Supply Chain Management in 2021: Contract or Coordinating Mechanisms

The supply chain is a very complex chain that involves the transport of goods from supplier channels to a customer. Within an organization, there are a myriad of goods that are received from multiple vendors. Channel coordination is the process that is involved in the improvement of supply chain performance. The aim with all process flow based activities, is to ensure that the plans of an organization are realized in the time frame that is desired.

The key to achieving organizational goals is via the implementation of inventory management strategies and order management strategies. These two parameters are two sides of the operating coin. The process of coordinating a channel, often involves the utilization of mathematical models that look at the flow of goods through an organization, and determine the current operational mode, prior to making a system change or not.

The Channel Coordination Theory

There are various operating scenarios in the supply chain. Some are favorable, and some cause operational dilemmas and result in suboptimal operational practices. The latter of course, are those that we aim to avoid. With channel coordination, established supply chain elements work together in order to ensure that the performance of all the participants is improved in a synergistic fashion. The tools that are utilized in the accomplishment of these goals include tools like Forecasting and Replenishment. By operating within upper stock limits and lower stock limits, organizations are able to remain in a state of order.

The aim of channel coordination is that of an organizational tool. By managing the flow of information, materials, financial resources and other critical components of the supply chain, an organization is able to generate a contracting scheme that is composed of various components. These components include elements such as local planning methods, infrastructure and incentives. All of these elements work together in order to ensure that the voices of all parties in the supply chain contracts are able to operate in a win-win situation.

With the appropriate planning methods, the production process can be stable and in control. With various elements involved a transparent system will enable a clear view of the operational system to be visible, and any goals or targets can be easily tracked.

The Contract Methodology

With the contract methodology, operational coordination takes place via a series of intricate steps. With organizational agreements of course, there must be a central decision maker who identifies the key operation conditions. This solution is the key that will set the target for system performance, with parameters clearly outlined. With local optimal decisions identified, the system can operate at a realistic peak.

Collaborative Planning

Another approach to channel management is known as collaborative planning. This approach is much more iterative in nature and involves a series of steps that are able to achieve both upstream and downstream planning capability. With the differing scenarios, a clear view of the organization can be identified. Customers and suppliers are able to negotiate with each other, and ultimately identify the peak operational point.

Key Manufacturing Elements

In the manufacturing of industrial process parts, it will be critical to ensure that you are focusing on the primary goals of system optimization in your supply chain. With the aim to establish and maintain an integrated supply chain, it will be critical for you to ensure that certain key tenets are upheld.

  • Process Transparency: This tenet is key to ensuring that the relevant notifications are given to a supply and customer team. In the industrial realm, the majority of processes are continuous, and the aim is to ensure that there is a balance of inflow and outflow. If there’s a decrease or an increase of any parameter, the supply chain will be affected by this change. If the suppliers are aware that their customer needs less of a product, the relevant aspect of the transportation of that product can be forwarded to the freight team, who can then adjust the delivery.
  • Information Aggregation: Data is key to process optimization and process stability. Via the collection of information from systems such as process control systems, parameters such as quality enhancers can be tracked. Where deliveries are also concerned, it will be possible for the team to track products from generation to supply. Batch quality will be easily tracked.
  • Higher Visibility: With every element of the supply chain interconnected by computing systems, suppliers and freight forwarders will be able to “see’ each other. By knowing what is happening in the supply chain, all elements, or the relevant portions of the system can then respond.
  • Analysis Options: Systems have varying elements of performance. From the generated data, it will be possible for teams to determine key terms like the average performance of a system, the standard deviation, production range, takt time and other critical process parameters. All these elements and more can be utilized in order to optimize supply chain optimizations.
  • Forecast and Simulation Options: With processes, before, during and after production it will be possible to forecast and simulate the operational performance. The creation of what if scenarios, indicating the best case and even alternative paths during downtimes can be determined from the computer simulations. With the differing cases, the impact on the supply chain can also be determined.  If all teams are aware of the changes, they can adapt.

Utilizing all of these critical parameters, all the aspects of the supply chain can then be factored into the integrated system. Manufacturers do benefit from their own tracking mechanisms from the data gathering phases in production, all the way through the shipping from their warehouses to their final customers who may be another industrial site.With predictive functions, it will be possible for future production scenarios to be “seen” by all systems.

Having an underlying channel coordination algorithm, is the baseline that enables such an outcome to be achieved. The benefits of a connected supply chain are immense, and only becoming more relevant now. With the various advances in industrial process technology, a smooth approach to supply chain optimization is now possible.