Table of Contents
Supply Chain Management (SCM) has over the years been a principal competitive strategy component geared towards enhancing both the productivity and profitability of organizations. Supply chains entail various activities of businesses and companies that need to be designed, made, delivered and used in order to come up with a product or a service. Markedly, business entities are dependent on their supply chains for the provision of all their requirements for these businesses to survive and thrive (Li et al, 2004). Therefore, SCM can be defined as the process of coordinating production, location, inventory and transportation among the principal participants in a supply chain so as to realize the best mix of efficiency and responsiveness for the market being served. Notably, the major participants in a supply chain include the company (the business entity), suppliers and customers of the company. This process spans the entire movement and storage of raw materials, work-in-progress (WIP) inventories and finished goods from the source (point of production) to the destination (point of consumption) (Walker, 1999).
SCM concept is grounded on two main ideas. Firstly, every product that has to practically reach the end user (the consumer) is a representation of the cumulative effort of numerous organizations. These organizations are the ones that are collectively referred to as the supply chain. Secondly, despite the fact that the supply chains have been in existence for quite a measurable period of time, a majority of these organizations have solely been paying attention to the business activities within their boundaries (Li et al, 2004). Only countable have had a clear comprehension of the activities of the supply chain delivering products to the consumers in their entirety. This occasionally resulted in ineffective and disjointed supply chains. Among the imperative characteristics of SCM is the fact that the involved organizations are an inseparable part of the channel. In addition, these organizations have a clear understanding that their future is entirely dependent, to a quantifiable extent, on the success of the entire channel (Sun & Yen, 2005).
Supply Chain Management denotes the active management of the various activities of the supply chain with an aim of maximizing on customer value and, at the same time, the realization of a sustainable competitive advantage. SCM actually signifies a conscious effort by the firms in the supply chain to come up with and run the supply chain in a manner that is effective and efficient. The activities involved in the supply chain are an aggregation of activities involved in product development, production, sourcing, logistics and information systems required for the purposes of coordinating these activities (Hugos, 2011). It is worth noting that the various organizations making up the supply chain are connected together via physical and information flows. When we talk of physical flows, this entails the movement, transformation and subsequent storage of materials and goods. Physical flows are the pieces of the supply chain, which are most visible. Information flows are of an equal importance. This is because they facilitate the various partners in the supply chain to match up their long-term perspective and plans and, at the same time, control the everyday flow of goods and materials in either way in the supply chain. Notably, the relationships existing between the participants of a supply chain are viewed on a long-term perspective and, besides, these participants have shared corporate philosophies, cultures and missions (Hugos, 2011).
In comparing and contrasting supply chain management and tradition organization management, and the traditional distribution channel, it is quite evident that SCM presents numerous advantages. To begin with, while the traditional management is focused on short-term relationships with each of them focusing on maximizing its own gain from each and every transaction, SCM is focused on long-tern relationships between the suppliers, companies and end users with an aim of minimizing their total costs and maximizing their effectiveness in the market they are operating in. In the absence of the supply chain, the rapports between the organizations in the channel would only remain valid from one transaction to the other (Li et al, 2004). Markedly, a great percentage of the organizations that are utilizing the traditional channel hardly view themselves as key players of the vertically cohesive channel; but as independent businesses making purchases from suppliers at a rate that happens to be the lowest and, subsequently, selling the same to the end users at the highest possible price. In this traditional channel and organization management approach, diseconomies of scale, resulting from redundancies in inventories, are a common thing. It is therefore prudent to note that the supply chain management came in place to make an elimination of the redundancies in inventories (Hugos, 2011).
