supply chains are characterised by lack of visibility in the chain due to the
numerous countries in which a firm may operate. Additionally, due to
uncertainty that crops up in the supply chains, firms find themselves keeping
safety stock in different warehouses, increasing their holding costs and
models have been used by global firms to manage distribution. Some firms prefer local warehouses, a model
commonly known as the decentralized model. On the other hand, as it has been
highlighted in section 4.2 above, that globalisation has encouraged companies
to limit production into fewer locations, a similar trend has been observed
with distribution, where there is centralization of inventories. Firms in recent years have been closing local
warehouses and consolidating them into either regional or area distribution
centres serving a much wider geographical area. For example, Apple Computers
replaced their thirteen national warehouses with two European regional
distribution centres. Likewise, Philips reduced its consumer electronics
products warehouses in western Europe from twenty-two to just four. Firms
adopting this model can be found in just about every industry. One of the advantages of centralized inventory
is that a firm will have less safety stock.
physical centralised systems will typically lead to higher transport costs in
that products inevitably have to move longer distances and often high-cost air
express will be necessary to ensure short lead times for delivery to the
customer. Given this limitation of physical centralisation of inventories, it
is becoming increasingly recognised that there may be even greater gains to be
had by not physically centralising the inventory but rather by locating it
strategically near the customer or the point of production but managing and
controlling it centrally. This is the idea of ‘virtual’ or ‘electronic’
inventory. The idea is that by the use of information the organisation can
achieve the same stock reduction that it would achieve through centralisation
whilst retaining a greater flexibility by localising inventory. At the same
time, the penalties of centralising physical stock holding are reduced, i.e.
double handling, higher transport charges and possibly longer total lead times.
Many organisations are now recognising the advantage of managing worldwide
inventories on a centralised basis. To do so successfully, however, requires an
information system that can provide complete visibility of demand from one end to
the other. This takes us back to the IT integration discussed in section 4.5
example of a company that has taken advantage of centralising the control of
inventory and by using information systems is Xerox. It has proven that great benefits
can be reaped from this transformation. With this centralization, Xerox is
enabling a higher service to its engineers for its European business with only
half the total inventory.
Centralization is not limited to inventory
management. It may be implemented for other supply chain processes, for
example, in transportation management, centralization can play a key role in
gaining control of the end to end process of movements of goods for global
supply chains. Centralization in transportation management has been implemented
in form of logistics control towers, where centralized teams are put in place
to plan and coordinate movements for goods from one location to another. For
this centralization to be successful, consideration should be taken to have a
suitable ERP system in place because real time data is fundamental to achieving
the benefits of a control tower. In relation to this, some authors have
criticized the use of a Transport Management System (TMS), explaining that
current Transport Management Systems use static data to register and coordinate
chains, since real time data is often not supported by these types of systems (Hofman,
2014). Although it is unfledged to conclude on which system is best, an
assessment should be undertaken to match the needs of the supply chain to the
system used in the control tower.
Business Process redesign
Having discussed centralization and
supply chain integration and their role in managing global supply chains more
effectively, it is inevitable to discuss process redesign, since it is an enabler
for centralization and is embedded in supply chain integration.
Davenport et al. (1990) defined business
processes as a set of logically-related tasks performed to achieve a defined
business outcome. Similarly, Pall () defined process as “the logical organization
of people, materials, energy, equipment, and procedures into work activities
designed to produce a specified end result (work product). Business processes
have two main characteristics; they have a customer, who is the recipient of
the business outcome and they cross organizational boundaries.
To successfully re design a process,
a supply chain manager must first identify the different elements of the
process and their impact on the overall process. These elements include but are
not limited to; organization, customers and information systems.
On the overall, a new process should influence
four main factors; time, cost and flexibility and quality. Time; to reduce the
lead time for the end to end process of getting a customer order delivered.
Cost; to reduce the cost inquired in executing the process. Flexibility; to
improve the ability of the process to react to variations and quality; to
improve the quality of product or service being offered to the customer. While re
designing a process, care must be taken that in the effort to improve one of
the factors mentioned above, another factor is weakened. Ideally, a balance
should be found where all four factors are improved.
Reijers et al. (2005) classified the
process improvement best practices as; customers, business process operation,
business process behavior, organization, information, technology and external