Keeping materials longer in the economy through reuse, re-purposing or recycling could reduce 33 per cent of the carbon dioxide emissions embedded in products.
Circularity requires a significant bridge between trade in goods and trade in services.
Increased recycling could reduce demand for primary resources, leading to both risks and opportunities in developing countries dependent on the extraction of natural resources.
CIRCULAR ECONOMY: THE NEW NORMAL?
Linear production is a familiar cycle. Resources are extracted and transformed into goods and services, sold and used, after which they are scrapped. This model has underpinned the expansion of the global economy since the industrial revolution.
It has linked material prosperity to the extraction of resources, yet has often overlooked the undue pressures placed on the environment and has rarely considered the cost of handling, scrapping and disposing of used materials, some of which are hazardous to human health. As the global population increases, incomes rise and nations strive to eradicate poverty, demand for goods and services will necessarily grow. The aim of achieving Sustainable Development Goal 12 on responsible consumption and production requires changing the linear production model. The concept of a circular economy and practice therefore merits close attention, as it can open new opportunities for trade and job creation, contribute to climate change mitigation and help reduce the costs of cleaning and scrapping in both developed and developing countries.
A circular economy entails markets that give incentives to reusing products, rather than scrapping them and then extracting new resources. In such an economy, all forms of waste, such as clothes, scrap metal and obsolete electronics, are returned to the economy or used more efficiently. This can provide a way to not only protect the environment, but use natural resources more wisely, develop new sectors, create jobs and develop new capabilities.
Each year, 1.3 billion tons of garbage are produced by 3 billion urban residents.1 This is the end point of a linear economic flow that starts with manufacturing, which uses 54 per cent of the world’s delivered energy, especially in energy-intensive industries such as petrochemicals, cement, metals and paper.2 Each year, 322 million tons of plastic, 240 million tons of paper and 59 million tons of aluminium are produced in the world, much of which goes to export markets and is not recycled.3
A rusty container or an obsolete mobile telephone are only two examples of the many products that end up being discarded, along with their transistors, metal structures and complex plastics. Each component requires a great deal of energy, time, land and capital to be produced and, even as the products become obsolete, their components often do not. The potential value of metals and plastics currently lost in electronic waste may be €55 billion annually.4
As the supply of recycled, reused and re-manufactured products increases, such products are maintained for longer in the economy, avoiding their loss to landfills. Food losses could be halved through food- sharing and discounting models that reduce fresh food waste. Access to efficient home appliances could be increased through leasing instead of sales. Organic waste could be recovered or transformed into high-value protein through the production of insect larvae.
Benefits such as these could be gained by both developed and developing countries; the potential economic gains are estimated at over $1 trillion per year in material cost savings.5 Several economies are already exploring circular strategies, including Brazil, China, India, Kenya, the Lao People’s Democratic Republic, Morocco, South Africa, Turkey, Uruguay, VietNam and the European Union.6 India and the European Union stand to gain savings of $624 billion and €320 billion, respectively.7
The effects of increased recycling on global value chains are an important area for research. For example, a circular model for metals implies an increase in the re-purposing, reuse and recycling of such materials. This can transform end points of the value chain, such as junkyards and dumping sites for metals, into new reprocessing hubs that supply metals to markets. This growth trend in recycling markets may be desirable from an environmental perspective, yet could reduce demand for primary resources, requiring an adjustment in employment, logistics and scal structures in countries dependent on the extraction of natural resources.8 At the same time, growth in the recycling, re-purposing and reuse of materials could support the emergence of regional reprocessing and recycling hubs and open new opportunities for the commodities and manufacturing sectors. Greater circularity could reduce the depreciation of physical capital in the economy, increasing overall wealth in societies. The specific benefits that developing countries could obtain by adopting formal circular economy strategies is a new subject for research, and further studies and data are needed.