In analyzing the performance of the supply chain management of a company, certain tenets are brought into focus. These include such as the customer service, asset productivity and the cost of control. Supply chain management, as contrasted to traditional organization management, leads to functional excellence in various areas within the organization such as manufacturing, procurement, customer service, and transportation and distribution. SCM also highly develops the skills and integration levels of the management. Moreover, leaders through SCM get to be skilled in the management of complexities and, especially, the management of uncertainty and surge in areas like the introduction of new products, complexity in the product line and variations of a seasonal trend (Walker, 1999). Leading supply chain managers are also better equipped in employing the best of all information technology (IT) for applications, decision support tools, data management and communications. Besides, they are in the position of leveraging the outstanding capabilities of supply chain providers and, at the same time, fashion a long-drawn-out supply chain with collaboration and visibility across the channel (Sun & Yen, 2005). In this era, when electronic commerce is seemingly growing at a rapid rate, it is foreseen that a great impact will be realized in SCM presenting such advantages as efficiency in processes, reduction in costs, enhancement in efficiency via the utilization of the Internet and the World Wide Web (WWW), and the enhancement of effectiveness in various processes of the supply chain right from the order entry all the way to supplier management. Moreover, e-Commerce is in the offing of leading into the restructuring of the supply channel through the elimination of a number of intermediaries and reduction of channel inventories, transition costs and handling costs. Companies will now be in a better position of integrating electronically with their suppliers as well as customers at relatively lower manufacturing costs, transaction costs and supply costs (Li et al, 2004).
Logistics, in business realms, refers to the business planning framework for the administration of materials, services, capital flows and information. It entails the progressively sophisticated information communication and control systems necessary for the present-day business environment. For a majority of the organizations, logistics and logistics system optimization embedded in the various operations of the supply chain are geared towards reducing to total cost. It is of a great importance to note that a logistics framework is made up of two levels: the scheduling platform and the planning platform (Lau & Cheng, n.d.). On the first level, the scheduling platform, the supplier is under obligation to meet the precise and short-term component demand of the manufacturer. This component demand is as a result of an actual production schedule on the side of the manufacturer, and it is usually in the form of call-offs. In order to satisfy this demand, direct just-in-time delivery from the inventory has to be made. It is on the scheduling boards that decisions have to be made. These decisions are actually made on an everyday basis and with a short-term horizon ranging between one to two weeks. Besides, due to this short period of time, uncertainty in demand is prevaricated through suitable safety stocks (Brito & Dekker, 2004).
The second one is the planning platform. Here the supplier is necessitated not only to build up, but also to uphold the one-point inventory. For the supplier to be in a position to accomplish the above mentioned, he/she has to receive information from the manufacturer as pertains to the demand forecasts and the likelihoods of the product run-outs. In this platform, the manufacturer’s master production plan is the one held responsible for the generation of the component demand. Moreover, it is this master production plan, which regulates its longer horizon planned output. When it comes to the decision-making in the planning platform, this is done so on a weekly basis (Brito & Dekker, 2004).
Notably, logistics cuts across an organization’s functional boundaries and as thus, great care ought to be taken in the assessment of the impact of various actions so as to influence costs on the basis of their impressions on cost associated with such areas. Logistics entails the setting of quantifiable and measurable goals, which are essential in the optimization of the entire process. Moreover, there has to be the use of models, which are under obligation to faithfully make a reflection of the actual logistic process. Failure to comply with this requirement, then it is inevitable that the entire process, let says the loading of a truck, will not only not be optimized, but will hardly be implemented in a manner that is economically viable (Lau & Cheng, n.d.). Logistics is a discipline which is data-driven and as thus, the data so availed ought to be accurate, comprehensive and timely. Integration is also another principal characteristic of logistics. However, it is essential to ensure that the integration of the system has to be in full support of the transfer of data automatically. Illustratively, in order to optimize the daily deliveries from a specific warehouse to the stores, there is a need to factor in the ordering process, the personnel involve in the shipment, the customers and the condition of the means of shipment to be used. Finally, the process of system optimization in logistics ought to be easy to manage, implement and control. All this will ensure proper utilization of assets and time (Brito & Dekker, 2004).
Logistics, as is applicable in warehousing, transportation, material handling, and inventory and packaging is considerably advantageous. This is because it avails a single system that is functional across all geographies and modes to make certain that goods are all the time in motion in the supply chain. Moreover, logistics automate the principal tasks in line with the rule of the organization and as thus reduces the administrative overheads and, at the same time, aids in the management of inventories as contrasted to mere monitoring of the same (Brito & Dekker, 2004). Another advantage of logistics is that it avails visibility of in-transit and on-hand inventory amounts, which facilitates the balancing of demand with available and on-hand supply. It is thus prudent to state that logistics ensures certainty in the supply chain on the basis of timely and accurate data as well as the ability to automate, take control over and optimize the end-to-end process of the supply chain irrespective of the involved participants (Lau & Cheng, n.d.).
