Re-engineering Improvement in SCM
Re-engineering Improvement in Supply Chain Management (SCM) refers to the process of redesigning and improving existing supply chain processes to achieve better performance, efficiency, and effectiveness. It involves analyzing the current supply chain processes and identifying areas that need improvement. Once these areas are identified, the re-engineering process involves making changes to the processes to eliminate inefficiencies and optimize the overall supply chain performance.
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An organization usually tends to alter the shape of the value-addition curve so that maximum cost addition takes place as late as possible in the supply chain. This is the existing value-addition curve and the proposed value-addition curve.
For analyzing the curves, the organization needs to differentiate between cost-intensive and time-intensive activities. Activities that can be completed within a short time, but require a high cost are cost-intensive activities; whereas activities that require a lot of time, but only a tiny charge are time-intensive activities.
To shift cost addition at the later stages of the supply chain, a manufacturer should rearrange all activities in such a way that maximum time-intensive activities are carried out during the initial period of the supply chain whereas cost-intensive activities are carried out during the later stages of the supply chain. To accomplish the rearrangement of activities, cost per unit of time can be used as a parameter of activities to arrange activities in ascending order.
Let us now discuss the cost- and time-related parameters of the postponement process. Take the example of Reliance Communications, a large telecommunications company in India.
The company keeps on extending its telecommunications network which requires it to lay down the fiber optic network. Most telecommunication companies usually follow a pre-determined sequence to lay down their network, which is as follows:
- Procuring optical cable
- Obtaining the right of way
- Laying of cable
- Starting the network
Procuring an optical cable is a cost-intensive activity and involves huge capital expenditure whereas trenching is a time-intensive activity. This usual sequence involved initial cost outlays and time outlays at the end of the value-addition curve. Due to this, the shape of the proposed value-addition curve remained similar to the original value-addition curve.
Reliance Communications found that something was wrong with the existing sequence of activities and restructured the sequence to modify the shape of the existing value-addition curve. Reliance shifted the activity of buying optical cables after the trenching activity. The activity of trenching involved laying a conduit within which the optical cable could be laid later.
After the trenching activity (time-intensive) was over, Reliance purchased the optical cable which was laid in the conduit. After this restructuring, Reliance Communications’ value-addition curve looked like a dotted curve.