Circularity can change trade patterns and improve the utilization of idle capacity
Circular models could help countries grow with resources already available in their territories. This may imply a reduction in international trade, yet the 140 million people joining the middle class each year guarantee growth in overall trade.9 Such growth may occur not in goods but in services such as access-over-ownership models.10 In addition, increased circularity can change production patterns, improving asset utilization rates and producing value chains based on recycling and re-manufacturing centres close to where products are used. This could lead to fewer transport-related losses, quicker turnarounds between orders and deliveries, lower levels of carbon dioxide emissions and the creation of jobs that cannot be offshored.
Some countries have trade surpluses in physical goods and others in immaterial services. Trade therefore results in a net transfer of materials from one region to another as seen, for example, in trade patterns between China and the United States. The United States imports many goods from China but does not export nearly as many finished goods in return. However, nearly 3,700 containers of recyclables per day are exported to China; in 2016, such exports amounted to 16.2 million tons of scrap metal, paper and plastics worth $5.2 billion.11
Cradle to Cradle
Closed Supply Chains
From Input to the European Commission from European EPAs about monitoring progress of the transition towards a circular economy in the European Union
From STANDARD DEFINITIONS FOR TECHNIQUES OF SUPPLY CHAIN FINANCE
There are two Areas where FSCM/SCF names are used but in different contexts.
Inter firm FSCM
Intra firm FSCM
Inter firm F-SCM
Supply Chain Finance (SCF)
Value Chain Finance
Inter firm Finance
Collaborative Cash to Cash Cycles Management
During 2008 global financial crisis, the trade financing dried up resulting in decline in trade of goods and services.
Since the crisis, Financial De-globalization and Decline of Correspondent Banking has also made availability of financial credit harder.
Cash flow and working capital management is helped by inter firm collaboration among Suppliers and Buyers.
Financial Institutions which provide trade credit also benefit from inter firm collaboration.
From SUPPLY CHAIN FINANCE FUNDAMENTALS: What It Is, What It’s Not and How it Works
What Supply Chain Finance is Not
The world of trade finance is complex and varied. There are numerous ways to increase business capital on hand and, in many cases, the differences are slightly nuanced. Given this landscape, it’s not just important to understand what supply chain finance is; it’s also important to understand what it is not.
It is not a loan. Supply chain finance is an extension of the buyer’s accounts payable and is not considered financial debt. For the supplier, it represents a non-recourse, true sale of receivables. There is no lending on either side of the buyer/supplier equation, which means there is no impact to balance sheets.
It is not dynamic discounting or an early payment program. Early payment programs, such as dynamic discounting, are buyer-initiated programs where buyers offer suppliers earlier payments in return for discounts on their invoices. Unlike supply chain finance, buyers are seeking to lower their cost of goods, not to improve their cash flow. Dynamic discounting and early payment programs often turn out to be expensive for both suppliers (who are getting paid less than agreed upon) and buyers who tie up their own cash to fund the programs.
It is not factoring. Factoring enables a supplier to sell its invoices to a factoring agent (in most cases, a financial institution) in return for earlier, but partial, payment. Suppliers initiate the arrangement without the buyer’s involvement. Thus factoring is typically much more expensive than buyer-initiated supply chain finance. Also, suppliers trade “all or nothing” meaning they have no choice to participate from month-to-month to the degree that their cash flow needs dictate. Finally, most factoring programs are recourse loans, meaning if a supplier has received payment against an invoice that the buyer subsequently does not pay, the lender has recourse to claw back the funds.
From Mckinsey on Payments
From Financial Supply Chain Management
From Best Practices in Cash Flow Management and Reporting
From STANDARD DEFINITIONS FOR TECHNIQUES OF SUPPLY CHAIN FINANCE
From Financing GPNs through inter-firm collaboration? Insights from the automotive industry in Germany and Brazil
Intra Firm F-SCM
Working Capital Management
Cash Flow Management
Cash to Cash Conversion Cycle Management (C2C Cycle/CCC)
Financial Supply Chain Management (F-SCM) in Manufacturing companies
Financial Supply chain management in financial institutions
Supply Chain Finance
Accounts Payable Optimization
Accounts Receivable Optimization
Operations and Finance Interfaces
Current Asset Management (Current Ratio Analysis)
This is not a new subject. Corporate Finance, Financial Controls, and working capital management have been active business issues. Benefits of Supply chain management include increase in inventory turnover and decline in current assets.
