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| Thought Paper |
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Choosing the Right Supply Chain Optimization Strategy |
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| Abstract |
The manufacturing industry comprises a series of different entities sharing a common goal
of producing a saleable product, either for direct sale or to provide inputs to the
manufacturing process of a firm higher up in the value chain. However, the number of
"value chain members" is on the rise owing to increasing prominence of outsourcing in the
manufacturing sector. In this scenario, two forms of supply chain are relevant - the
physical and the financial.
The physical supply chain involves logistics, transport and warehouse management.
Ensuring that there is proper integration between the various value chain members, results
in lower inventories, shorter time to market and reduced operational costs.
The financial supply chain focuses on the general ledger, accounts receivables and
accounts payable functions of a manufacturer. The gains from focusing on streamlining
this aspect are better cash flows, better control over receivables and overall financials.
Traditionally, enterprise applications have been able to address the financial and physical
supply chains independently. A simple example elucidating this is that while the
procurement process has been automated for a buyer through online portals and
exchanges, the payment process continues to be offline and manual. This results in
increased transaction costs, longer purchasing and inventory hold time.
Hence, to gain efficiencies, it is essential to integrate the physical and financial supply
chain. Supply Chain Optimization (SCO) can be achieved through a further analysis of
business context and imperatives.
This Paper describes the key factors that organizations should consider to maximize efficiencies from supply chain optimization.
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