Supply Chain Management Balanced Score Card…Working Capital

Posted Date : 15-Sep-2013 , 05:35:11 pm | Posted By CASANSAAR print

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The current economic condition has spooked up the cost burden on the companies particularly for the SME. The slowdown in demand has lead to significant affect on production cut down but the levels of inventory has been on the higher side which has turned out to be a burden on the income statement of the SME segment and other companies too. In my research I found that companies are running with high level of inventory. The inventory levels have soared up over the last couple of years on expectation that the economic turnaround would lead to a substantial built up of inventory. Moreover in my research I find that organization made a wild mistake of having decentralized inventory/logistic system which had lead to an significant cost built up. In between Mergers and takeovers have changed the shape of many markets higher levels of service and quality is the demand where Just in Time operation models would be implemented. Moreover the level of customer satisfaction has went into such extension that just in time mechanism needs to be the demand for the now.

But I find that decentralized systems where different functions of the organizations who are having different budgets and these budgets are nothing but rivalry between the cost savings competition. It is a competition of input cost where the competition should be for output cost.

If individual functions are encouraged to optimize their own costs because of the budgeting system then this will often be at the expense of substantially increased inventory across the system as a whole. Minimization of cost of production in different function has resulted to an increase of logistic levels talking advantage of the weak economy. Likewise building inventory taking advantage of low levels of prices in expectation prices would increases in the long term has now turned out to be a nightmare for the huge built up positions. Likewise, if purchasing management seeks low material costs through bulk purchases then again the inventory of raw materials ahead of production will often be excessive. This leads to excessive working capital getting blocked up which cannot be converted into immediate cash. This type of situation gives births to wrong strategies for maintaining logistics which finally damage supply chain management. I find that there is a high requirement of logistic or supply chain management vision statement which would guide the organization to provide efficient support to the customer as well as to the company in different economic phases.

In my research I find that one of the key management theories that is being understood is that flows of information and material between source and user should be co-ordinate and should be managed well but this hardly implemented. If this would have been implemented then companies should not have run out of cash and should not have to pile up huge debt for working capital financing. Traditional costing system needs to be revised aligning with the global uncertainty currently ruling the world economy. Satisfaction of the consumer demand should be aligned with information flow which would result to the creation of the exact demand based product. Sales mix needs to be more data driven where big data analysis should be carried out so that working capital management becomes efficient. Efficient communication system in supply chain management would result to less working capital blockage for the same. Despite of having different functions certain aspects of the organization needs to be defined in terms of the overall goal of the organization.

Over here I find the following balance score card steps needs to implement which would help the measure the logistic segment. I have kept balanced score card limited to the functions of better, cheaper, faster and closer based system of logistic supply chain. As I have been discussing many time about balanced score card I find that by designing the metrics mentioned below would help the supply chain management from customer perspective to financial from process perspective to learning perspective. Learning perspective is based upon the efficient utilization of technology into the system.

Globalization of industry, has created a complex flows of materials and information from a multitude of offshore

sources and manufacturing plants to a diversified markets, has sharply highlighted the inappropriateness of existing structures within organization after the debacle of 2008 recession. Logistics-oriented organization is the demand of the time since global imbalances needs to be well captured within the system. There has to be nothing less than a shift from a functional focus to a process focus. Balanced score card would work wonders to control the aspect as well balance the working capital requirements with efficient information supply.

In my research I find that one order management system architecture that links order entry, order management and factory order/shipment processing needs to be provide more attention in the coming days. This core process is supported by a common information system that provides sufficient logistic supply without carrying the burden over the books of accounts in term of working capital. Judicious mixture of technology into the system would help SME to overcome the problem of excess working capital getting blocked to logistics. In this article the review of the challenges facing the organization in a changed environment I have emphasized the need to break down the ‘walls’ that traditionally have fragmented the organization and impeded the cost-effective achievement of customer service requirements.

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