There are many world class companies who manage their supply chains well and work with minimal working capital. Lean Manufacturing, Agile Manufacturing, JIT manufacturing are related concepts. Just-In-Time manufacturing developed in Toyota Corp. reduces inventory portion of C2C cycle. Other examples include
Currently, most of the Supply Chain analytics efforts unfortunately do not integrate analysis of financial benefits of operating decisions.
There are many studies recently which suggest that Cash to Cash Conversion Cycle is a better determinant of corporate liquidity. C2C Cycle is a dynamic liquidity indicator and Current Assets is a static indicator of liquidity. I would like to point out that none of the studies relate C2C cycle with Current Ratio. Current Ratio is based on balance sheet positions of current assets and current liabilities. C2C cycle is based on flows in supply chains. Accumulation of flow results in Current assets (Stock). To make it Stock-Flow Consistent, more work is required.
From Supply Chain Finance: some conceptual insights.
From Financial Supply Chain Management
From The Interface of Operations and Finance in Global Supply Chains
From SUPPLY CHAIN-ORIENTED APPROACH OF WORKING CAPITAL MANAGEMENT
From IMPROVING FIRM PERFORMANCE THROUGH VALUE-DRIVEN SUPPLY CHAIN MANAGEMENT: A CASH CONVERSION CYCLE APPROACH
From IMPROVING FIRM PERFORMANCE THROUGH VALUE-DRIVEN SUPPLY CHAIN MANAGEMENT: A CASH CONVERSION CYCLE APPROACH
From THE CYCLE TIMES OF WORKING CAPITAL: FINANCIAL VALUE CHAIN ANALYSIS METHOD
Call for papers: Supply Chain Finance
Call for papers for Special Topic Forum in Journal of Purchasing and Supply Management (Manuscript Submission: March 31, 2017)
Supply chain finance is a concept that lacks definition and conceptual foundation. However, the recent economic downturn forced corporates to face a series of financial and economic difficulties that strongly increased supply chain financial risk, including bankruptcy or over-leveraging of debt. The mitigation and management of supply chain financial risk is becoming an increasingly important topic for both practitioners and academics leading to a developing area of study known as supply chain finance. There are two major perspectives related to the idea of managing finance across the supply chain. The first is a relatively short-term solution that serves as more of a “bridge” and that is provided by financial institutions, focused on accounts payables and receivables. The second is more of a supply chain oriented perspective – which may or may not involve a financial institution, focused on working capital optimization in terms of accounts payable, receivable, inventory, and asset management. These longer-term solutions focus on strategically managing financial implications across the supply chain.
Recent years have seen a considerable reduction in the granting of new loans, with a significant increase in the cost of corporate borrowing (Ivashina and Scharfstein, 2010). Such collapse of the asset and mortgage-backed markets dried up liquidity from industries (Cornett et al., 2011). In such difficult times, firms (especially those with stronger bargaining power) forced suppliers to extend trade credit in order to supplement the reduction in other forms of financing (Coulibaly et al., 2013; Garcia-Appendini and Montoriol-Garriga, 2013). The general lack of liquidity, in particular for SMEs, has directly affected companies’ ability to stay in the market, reflecting on the stability of entire supply chains. There are many other factors influencing liquidity and financial health that are critical to assess.