The global integration among countries and individuals has greatly increased due to the continuous technological advancements. The world has apparently become a single global village where organizations can easily transact with one another. It is possible for firms from several countries to acquire raw materials from other international firms, whereby the finished products from one firm may be a raw material to the other. Organizations have had to plan their supply chains and network design precisely to avoid the risks that may be involved as a result of supply chain disruptions. The inter-linking among organizations is usually based on the context of profit maximization and risk minimization. Therefore, managers from various organizations across the globe have to devise effective measures to manage their inter-organizational relationships so that they may benefit from each other.
In the global supply chains, the networks may be designed by finding other firms who may effectively have a viable trade-off. Supply chain networks involve multi inter-organizational links where the exchange of products may be physical or executed technologically. It involves a link between various manufacturers and distributors to work closely in a bid to reach the consumers of their products across the globe. Once a firm locates other organizations, which are the consumers of their products, or which can help in distribution, the other concern is the manner of transportation and to the way of managing orders. The means of transportation is greatly influenced by the geographical distance among the countries in the network. It may involve the use of ships and cargo planes where firms are far from each other or the use of trains and trucks in case a firm is supplying products to the neighboring countries.
Network designing may involve global sourcing. In this case, companies engage in the identification of the economically feasible geographical locations where raw materials are readily available. Companies with wide networks of supply chains will have to stage their operations in countries that have low production costs and an easy access to their markets. In designing these supply chain networks, organizations have to consider the political settings of the host nations where they want to locate their operations. For instance, some countries may have a large number of consumers of a particular firm’s products, but, at the same time, trade barriers that make the products expensive once their domestic companies import them may exist. Therefore, it only makes sense if the firm that supplies these products simply sources their productions in the purchasing countries to avoid the trade barriers and effectively reduce the supply costs.
Designing a supply chain network also requires that a company customizes itself to be able to effectively satisfy the demand for its products on the global scale. In this case, companies may establish warehouses in various countries to ensure that goods are always readily available and avoid the risk associated with the failure to replenish ordered inventory on time. There are firms that operate globally but fail as result of their inability to design supply chain networks that facilitate their consistency. Therefore, network designing requires that a firm understands its global business requirements such as identifying the countries to operate in, and the areas that need to more emphasis to sustain the supply chain (Harrington, 2007).
Inter-organizational relationships have to be stressed if our firms wish to excel in the world of business. The relationships may be managed by ensuring that supplies are timely, and they avoid unnecessary competition. This would require that firms openly share information on better production techniques and other ways of increasing their competitive advantage, such as the supply of high quality products. Each organization must be made to believe that the relationship is mutual, and not any firm is taking advantage of the other. Organizations have to understand the challenges faced by each or collectively and undertake joint ventures or partnerships to increase their performance. Additionally, various organizations should initiate rules and guidelines that govern how they behave towards each other and how conflicts are to be addressed once they occur.
Global businesses usually have risks that need to be assessed and evaluated in a continuous manner. For instance, in the supply chain networks, we have to identify the risks involved in handling goods that are perishable or goods whose delayed supply may be disastrous. In addition, we have to be aware of the risks concerned with the volatility of the exchange rate. The stock market is usually flexible depending on the supply chain. We also have to beware of the risks involved in one organization’s over-dependence on another. All these risks have to be evaluated to ensure that firms are not affected by their occurrences.
If the goods involved in the supply chains are perishable, firms should adopt transportation means that are fast and reliable. The performance of this measure is identified through the perfect delivery of orders. Firms should be aware of the stock market operations and prepare budget contingencies to act as buffers in case the exchange rates are quite uncertain. In doing so, the volatility of the global market will have great influence on the performance of the organizations. Organizations also should have different alternatives where they may acquire raw materials or products to avoid the risks of collapse of a major supplier.