variation can depend on environmental
and biological factors (rain, disease, etc.). A vendor may have a contract, to
clearly identify standards and be a certified supplier, but factors completely
outside of the vendors ability to control, could result in a product delivered
that doesnt match established parameters.
The inputs can be divided in perishable products (ex: agricultural products)
and not perishable (ex: packages). For the case of the perishable inputs, it is
necessary that the supply interval is short to support a minimal inventory,
the necessary quantity for the daily production. In this point it is very
important to support a good coordination in the supply chain, with the
purpose of avoiding from high costs of storage for concepts of refrigeration,
or for caducity of prime matters.
MAKE: Processes that transform goods to a finished state to meet planned
or actual demand. In this process, it is necessary to take into account all the
activities of the transformation process from the raw material to the final
product, as well as the flows of material and information of the productive
process. When programming the activities of production process, it is
necessary to have in mind that production is done according to request.
Besides, to continuously improve the process, the preferences of the
consumers must be considered. To satisfy these needs of the final client,
methods and quality standards will be proposed in order to support the
control of the productive process stepwise.
DELIVER: Processes that provide finished goods and services to meet
planned or actual demand, typically including order management,
transportation management and distribution management.
To deliver the products, the volume that the client needs will be assured
avoiding excessive deliveries, unnecessary costs of transport, etc. The
clients' portfolio will be defined. In this process it is managed from the
questions and requirements of the clients up to the shipments of the product
and the selection of logistic companies.
RETURN: Processes associated with returning or receiving returned products
for any reason. These processes extend into post-delivery customer support.
To do a good returns management and returns of raw material can be an
important source of competitive advantages. It is necessary to assume that,
in spite of the good practices to deliver a quality product, there can always
be motives for which our products, or our prime matters, will be returned by
the clients or to our suppliers respectively. Because of this, it is proposed to
offer to the client an efficient service of management of returns, which allows
to answer in time to this type of situations, minimizing a potential
deterioration in the relation with the clients, and also to manage the process
of returns with suppliers in case of receiving defective, expired or excessive
inputs. There must be channels of communication and procedures properly
studied to do this process, in such a way that this situation does not turn into
an unexpected complaint, but it works as a good system of feedback in the
post-sale, with the objective of minimizing the costs of the return and at the
same time, to be in good relations with clients and suppliers.
Level 2In this level, companies configure their supply chain. A companys
supply chain can be configured-to-order at Level 2 from 30 core process
categories. The Process Categories are defined by the relationship between
a SCOR Process and a Process Type. The Process Categories are selected
from the SCOR configuration toolkit, in agreement to the type of products
and to the market, to represent the supply chain configuration. Each product
or product type may have its own supply-chain.
The type of process Planning consists of periodically aligning the necessary
resources to get the requirements of demand: in this one the demand,
internal or for exportation, is agreed with the necessary supply for the
production. The type Execution is unleashed by the current or planned
demand; here the state of the materials is changed, and implies the
transformation of the product, programming and sequencing the production.
The type Enable corresponds to processes that prepares, support or handle
information or relations on which depend the processes of Planning and
Execution.
SCOR Model defines basic processes of the supply chain and groups them
into five categories as Plan, Source, Make, Delivery and Return. SCOR exactly
names the main process in each of these groups. The operations which are in
the range of SCOR model are:
There are different approaches about the strategy, some of them focused on
the competitive positioning based on the understanding of power of external
forces governing competition in an industry, as Porters approach, which is
classified in the positioning based view model PBV-. Others focused on
competences and capabilities of the organization, as Resources-based view
-RBV- approach, where company capabilities are intangibles as reputation,
know how, culture, innovation process, among others, are capabilities very
hard to imitate for competitors, and based on them, companies could create
competitive advantage.
References:
Council.