These trends and the continued growth of outsourced spend have contributed considerably to the need for and spread of solutions and programs that help to mitigate and better manage financial risk within and across the supply chain. One of the most important approaches is what is being termed Supply Chain Finance (SCF) (Gelsomino et al., 2016; Pfohl and Gomm, 2009; Wuttke et al., 2013a). SCF is an approach for two or more organizations in a supply chain, including external service provides, to jointly create value through means of planning, steering, and controlling the flow of financial resources on an inter-organizational level (Hofmann, 2005; Wuttke et al., 2013b). It involves the inter-company optimization of financial flows with customers, suppliers and service providers to increase the value of the supply chain members (Pfohl and Gomm, 2009). According to Lamoureux and Evans (2011) supply chain financial solutions, processes, methods are designed to improve the effectiveness of financial supply chains by preventing detrimental cost shifting and improving the visibility, availability, delivery and cost of cash for all global value chain partners. The benefits of the SCF approach include reduction of working capital, access to more funding at lower costs, risk reduction, as well as increase of trust, commitment, and profitability through the chain (Randall and Farris II, 2009).
Literature on SCF is still underdeveloped and a multidisciplinary approach to research is needed in this area. In order to better harmonize contributions of a more financial nature with ones coming from the perspective of purchasing & supply chain, there is a need of developing theory on SCF, starting with a comprehensive definition of those instruments or solutions that constitute the SCF landscape. SCF has been neglected in the Purchasing & Supply Management (PSM) literature, although PSM plays a critical role in managing finance within the supply chain. PSM uses many of the processes and tools that are part of a comprehensive supply chain financial program to better manage the supply base, in terms of relationships, total cost of ownership, cost strategies and pricing volatility (see for example Shank and Govindarajan 1992). Reverse factoring is a technique which is also widely used to manage the supply base (Wuttke et al, 2013a) as is supplier development and investment in suppliers.
Research on SCF from a PSM perspective needs further development. In particular, empirical evidence would prove useful for testing existing models and hypotheses, addressing the more innovative schemes and investigating the adoption level and the state of the art of different solutions. Research is also needed for the development of a general theory of supply chain finance. There is also limited research that focuses on the link between supply chain financial tools and supply chain financial performance. Finally, considering the plurality of solutions that shape the SCF landscape, literature should move towards the definition of holistic instruments to choose the best SCF strategy for a supply chain, considering its financial performance and the contextual variables (e.g. structure, bargaining power) that characterize it.
The purpose of this special topic forum is to publish high-quality, theoretical and empirical papers addressing advances on Supply Chain Finance. Original, high quality contributions that are neither published nor currently under review by any other journals are sought. Potential topics include, but are not limited to:
Theory development, concept and definition of SCF
Taxonomy of SCF solutions
Strategic cost management across the supply chain
Total cost of ownership
Life cycle assessment and analysis
Commodity risk and pricing volatility
Supply chain financial metrics and measures
Relationship implications of supply chain finance
Tax and transfer pricing in the supply chain
Foreign exchange and global currency and financing risk
Financial network design and financial supply chain flows
The organizational perspective on SCF and the implementation process
Role of innovative technologies to support SCF ( (e.g. block chain, internet of things)
Supply chain collaboration for improved supply chain financial solutions
SCF adoption models, enablers and barriers
SCF from different party perspectives (especially suppliers and providers)
SCF and risk mitigation and management
Manuscript preparation and submission
Before submission, authors should carefully read the Journal’s “Instructions for Authors”. The review process will follow the Journal’s normal practice. Prospective authors should submit an electronic copy of their complete manuscript via Elsevier’s manuscript submission system (https://ees.elsevier.com/jpsm) selecting “STF Supply Chain Finance” as submission category and specifying the Supply Chain Finance topic in the accompanying letter. Manuscripts are due March 31, 2017 with expected publication in June of 2018.
FOR COMMENTS OR QUESTIONS PLEASE CONTACT THE GUEST EDITORS:
Federico Caniato, Politecnico di Milano, School of Management, email@example.com
Michael Henke, TU Dortmund and Fraunhofer IML, Michael.Henke@iml.fraunhofer.de
George A. Zsidisin, Virginia Commonwealth University, firstname.lastname@example.org
Cornett, M.M., McNutt, J.J., Strahan, P.E., Tehranian, H., 2011. Liquidity risk management and credit supply in the financial crisis. J. financ. econ. 101, 297–312.
