Introduction to Supply Chains

Imagine you’re the producer of bars of soap. You have suppliers for the chemicals and equipment to make the soap, as well as for the packaging and machinery, if needed. The product is then distributed through wholesalers and retailers. Now, imagine you are an international company with the same thing happening in many different countries. How can a company manage such a complex supply chain?

A large company, like 3M, has products ranging from tapes and adhesives through to cleaning materials and inks. With a huge product range comes a complex supply chain across a variety of countries. 3M enlisted the help of an organization called Expert Choice, Inc. to improve the decision making in these complex supply chains. So, what decisions have to be made at 3M about supply chains?

Supply Chain Decisions

If a company makes 1,000 dollars in pre-tax profits in a month based on $10,000 worth of sales, then it needs to sell 100 more items to make another $10 in profit. The alternative is to decrease costs by $10 somewhere along the supply chain, as this has the same effect: a $10 increase in pre-tax profits. This tells us that management of the supply chain has a great impact on profits.

A company like 3M is constantly faced with critical decisions about the supply chain. This might mean deciding on such issues as where to place a factory, or whether to use wholesalers or retailers for distribution. There are three main decision areas for 3M to consider in an attempt to improve efficiency and profitability: supply chain strategy, planning and operations.

The supply chain strategy involves decisions in the structure of the supply chain and also involves knowing about all the tasks and responsibilities of each stage in the chain as well as information about the future of the markets and likely steps of the competitors. The site of production and storage of the finished goods need to be in places for ease of transportation.

The supply chain also has to be as efficient as possible. For example, if 3M’s warehouses are full of products that won’t be sold for another year, then the storage costs will be high. Yet this could have been avoided if production had been lowered. Supply chain planning is based upon the demand for the product and supply levels available. This means that information is needed about the market and consumer demands so that 3M can decide which market will have the finished goods and from which plant or warehouse. There also needs to be a certain degree of flexibility in planning the supply chain to allow for changes in consumer demand and to adapt to changes in competitor behavior.

Supply chain operations involves the step where the customer has ordered the product and making sure the customer gets the product in good time and optimum quality. This means that the sales or marketing department at 3M receives the order and sends it to the production department. Production arranges the making of the finished products and transports them to the warehouse. The products are then transported to the customer or distributor on schedule and with the aim of the customer being satisfied enough to want to return for more.

The Expert Choice System

3M has a lot of decisions to make in the supply chain and has supply chains scattered all over the world. The complexity of their operations was a real hurdle to achieving efficiency and cost reductions in the supply chain.

The Expert Choice system involves software that aids decision making. It’s specifically designed to manage complex systems, such as those at 3M. The software was developed back in 1983 and is offered by an organization of the same name, called Expert Choice, Inc. The software is especially useful for reducing costs in the supply chain, including decreasing travel time. It allows the user to decide from a range of alternatives, which is necessary in supply chain strategies, planning, and operations.

To consider the effect of decisions, the software offers a range of events that may happen as the result of a decision. This is called scenario planning. A sensitivity analysis can also be done to consider which areas of the supply chain are more sensitive to a change than others.

The Changes and Outcomes at 3M

After some initial tests of the software, 3M chose Expert Choice software and developed a training program on how to get the most out of the software. Staff could learn what the software was capable of. It was essentially useful in scenario planning when people couldn’t agree on the effects that a certain decision would have. The software presents a list of ‘what-ifs,’ and by seeing the possible outcomes of a decision, people were able to defend a proposed change, and it helped to bring management to a final decision. In fact, 90% of 3M decisions use this technique to decide from choice of suppliers.

As 3M staff have gotten used to the software, the time spent on decision making has decreased significantly. There are also less conflicts and disagreements on which is the best alternative to choose. The software has also helped to explain different points of view. 3M management has said that, with the software, they can now combine their own intuition based on knowledge and experience of the industry with data, and more easily arrive at final decisions.

Lesson Summary

Supply chains for companies like 3M are hugely complicated. Supply chain decisions involve supply chain strategy, which involves decisions in the structure of the supply chain and also involves knowing about all the tasks and responsibilities of each stage in the chain, as well as information about the future of the markets and likely steps of the competitors; supply chain planning, which is planning based upon the demand for the products and supply levels available; and supply chain operations, which involves the step where the customer has ordered the product and making sure the customer gets the product in good time and quality.

With the help of the Expert Choice system, 3M was able to find out the possible outcomes of decisions and an answer to the question ‘what-if,’ with scenario planning, which is accomplished with a software that offers a range of events that may happen as the result of a decision, and find out which areas would be more sensitive to change with sensitivity analysis. The result was less time spent in making decisions, less conflict and a more efficient supply chain, thanks to decisions based on both intuition and data.