Supply chain engineering

Fundamentals and definition

The method of SCE moves along a classical definition of a value-adding supply chain within, from and between companies and markets. Thereby SCE creates network structures, processes and establishments along the supply chain in a certain way. Hence strategy, engineering and IT are not regarded separately but equally and integrated in all planning steps. Solutions for supply chain design that follow the SCE approach are therefore considered to be holistically and always influenced by engineering. All measures that follow the SCE process focus the most ideal supply chain construction whilst regarding cost optimization, a correct use of engineering and IT as well as training and integration of employees in production centres and logistical facilities. For the German-speaking area this approach was mostly defined by Dr. Miebach. “Supply Chain Engineering – methods of integrated logistics planning” was published in July 2010 and is so far the only work that describes SCE as a holistic and well-defined method. Following the publishers experiences, neither the top-down approach (mostly used by strategy consultants) nor the bottom-up approach (used by most engineering offices as unique point of view) achieve satisfying results when trying to create most optimized supply chains. The French authors Alexandre Dolgui and Jean Marie Proth have also dealt with the wording SCE in their book „Supply Chain Engineering – Useful Methods and Techniques“(Springer-Verlag London Limited, 2010). Anyhow the authors do not use SCE as an independent method but subsume different single planning and realization elements of supply chains. So their focus is laid more on production processes and less on a holistic view of supply chains. Another driver of the wording is the area “Supply Chain Engineering“ of the Fraunhofer Institute where SCE is understood as a name giver. The methodology of this area still uses a quite narrow conception of Supply Chain Management.

Supply Chain Engineering Vs Supply-Chain-Management (SCM)

The SCE approach as defined by Dr. Miebach regards itself as an upstream authority and basic principle for efficient and effective SCM. SCM - as it is defined by the Council of Supply Chain Management Professionals (CSCMP) - is a strategic-operative controlling tool for already installed supply chains. On the contrary the SCE approach addresses the basic and first creation or optimization of supply chains and integrates SCM as a subsystem to control supply chains. Joint goals - such as coordination and integration along a supply chain regarding cross-functional business processes and a value-adding point of view - are therefore also inherent parts of a SCE goal.

SCE – Top-Down and Bottom-Up

The general assumption of Miebach’s SCE concept is based on the awareness that neither the top-down nor the bottom-up approach are singular methods that deliver satisfying results when constructing supply chains. As the top-down approach is quite strategically and thus firstly regards networks, strategies, delivery-rhythms and other economical tools. Subsequently a best-practice method emerges which defines top-down all basic organization structures and processes as well as all facilities and technical specifications. Hence this approach is most likely for strategic consulting companies. The bottom-up approach which is technic-oriented regards cost and quality problems along a supply chain almost exclusively from a technical point of view and is therefore often applied by engineering companies and plant engineers. Hence propositions like installation, warehouse techniques and administrative organization arise. Reconciliation with a strategically complete overview mostly never happens. Following the SCE approach, an optimal supply chain only contributes to the company’s success if its structure was holistically designed as well in a technical and also economic understanding. The supply chains definition has sovereignty over economical constructs like a company’s tied up liquidity (inventory), customer satisfaction (delivery reliability), EDV-systems and equipment invests as well as over technical and process dependent constructs like costs for staff and transport or delivery quality. As all elements of a supply chain influence each other they cannot be separated.

Methodical SCE approaches

The SCE methodology can be separated into 5 different section of a planning cycle •

• Network strategy • Process planning • Engineering and business • Optimization of the total system

Principally an evaluation of the supply chain‘s current statuesque is necessary as well as developing different scenarios using quantified calculation models. A conception - according to this method- is based on the actual situation and the respective data (location oriented) and not on rough benchmark scales. The SCE approach therefore assumes that no calculation model exists which is able to automatically generate an ideal solution based on all thinkable network strategies, processes and techniques as the effort would be too great. Along the planning cycle unfavorable solutions are excluded stepwise but others will are specified more closely. So the target-aimed optimization is questioned constantly. Important SCE tools are knowledge management databases, simulations and emulations, EDV-tools for detailed calculation, implementation experiences in program – and project management as well as motivation and experiences of domain experts.

I. Key-Performance-Indicators as target goals

If design of logistics networks follows the SCE approach, there is a general rule: if it cannot be measured it cannot be constructed. Therefore, all supply chain requirements must be quantified in terms of key performance indicators as economical target goals. Looking back on the integration of top-down and bottom-up approaches then purchasing, production and distribution strategy are joining the system “from above” whilst performance and cost data are specified “from beneath”. For example, they refer to reachable through put times or return quantities. The limiting definition of separate cost types is not conducted at this point as necessary changes can arise if warehouse and transport costs should shift.

II. Network strategy

This part of the SCE planning cycle deals with locations, production networks, co-operations and suppliers and also with the degree of centralization and specialization and other influences on a networks structure. Here, new approaches from several site-formed options and quantifies the alternative strategies, and matched against the set target KPI. This is done for example by simulating the flow of goods.

III. Process planning

First of all this step regards processes which take place on company level. These processes are mapped within the Enterprise-Resource-Planning-System (ERP). This mainly concerns demand and resource planning, batch size development, dispatching planning, replenishment strategy along storage levels within the push or pull approach, inventory planning and general software architecture. On this stage a quantification of all processes is also necessary to reach a most ideal solution. For process planning simulation usage is also an adequate tool to reach decisions.

IV. Techniques and operational procedures

Next step is to observe processes and systems on an operative level. This includes conveying and warehouse systems, pick packing and packaging systems, loading aids, warehouse management systems, tour planning, staff planning and safety issues. As manufacturers mostly only offer data for own solutions the SCE methodology requires additional quantifications of possible alternatives. Usually as many comparable projects as possible are used. If they are rehashed in terms of data bases the better. Collected experience data should be made available, as well as performance data like play times, picking performance, error rates or transport performance.

V. Optimizing the total system

Last step of the SCE planning cycle is to optimize the whole system. The system that was acquired through the previous three steps is now compared to the KIP system of step. Thereby it is analyzed whether the planned system meets the requirements, exceeds them or not and if changing the alternative is necessary. This adjustment is done before implementing the planned supply chain system. Moreover, the robustness of the chosen alternative is questioned and its efficiency is inspected along changing factors of products or in the market. This methodology is also possible to result in the awareness that the targets were too ambitious.