Coulibaly, B., Sapriza, H., Zlate, A., 2013. Financial frictions, trade credit, and the 2008–09 global financial crisis. Int. Rev. Econ. Financ. 26, 25–38.
Garcia-Appendini, E., Montoriol-Garriga, J., 2013. Firms as liquidity providers: Evidence from the 2007–2008 financial crisis. J. financ. econ. 109, 272–291.
Gelsomino, L.M., Mangiaracina, R., Perego, A., Tumino, A., 2016. Supply Chain Finance: a literature review. Int. J. Phys. Distrib. Logist. Manag. 46, 1–19.
Govindarajan, Vijay, and John K. Shank. “Strategic cost management: tailoring controls to strategies.” Journal of Cost Management 6.3 (1992): 14-25.
Wuttke, D. A., Blome, C., Foerstl, K., & Henke, M. (2013a). Managing the innovation adoption of supply chain finance—Empirical evidence from six European case studies. Journal of Business Logistics, 34(2), 148-166.
Wuttke, D. A., Blome, C., & Henke, M. (2013b). Focusing the financial flow of supply chains: An empirical investigation of financial supply chain management. International journal of production economics, 145(2), 773-789.
Hofmann, E., 2005. Supply Chain Finance: some conceptual insights. Logistik Manag. Innov. Logistikkonzepte. Wiesbad. Dtsch. Univ. 203–214.
Ivashina, V., Scharfstein, D., 2010. Bank lending during the financial crisis of 2008. J. financ. econ. 97, 319–338.
Lamoureux, J.-F., Evans, T.A., 2011. Supply Chain Finance: A New Means to Support the Competitiveness and Resilience of Global Value Chains. Social Science Research Network, Rochester, NY.
Lekkakos, S.D., Serrano, A., 2016. Supply chain finance for small and medium sized enterprises: the case of reverse factoring. Int. J. Phys. Distrib. Logist. Manag.
Pfohl, H.C., Gomm, M., 2009. Supply chain finance: optimizing financial flows in supply chains. Logist. Res. 1, 149–161.
Randall, W., Farris II, T., 2009. Supply chain financing: using cash-to-cash variables to strengthen the supply chain. Int. J. Phys. Distrib. Logist. Manag. 39, 669–689.
Gantt Chart Simulation for Stock Flow Consistent Production Schedules
I have knowledge of two software which do Gantt chart simulation for production scheduling. These are used by top most companies in the world for production planning and scheduling now a days known as Supply Chain Management (SCM).
Production Schedules are stock flow consistent which means that starting inventories, and unused production of products result in cumulative inventory which is plotted for each of the product.
Production and Shipments (arrivals and dispatched) create Flows and Inventory levels indicate Stock level positions.
Gantt Chart simulators are excellent tools for operations management in plants.
The first Gantt chart was actually developed by Karol Adamiecki in Poland. He called it a Harmonogram. Henry Gantt in 1910 published first gantt chart which was later than publication by Karol Adamiecki.
These two charts below show Simulator window in which Gantt chart and inventory level plots are displayed.
Gantt Chart Simulator in Aspen Tech Plant Scheduler for Production Scheduling
Gantt Chart Simulator in Atlantic Decision Sciences Scheduler
Key Sources for Research:
A Presentation by Chris Jones on Evolution of Graphical Production Scheduling Software
Normally, production and distribution planning are handled separately in firms. Integrated planning of production and distribution can add significant value to a company, particularly, in strategic decisions.
From Facility Location and Supply Chain Management – A comprehensive review
Since, in the literature, model objectives change as a function of the planning horizon length, we consider it opportune to define the features of each horizon in order to contextualize the parameters chosen for the models’ comparison. According to , the planning horizons of the supply chain can be clustered as follows:
• Strategic planning: this level refers to a long-term horizon (3-5 years) and has the objective of identifying strategic decisions for a production network and defining the optimal configuration of a supply chain. The decisions involved in this kind of
planning include vertical integration policies, capacity sizing, technology selection, sourcing, facility location, production allocation and transfer pricing policies.
