Supply chain management is a constantly evolving field. In this chapter, we will discuss some of the latest trends in supply chain management and collaborative commerce.
Learning Objectives
By the end of this chapter, you will be able to:
- Explain just-in-time (JIT) production, lean manufacturing, and vendor-managed inventory (VMI).
- Describe supply chain simplification and adaptive, accountable, and sustainable supply chains.
- Identify the main technologies used in supply chain management.
- Explain collaborative commerce and the CPFR process.
- Calculate a simple reorder point and explain why pure JIT is risky in Nepal.
1. Just-in-Time (JIT)
JIT is a production strategy that aims to improve a business’s return on investment by reducing in-process inventory and associated carrying costs. JIT is a pull system, which means that production is based on customer demand. This is in contrast to a push system, where production is based on a forecast of future demand.
flowchart LR
subgraph PUSH[Push System]
FC[Forecast Demand] --> PROD1[Produce in Advance]
PROD1 --> INV1[Hold Inventory]
end
subgraph PULL[Pull System - JIT]
ORD[Customer Order] --> PROD2[Produce on Demand]
PROD2 --> SHIP[Ship Immediately]
end
Figure 1: Push vs Pull Just-in-Time Production
JIT only works when suppliers are close, reliable, and connected to the buyer’s systems, so that parts arrive in small batches exactly when needed.
2. Lean Manufacturing
Lean manufacturing is a production strategy that focuses on eliminating waste in the manufacturing process. Waste can be defined as anything that does not add value to the product. There are seven types of waste in manufacturing:
- Overproduction: Producing more than is needed.
- Waiting: Waiting for the next step in the production process.
- Transportation: Unnecessary movement of materials.
- Processing: Unnecessary processing of materials.
- Inventory: Excess inventory.
- Motion: Unnecessary movement of people.
- Defects: Products that do not meet quality standards.
3. Vendor-Managed Inventory (VMI)
Vendor-Managed Inventory (VMI) shifts stock decisions from the retailer to the supplier. The supplier monitors the retailer’s inventory levels (often via a shared portal or EDI feed) and replenishes products before shelves run empty. Retailers reduce stockouts and carrying costs; suppliers gain steadier demand and stronger relationships. VMI requires trust, accurate data, and reliable logistics — which is why it is more common among established retail chains than small independent shops.
flowchart LR
RET[Retailer Inventory] -->|Stock Levels via EDI| SUP[Supplier System]
SUP -->|Auto Replenishment| RET
SUP --> LOG[Logistics and Delivery]
LOG --> RET
Figure 2: Vendor-Managed Inventory Flow
4. Supply Chain Simplification
Supply chain simplification means working with fewer, more trusted suppliers instead of many suppliers chosen only on price. A firm signs long-term contracts with a small group of strategic partners, shares plans with them, and expects better quality and reliable delivery in return. Simplification makes JIT, lean, and VMI possible, because a firm cannot share data closely with hundreds of suppliers.
The trade-off is risk: with fewer suppliers, the failure of one partner hurts more.
5. Adaptive, Accountable, and Sustainable Supply Chains
| Trend | Meaning | Example |
|---|---|---|
| Adaptive (resilient) | Able to switch suppliers, routes, or stock levels quickly when a disruption hits | Keeping a second supplier and some buffer stock for critical inputs |
| Accountable | Working conditions and practices at suppliers are visible and meet agreed standards | A garment brand auditing factories that make its products |
| Sustainable | Reducing waste, emissions, and energy use across the chain | Consolidating deliveries, reusable crates, less packaging |
Global events such as the COVID-19 pandemic showed that very lean supply chains break easily. Many firms moved from “just in time” towards “just in case”: they still aim to cut waste, but they keep extra stock or a second source for inputs that would stop production if they ran out.
6. Technology in Supply Chain Management
| Technology | What it does |
|---|---|
| EDI | Exchanges standard documents (orders, invoices, shipping notices) between systems |
| Supply chain management (SCM) software | Plans demand, production, and shipments; often part of an ERP system |
| Cloud-based B2B platforms | Let small suppliers join a network through a browser, without their own servers |
| Mobile B2B apps | Let sales staff, drivers, and retailers place and track orders from a phone |
| RFID and IoT sensors | Track the location and condition (for example, temperature) of goods automatically |
| Blockchain (emerging) | Shares a tamper-resistant record of a product’s origin and movement among partners |
These tools all serve the same purpose: giving every partner a shared, up-to-date view of demand, stock, and shipments.
7. Collaborative Commerce and CPFR
Collaborative commerce is the use of digital technology to let firms plan, design, and manage products together across the supply chain. It goes beyond buying and selling; partners share forecasts, stock levels, designs, and schedules, usually inside a private B2B network.
A well-known form is CPFR (Collaborative Planning, Forecasting, and Replenishment):
- Plan: The buyer and supplier agree on goals, products, and how they will share data.
