Supply Chain Management

Supply chain management (SCM) is a management system that organizes and cooperates with suppliers, manufacturers, distributors, logistics service providers, and companies involved in either B2B (business-to-business) or B2C (business-to-consumer) models. SCM is done based on a set of customer requirements to achieve an integrated operation of products, manufacturing, logistics, and procurement at low cost and high efficiency.

A company can be described to have three core functions: Research and Development (R&D), Marketing, and SCM. Therefore, the quality of a company’s SCM highly reflects the company's ability to serve its customers.

The process of supply chain management prioritizes three factors: T (time), Q (quality), and C (cost). These factors which could be shortly identified as TQC must be balanced to optimize the performance of a project.

At different production stages, the customer requirements for TQC are different. In the product prototype development stage, customers usually prioritize factor T or time. Time is needed to ensure the rapid iteration of the product, and accelerate the process from engineering prototyping to mass production. The earlier a new product is launched on the market, the higher the pricing power, giving an opportunity for premium pricing.

During the smaller batch production stages, customers are most concerned about the Q or quality factor. The quality of the first batch is the major indicator to show the market the company’s capability. The said product must have a satisfactory quality for a possibility of repurchasing or referrals. At this stage, choosing the most capable and most qualified suppliers is the basic foundation for the success of the product.

After the small batch production stage and as the products are accepted by the market, the C or cost will become the most important point of concern for customers.

As a company basically has a sound quality control department, among the 3 factors or TQC, the relationships between T and C shall be highlighted in the supply chain.

One important thing in the process of product delivery is the lead time. The lead time is an important factor that runs long-time. It consists of a series of actions from the validation of the order with the customer, to the internal issuance of production orders, calculation of material requirements, procurement, material preparation, and production scheduling.

In short, the lead time of an SCM process is the longest time taken from when the order was first placed, up until the supplier's delivery. The time from order placement to final delivery usually takes 6 months or even more than a year. This lead time is determined by suppliers and is generally not affected by the customer once a decision has been made. To make the overall lead time more efficient, effective management practices should be taken.

For IoT products, the typical lead time from the start of the project to the delivery of the mass-produced products is 12-18 months. The process includes prototyping (including the alterations), smaller batch production, then mass production, before achieving the final mass product delivery. Basically, the time taken for each stage is around 2-3 months.

If the processes are done in a serial manner, there would be not enough time left to procure and produce large quantities after a successful small-batch validation production. Hence, reducing the overall batch lead time is essential. This can be done through a series of methods, such as selecting common materials in the R&D stage, making a key material list, and setting up a procurement lead time. The selection of common materials lies more in the synergy between R&D and the SCM. The purpose of making the key material list is to pay close attention to information on important materials on the market. For one IoT product, more than a hundred materials may be involved, and it will be time-consuming if all materials should be traced. We can label the materials with different tags such as critical materials, concerning materials, and regular materials.

  • Critical materials: are those that are difficult to replace, have long lead times, and are of high value. Critical materials include integrated circuits, PMICs, and memory chips. The typical lead time for such materials is 26-52 weeks.

  • Concerning materials: refer to those of general values and are quite common, but may be subject to shortage or cost hike if the demands from customers increase suddenly, which may influence the product cost ultimately.

  • Regular materials: refer to materials with relatively lower values and general purposes that can be replaced.

The prices of these materials and components will be quite different when orders are made through agents, distributors, or market suppliers. The relationship between T (Time) and C (Cost) is very delicate at this time. If we don't pay enough attention to T, we will have to find spot supplies in the market, and the C will be very high. If we have enough time to place an order with the original manufacturers or agents according to the standard lead time, then we will get the lowest cost, and our C will be the lowest. The balance between T and C is where the value of the supply chain lies.