• Tactical planning: this level refers to a mid-term horizon (1-2 years) and has the objective of fulfilling demand and managing material flows, with a strong focus on the trade-off between the service level and cost reduction. The main aspects considered in tactical planning include production allocation, supply chain coordination, transportation policies, inventory policies, safety stock sizing and supply chain lead time reduction.
• Operational planning: this level refers to a short term period (1 day to 1 year) and has the objective of determining material/logistic requirement planning. The decisions involved in programming include the allocation of customer demands, vehicle routing, and plant and warehouse scheduling.
From Integrated Location-Production-Distribution Planning in a Multi products Supply Chain Network Design Model
‘supply chain strategic design’,
‘supply chain planning’,
‘supply chain optimization’,
‘supply chain network design’,
‘supply chain production planning’,
‘supply chain delocalization’,
‘logistic network design’,
‘distribution network design’,
‘supply chain linear programming’
‘supply chain mixed-integer programming’.
From From Manufacturing to Distribution: The Evolution of ERP in Our New Global Economy
Over the past fifty years, manufacturing has changed from individual companies producing and distributing their own products, to a global network of suppliers, manufacturers, and distributors. Efficiency, price, and quality are being scrutinized in the production of each product. Because of this global network, manufacturers are competing on a worldwide scale, and they have moved their production to countries where the costs of labor and capital are low in order to gain the advantages they need to compete.
Today, the complex manufacturing environment faces many challenges. Many products are manufactured in environments where supplies come from different parts of the world. The components to be used in supply chain manufacturing are transported across the globe to different manufacturers, distributors, and third party logistics (3PL) providers. The challenges for many manufacturers have become how to track supply chain costs and how to deal with manufacturing costs throughout the production of goods. Software vendors, however, are now addressing these manufacturing challenges by developing new applications.
Global competition has played a key role in industrialized countries shifting from being production-oriented economies to service-based economies. Manufacturers in North America, Western Europe, and other industrialized nations have adapted to the shift by redesigning their manufacturing production into a distribution and logistics industry, and the skills of the labor force have changed to reflect this transition. Developing countries have similarly changed their manufacturing production environments to reflect current demands; they are accommodating the production of goods in industries where manufacturers have chosen to move their production offshore–the textile industry being a prime example of this move.
A report from the US Census Bureau titled Statistics for Industry Groups and Industries: 2005 and another from Statistics Canada titled Wholesale Trade: The Year 2006 in Review indicate that wholesalers are changing their business models to become distributors as opposed to manufacturers. Between 2002 and 2005, overall labor and capital in the manufacturing sectors decreased substantially. US industry data (from about 10 years ago) indicates that the North American manufacturing industry was engaged in 80 percent manufacturing processes and only 20 percent distribution activities. Today, however, these percentages have changed dramatically; the current trend is in the opposite direction. Manufacturing processes account for around 30 percent of the industry processes, and wholesale and distribution activities, approximately 70 percent.
In addition, a report from the National Association of Manufacturers indicates that the US economy imports $1.3 trillion (USD) worth of manufactured goods, but exports only $806 billion (USD) worth of goods manufactured in the US. This negative trade balance is a clear indication of the changing economic trend toward the manufacturing of goods in low-cost labor nations.
The main reason for this huge manufacturing shift is the increasing operating costs of production in industrialized countries. These rising costs are forcing manufacturers to move their production to developing nations because of the low cost of labor in these countries. This includes Asian countries (such as China and Indonesia) as well as Eastern European countries (such as the Czech Republic and Slovakia).