- Forecast: Both sides create a joint sales forecast and resolve differences.
- Replenish: Orders and deliveries are generated from the shared forecast and actual sales.
Collaboration also covers product design (suppliers comment on drawings early), logistics (shared delivery schedules), and social tools such as supplier forums and group chats used to solve problems quickly.
8. Worked Example: Why Pure JIT Is Risky in Nepal
A noodle factory in Hetauda uses 2 tonnes of imported palm oil per day. The normal lead time from order to delivery is 10 days, but during disruptions (border delays, monsoon landslides) it can stretch to 25 days.
Under pure JIT, the factory would reorder when stock falls to the amount used during the normal lead time:
- Reorder point = daily use × normal lead time = 2 × 10 = 20 tonnes
If a disruption stretches delivery to 25 days, the factory runs out after day 10 and loses 15 days of production.
An adaptive approach adds safety stock to cover the extra 15 days:
- Safety stock = 2 × (25 − 10) = 30 tonnes
- Reorder point = 20 + 30 = 50 tonnes
Holding 30 extra tonnes costs money (storage, cash tied up, risk of spoilage), so the factory might instead keep a second local supplier, share forecasts with its importer, or hold extra stock only before the monsoon. This is the balance between lean efficiency and supply chain resilience.
Adoption of Supply Chain Management Trends in Nepal
The adoption of supply chain management trends by businesses in Nepal is still in its early stages. While many larger businesses are using a variety of supply chain management techniques, many smaller businesses are not.
- Just-in-Time (JIT): Pure JIT is rare because lead times are long and unpredictable, as the worked example shows. Firms usually hold buffer stock of imported inputs.
- Lean Manufacturing: Some larger manufacturers apply lean ideas such as reducing defects and waiting time, but formal lean programmes are uncommon in small firms.
- Vendor-Managed Inventory (VMI): Large FMCG distributors already work in a VMI-like way with modern retail chains, where sales representatives check shelves and refill stock. Full system-to-system VMI is limited by data sharing and trust.
- Collaborative commerce: Ordering apps and shared portals between manufacturers, distributors, and retailers are growing, which is the first step towards sharing forecasts.
There are a number of challenges that businesses in Nepal face in implementing supply chain management trends. These challenges include:
- Cost: The cost of implementing supply chain management trends can be a barrier for many small businesses.
- Lack of skilled personnel: There is a lack of skilled personnel in Nepal who can implement and manage supply chain management trends.
- Lack of awareness: Many businesses in Nepal are not aware of the different supply chain management trends that are available and how they can be used to improve their operations.
- Unreliable logistics: Landslides, border delays, and fuel shortages make delivery times hard to predict, which favours buffer stock over JIT.
Summary
Supply chain management has moved from simply buying at the lowest price to coordinating closely with a small group of trusted partners. JIT and lean cut inventory and waste, and VMI lets suppliers manage the buyer’s stock. Supply chain simplification makes this close coordination possible. Recent disruptions pushed firms to build adaptive supply chains with buffer stock and second sources, while customers and regulators expect accountable and sustainable practices. EDI, SCM software, cloud and mobile B2B tools, and tracking technologies share data across the chain, and collaborative commerce, including CPFR, uses that data to plan together. In Nepal, long and unreliable lead times make pure JIT risky, so firms balance efficiency with safety stock.
Key Takeaways
- JIT is a pull system; lean removes the seven wastes; VMI makes the supplier responsible for the buyer’s stock.
- Supply chain simplification means fewer, closer, long-term suppliers.
- Adaptive supply chains trade some efficiency for resilience: buffer stock and second sources.
- Technology (EDI, SCM software, cloud, mobile, RFID/IoT) gives partners a shared view of the chain.
- Collaborative commerce and CPFR let partners plan, forecast, and replenish together.
- Reorder point = daily use × lead time + safety stock.
Discussion Questions
- Should a Nepali manufacturer that imports its main raw material use JIT? Justify your answer.
- Which of the seven wastes of lean manufacturing do you see most often in businesses around you?
- What data would a retailer need to share with a supplier for VMI to work, and why might the retailer hesitate?
Exam-Style Questions
Short answer
- Distinguish between push and pull production systems.
- List the seven wastes of lean manufacturing.
- What is vendor-managed inventory (VMI)?
- What is meant by an adaptive supply chain?
- Expand CPFR and state its three stages.
Long answer
- Explain the major trends in supply chain management, including supply chain simplification, adaptive supply chains, and sustainable supply chains.
- What is collaborative commerce? Describe how technology supports collaboration among supply chain partners.
- A firm uses 3 units of a raw material per day. The normal lead time is 8 days, and the longest expected lead time is 20 days. Calculate the safety stock and reorder point, and discuss why a firm in Nepal might hold this safety stock instead of following pure JIT.