The number of workers (in percentages) in specified industries in G7 countries, and uses 1980 as the base year with 100 percent full employment in each industry. The industries with relatively constant rates of employment are the food and drink and the tobacco industries. Since 1995, all other industries have been maintaining less and less manufacturing employees, as indicated by the declining slopes in the graph. The shift in the textiles and leather, metals, and other manufacturing industries is moving toward production of goods in low-wage, developing countries.
Manufacturing is a global industry, and although a manufacturing company may be based in an industrialized country, it may have the bulk of its manufacturing facilities in a developing country. Producing goods in such a country reduces wage and capital costs for the manufacturer; however, some manufacturing control is lost in offshore production. Shipping, distribution, and rental costs, for example, are often difficult to track and manage, and quality control can be compromised in a production environment that is not local.
Two main outcomes can be seen within the manufacturing industry because of this manufacturing shift: manufacturers have a sense of having relinquished control of their production to low-cost labor nations, and supply chain management (SCM) has now become the answer to manufacturing within industrialized nations.
Suppliers that provide components to manufacturers often have issues with quality. Being part of a large network of suppliers, each supplier tries to offer the lowest prices for its products when bidding to manufacturers. Although a supplier may win the bid, its products may not be up to standard, and this can lead to the production of faulty goods. Therefore, when using offshore suppliers, quality issues, product auditing, and supplier auditing become extremely important.
Because the manufacturing model is changing, manufacturing has become more of a service-based industry than a pure manufacturing industry. Even though the physical process of manufacturing hasn’t changed, the actual locations of where the goods are being produced have. This fact is now compelling industrialized countries to engage in more assembly driven activities–a service-based model. The manufacturing process has transformed into obtaining parts and reassembling them into the final product. The final product is then redistributed throughout the appropriate channel or to the consumer. SCM methods are now reacting to this change as well; they are taking into account final assembly needs, and they are distributing particular products to consumers or manufacturers.
SCM is becoming the norm for manufacturers in the industrialized world. Offshoring is now standard practice, and methods such as SCM have been set up to deal with these economic and logistical business realities.
The economic shift happening in both industrialized and developing countries is dramatic. As the level of management knowledge increases, better methods of constructing offshore products are available in SCM solutions. In both types of economies, the changes in the labor force skill sets and manufacturing environments have consequently led to new software solutions being developed in order to manage this dramatic change.
Within the software industry, many SCM and enterprise resource-planning (ERP) vendors are following the economic shift. They are developing new functionality–ERP-distribution software–to meet the recent demands and needs of the changing manufacturing and distribution industries.
SCM and ERP software are converging to better address these new demands in the manufacturing industry. In the enterprise software market, ERP software vendors have reached a point of saturation; their installs are slowing down and they are seeing a reduction in sales. Therefore, ERP providers are developing new functionality in order to remain competitive with other ERP vendors, in addition to looking for new opportunities. ERP vendors are trying to adapt to the changing market in order to increase their revenues. They are integrating SCM functionality into their ERP offerings, creating ERP-distribution software that can span the entire production process across many continents (if necessary), and that is able to track final goods, components, and materials.
Traditional ERP solutions included some SCM functionality, which was needed to distribute the companies’ produced goods. These systems also allowed components and parts to be imported in order to assemble these goods. But offshore manufacturing and expansion into new markets has required SCM functionality in ERP software to be extended. Some larger vendors have acquired other companies in order to meet these changing demands. For example, Oracle acquired G-Log, a transportation management systems (TMS) vendor, and Agile, a product lifecycle management (PLM) vendor; and Activant acquired Intuit Eclipse.
SCM software vendors, in contrast, have felt encroached upon by ERP vendors. The situation has posed a real threat to SCM providers in the market, forcing them to extend their ERP functionality to compete with ERP vendors and to try to gain new clients in the distribution and logistics industry.
ERP-distribution software has integrated SCM functionality into its existing functionality to navigate through the complex global manufacturing environment. SCM software maps five processes into one solution: planning, sourcing (obtaining materials), producing, delivering, and returning final products if defective. These processes help to track and manage the goods throughout their entire life cycles. In addition, ERP solutions are used to manage the entire operations of an organization, not only a product’s life cycle. This gives users the broad capability to manage operations and use the SCM functionality to manage the movement of goods, whether components or finished product.
With the ability to gain accurate inventory visibility and SCM production, ERP-distribution software is able to see the whole chain of manufacturing and distribution events, from supplier to manufacturer, all the way to the final consumer.
There are three business models.
The first is the SCM model, which includes the manufacturing process.
The second is the retail model, which is the distribution of final products to the consumer, business, or retailer.
The third model is a combination of the first two business models, joined by the ERP-distribution software solution into one seamless process.
Within the SCM process, goods can either be brought in (imported) through foreign manufacturers, or acquired locally. The goods are then given to a distributor, 3PL provider, or wholesaler in order to reach the final client.
Within the retail model, the products are taken from a distributor, 3PL provider, or wholesaler, and are distributed to the appropriate person. Note that there is a “shift” for the consumer. This is to indicate that through the Internet or other forms of technology, consumers are now able to buy directly from distributors. The power of the consumer has changed; where manufacturers once provided products to consumers, consumers are now creating demand, and manufacturers have to meet that demand.
SCM solutions focus on the relationship between the supplier and manufacturer. However, ERP- distribution software has taken functionality from SCM software and combined it with retail software (such as point-of-sale and e-commerce solutions); it is now able to span across the entire supply chain and to track goods along the complete manufacturing process.
This is a simplified view of the complexities of today’s manufacturing processes. These complexities have made it crucial for trading partners to unite with manufacturers in order to help alleviate the frustrations that can occur within this global network. Specifically, trading partners are coming together with manufacturers to unite services, products, and customer experience so that business processes (such as manufacturing and distribution) become more efficient and that goods can move through these processes with minimal problems.
SCM can be thought of as the management of “warehousing processes,” in which the movement of goods occurs through multiple warehouses or manufacturing facilities. Tracking the costs of moving products and components through the maze of warehousing and manufacturing facilities is a tricky process, and many organizations lose money at each warehousing step.
Within the flow of goods in the manufacturing sector, the warehouse is a crucial part of the supply chain. Traditionally, the warehouse has been a source of frustration because the manufacturer or supplier pays for the use of the warehouse (whether owned or rented by the company). This leads to two possible scenarios: 1) the costs of the warehouse are incurred by a 3PL or manufacturing company, or 2) the costs are passed from one warehouse to another warehouse, and the original warehouse charges for these costs.
The typical warehouse process includes the following steps: receiving, put away, picking, kitting, packing, repacking, cross-docking, and shipping. ERP-distribution software is able to track costs across the entire organization and to aid companies in reducing costs that were previously tough to track.
ERP-distribution system encompasses the entire production of the final good. The ERP- distribution system is able to include inventory visibility from points “A to Z” (start to finish) and to track each warehouse cost from supplier to manufacturer to user, whether consumer, business, or retailer.
The Final Word: ERP-distribution software has been developed to meet the growing needs of the manufacturing and distribution industries. The capabilities incorporated into the software work across entire organizations, and even across continents.
Because of the economic shift in the manufacturing industry, the emergence of new software has been vital for businesses to stay competitive, meet the industry demands and emerging shift, and to keep business processes efficient to gain better profit margins.
ERP-distribution software is able to track the processes of manufacturing goods and distributing components, even if the manufacturer has facilities in North America and the Far East. With the SCM component in ERP software, manufacturing and tracking goods becomes manageable. Distributors and manufacturers can now work together in order to better meet customer requirements.
In addition of factors for domestic location selection analysis, other factors in international location selection are:
Taxes and Tariffs
How do companies in Computers, Automotive, Apparel, Electronics, Consumer Goods, Machinery manage their supply chain planning functions? What software do they use for forecasting, planning, and scheduling?
I know of these software solutions for Network Design and Optimization: