While the importance of proficient supply chain operations augments, organizations are obliged to make their processes incorporated with their chains of supply.
It is significant to have a proficient supply chain, in view of the fact that the supply chain management does not only include the management of the connection between the various stakeholders, but also brings into line the achievements of the organization in realizing its corporate objectives. Nevertheless, the current global and competitive business environment necessitates a number of obligations for the organizations.
For them to take part in the markets and maintain their lead, organizations are obliged to adopt various approaches founded on a good relationship with the customers, suppliers, retailers, and subsidiaries. Consequently, a number of novel strategies and pioneering managements ought to be established in the supply chain management processes. This paper discusses efficient supply chain management processes.
Supply chain management (SCM) is the “integration of key business processes from initial raw material extraction to the final or end customer, including all intermediate processing, transportation, and storage activities and final sale to the end-product customer” ( Wisner et al., 28).
Supply chain is “a set of three or more companies directly linked by one or more of the upstream and downstream flows of products, services, finances, and information from a source to a customer” (Mentzer, 5; Mentzer et al., 18). SCM assumes that all companies that take part in the process of distributing goods and services to the end users are constituents of a network, pipeline, or supply chain.
It involves all things that are needed to ensure that the consumers are contented and takes account of the products they will purchase, the methods of their manufacture, and the modes of transporting them. The supply chain philosophy ascertains that the consumers get the best products at an appropriate time, at a desirable price and within the preferred locality. The rise in rivalry, intricacy, and geographical scope in the business environment has resulted in this broadened scope.
The advance in information and technology has led to optimization of supply chain performance. The advent of the internet has played a pivotal role in the movement of messages within the companies in a supply chain. Companies that have adhered to SCM principles have reported considerable cost and cycle time reductions, for instance, Wal-Mart Stores Inc. reported rise in inventory turns and lowering of out-of-stock events.
An essential principle of SCM is to observe the system of facilities, processes, and individuals who acquire raw materials, change them into manufactured goods, and eventually deliver them to the consumers as an amalgamated chain, instead of a cluster of different, but to some extent connected duties.
The significance of this amalgamation cannot be overemphasized since the connections between the chains are the means of realizing the ultimate objective. As much as each company can have a supply chain, it does not imply that each company is able to manage optimally their supply chain to yield increased benefits.
Although SCM is not complex in theory, it develops increased intricacies in practice as the company’s size and variety of products becomes larger. SCM is also intricate for the reason that companies may form constituents of a number of pipelines simultaneously.
Elements of a supply chain
The first element of a supply chain is production. Strategic decisions concerning production centers on the requirements of the consumers and the change in market trends as this is vital in meeting the goals of the organization. This initial phase in building up supply chain agility is concerned with the amount of products to manufacture and the various constituents that are to be produced.
These strategic decisions concerning manufacturing should at the same time center on facilities available, value and quantity of the products to be made, while taking into consideration the requirements of the end-users. Alternatively, operational decisions centers on programming various operations within the organization, keeping equipment in good working condition and attending to the immediate needs of the customers. The maintenance of quality should be adhered to throughout the production process.
The second element is supply. A company should be concerned with the capacity of their production to manufacture competent and good quality goods at minimized costs. However, a number of organizations are not able to give the required performance with the production of all the parts needed.
Outsourcing is a good option to be reflected especially for parts that a company is unable to manufacture efficiently. Organizations should cautiously choose suppliers for raw materials based on developing velocity, quality and flexibility at minimized costs. In summary, an organization must make strategic decisions to ascertain their abilities to deliver quality products before outsourcing to other companies.
The next element is inventory. Strategic decisions center on inventory and the quantity of finished goods that should be kept in the stores. A crucial issue exists between holding inventory in excess, which can result in increased costs to the company, and inadequate inventory that can fail to meet the requirements of the consumers.
This delicate balance scenario is critical in successful SCM. Operational inventory decisions are most of the time focused on having adequate inventory levels at every distribution link to cater for unpredictability in the market trends in order to maintain customer loyalty. Control strategies should consider having optimal levels of stock at every point. The subsequent element is location. Location decisions revolve around the fluctuating market demands and meeting the various requirements of the customers.
Strategic decisions should be based on the positioning of manufacturing facilities, distribution networks, and putting them in strategic locations to attract as many customers as possible. Once prime locations are established, lasting decisions should be reached to locate manufacturing and stocking plants to be as near the consumer as possible. In companies where constituents are light in weight and depends on the market trends, the location of the plants must be within the proximity of the customer.
In heavier companies, accessibility to the source of the raw material should be the major concern. Decisions pertaining to location must also take note of tax and tariff issues; particularly where geographical boundaries are major hindrances to successful marketing.
Transportation is another element. Strategic decisions concerning transportation issues are associated with inventory decisions and satisfying the varied consumer requirements. For example, air transportation enables the consumer to get the product faster but at increased costs compared to transportation by sea or rail. However, using sea or rail transport is slower and usually results in accumulation of stock in the store that may fail to provide the consumer with a quick service.
Therefore, it is important to consider that because thirty percent of the overall cost of a product is included in its transport cost, making the right transport decision is crucial. Most of all, consumer service levels should be maintained at all times. Strategically, a company should have adequate measures to make sure that products are delivered timely to the targeted markets (Hugos, 14).
The last element is information. Efficient SCM involves getting information from the position of the final consumer and joining that information throughout the chain to enable its faster flow. Information is used to coordinate daily activities and for forecasting and planning in guiding the schedule of the organization.
Too much use of paperwork and inefficient computer systems are unsuitable in the current competitive business environment. Cultivating the innovation culture needs consistent flow of information within the structure of an organization. Networks that link computers to each other and the use of internet consolidate the flow of vital information in an organization.
Relationships within the supply chain
Information and various process systems are amalgamated across the whole supply chain. The intricacy of supply chain increases as the goods and services move from one supplier to the next within the distribution network.
The fundamental duties of a company remain the same, not considering whether or not it is following SCM. Suppliers are still needed to provide raw materials while production continues. Distributors are still needed to deliver the products to the consumers for them to purchase. The usual tasks of a company do not change. The eventual disparity in a company that practices SCM is that their attention changes from the occurrences in every link to involve the relationship existing among the various links (Helms, para. 6).
An organization practicing efficient SCM also realizes that the chain has relationships that surpass the usual practices within its framework. Efficient management of the relationships is the place where the integration of the supply chain starts. Whichever enhancements or interruption to the supply chain relationships influences the whole chain.
The collective supply chain outcome of indecision is illustrated in the following instance. Suppose a producer of iron box gets supply of poor quality thermostat, and since the producer is dependent on its supplier for prompt delivery, the poor quality batch leads to late delivery to a number of its customers.
The iron box producer is compelled to stop further production since he or she lacks adequate material. In the end, the customer gets frustrated when he or she fails to get the preferred brand and ends up purchasing from a business rival. This process also has timing costs associated with it since the customer might have made the actual decision to purchase probably some time after delivery of the substandard thermostat.
A number of occurrences take place within the supply chain that is most of the time unexpected. Suppliers may at times deliver materials earlier or later than anticipated. Consumers may increase, decrease, revoke previously assigned orders, or even place large orders. Vehicles used in transportation can break down. Workers can become unwell, refuse to work, or leave the job. Products destined to the market may be of poor quality.
Some time ago, organizations prepared for the unexpected and increased their level of consumer contentment by allowing inventory to rise. However, presently this option is unacceptable since high inventories lead to increased costs of transportation and the possibility of the products becoming out dated thus impairing the flexibility of the organization. All the way through the supply chain, inventory is most of the times generated and held at various places.
A section of the inventory can then be decreased or eradicated thus the organization lowers costs and improves in productivity. Reducing the amount of duration it takes to transport manufactured goods from one link of the chain to the other also reduces the cycle time of the whole chain. Therefore, this enhances the competitiveness of the organization and increases the consumer contentment.
The bullwhip effect
Supply chain management gives the required visibility along the chain to increase the performance of the business and if this visibility is lacking up and down the supply chain, the bullwhip effect sets in. Since the consumer demand is most of the time not predictable, organizations ought to forecast demand to correctly position inventory and other available resources.
Forecasts are derived from statistical data and may not be perfectly correct. Since forecast inaccuracies are evident, organizations usually have to deal with an inventory buffer known as the safety stock.
Across the supply chain from the end-user to the one who supplies raw materials, everyone who takes part in supply chain has had increased observed variation in demand and therefore an increased requirement for safety stock. During the times when demand is increasing, down-stream participants’ raises their orders while when demand reduces, the quantity of orders reduce or halt to lower inventory. The effect seen is that variations are increased when a person goes upstream in the supply chain (away from the consumer).
The causes of bullwhip effect can additionally be categorized into behavioral and operational causes. Behavioral causes involve wrong use of base-stock policies, lack of proper sensitivity to feedback and time delays, anxiety over unfulfilled demand, and observed threats of other players’ bounded rationality.
Operational causes include dependent demand processing that comes due to forecast errors and altering of inventory control parameters with each demand perception. Others are lead-time variability, order synchronization due to consolidation of demands and transaction motives, trade promotion and forward buying, and lastly expectation of deficiency.
The bullwhip effect has a number of consequences in the supply chain as is evident in the case of Proctor & Gamble (P&G) company. When the company was evaluating the demand patterns at different positions in the supply chain, it realized that its customers were using diapers at a steady rate. In this case, the demand order variability in the supply chain was increased as it travelled up the supply chain.
The company was not capable of noticing the retailing of its products at the distribution channel stage. It had to depend on sales orders from vendors to formulate product forecasts, arrange for capacity, manage inventory, and program for production. This inadequate visibility led to too much inventory, error in forecasts, too much or restricted capacity, poor customer services, and the damage of its public image.
Every connection in the supply chain had excessive inventory to offset the consequences of demand improbability and unpredictability. Research has indicated that having this excessive inventory is equivalent to one hundred days’ of supply. Consequently, by taking into account the effect on the raw materials, the total chain can have in excess of a year’s supply of inventory.
Ideally, the bullwhip effect does not take place if all orders accurately fulfill the demand at every time. This effect is a major setback in forecast-driven supply chains and cautious control of the effect is a fundamental aspect for the success of any organization. One method of realizing this is to create a demand-driven supply chain that responds to real consumer orders.
Wal-Mart distribution system has realized immense success by adopting this model (“logistics,” para.13). Other companies, for example, Hewlett-Packard, P&G, and Nestle have also been able to manage this effect.
Other countermeasures that have been successfully implemented to control the bullwhip effect include innovative access to information for forecasting demand, reworked price structures, or coming up with approaches to incorporate small lot sizes at the same time as still maximizing transportation effectiveness (Mason and Towill, 43). Achieving this is possible through knowing the consequences of supply chain integration, visibility and information.
Supply chain management gives several benefits to companies, which allows them to realize long-term profitability and continue with a solid competitive edge. There are four key advantages of implementing SCM.
First, it results in improved supply chain network. SCM gives a proper visibility within the entire supply chain network of an organization. This is difficult to be realized when working with disjointed manual processes. By the use of supply chain, customers are able to keep an eye on the condition of all the activities within the entire distribution network.
This results in more efficient monitoring and control of all interrelated processes. The processes start from obtaining raw materials to changing them into finished products to be purchased by the consumers. Therefore, the condition of all the activities can be monitored throughout and prompt corrective action undertaken before the situation becomes uncontrollable.
Secondly, implementing SCM leads to minimized delays. A number of supply chains, especially those that have not be improved by a supply chain application, are usually interrupted by delays which can lead to reduced customer loyalty and loss in revenues. Orders delivery behind schedule, deceleration of production, and logistical blunders in marketing are all frequent issues that are able to reduce the capability of an organization in adequately meeting the needs of its customers.
Implementing SCM ensures the efficient management of all activities from the beginning to the end. This results in increased level of on-time shipment of products across the board. Implementing SCM leads to enhanced collaboration among the various stakeholders. SCM makes it possible for an organization, suppliers and distributors to know the task each one of them is engaged in at all times as it bridges the gap between them, regardless of their geographical constraints.
The supply chain partners are able to share crucial information, for example, forecasts and inventory conditions. This form of immediate, uninterrupted flow of information and sharing of vital data enables the supply chain partners to be conversant, thus making it possible for a smooth flow of supply chain processes.
Lastly, SCM leads to reduced costs. SCM results in enhanced inventory control, which eradicates the strain on real estate and financial implications that often is realized when there is a need to keep surplus products.
This strategy ensures more demand that is efficient planning. Therefore, production output can be targeted to a level that minimizes wastages due to lost sales. SCM makes it possible for an organization to have enhanced relationships with merchants and its distributors. This enables purchasing and logistics personnel to discover cost-cutting chances, for example, giving volume discounts.
Requirements of SCM
The first requirement is consumer focus. The supply chain begins and ends with the consumers, therefore the basic focus of SCM starts by appreciating the consumers, their importance, and needs. This involves understanding the internal consumers of the company as well as the consumers at the extreme end of the supply chain.
Organizations ought to find out the requirements of the consumers from the product or services they are going to purchase. They should then focus their energy towards meeting these requirements. The process of the supplier ought to be associated with the purchasing process of the consumer and performance measurement ought to be consumer focused. This is because the behavior of the last consumer would eventually influence the performance of the whole supply chain.
The second requirement is Information flow. Organizations should devote their resources in communication devices that are able to give rapid flow of information from one source to the other. Information is the key to enabling quick response among the parties in the supply chain in case any changes take place. Information assists in the process of decision making, for example, assessment and investigation options.
The proper flow of information is significant to the visibility of the products and services as they move all the way through the supply chain as this enhances inventory control and consumer service abilities. Because matters of trust and security are important to information integration, a number of companies are triumphantly addressing these matters by coming up with partnerships in business. Another requirement is employee and management support.
Supply chain approaches usually need transformations in processes and customary norms. This calls for flexibility among the supply chain members to be able to incorporate novel ways and concepts. Sometimes the level of flexibility and change needed becomes complex for companies and their workers.
Nevertheless, the capability to adopt essential changes will enable an organization to reap the full benefits of implementing SCM. Since the supply chain is unpredictable, companies are instructed to give room for change, anticipate resistance and find ways of tackling any eventualities. Preparation in the ideas of SCM is able to assist in this endeavor. Furthermore, the new concepts should get adequate support from all the employees and those in management.
The last requirement is measurement. Usually organizations adopt methods to enhance their performances minus taking concrete steps to ascertain the level of their success. The methods of measuring performance should reflect on the whole supply chain and be aimed at meeting the consumer requirements. Consequently, SCM guarantees that the methods of measurement are properly adhered to in the process of adopting SCM techniques in an organization.
Attaining the objectives of SCM
The ways that are employed to attain the objectives of SCM can be categorized into two groups. A number of ways strive to attain these objectives by enhancing the processes in the links of the chain while other ways strive to attain these objectives through transforming the duties or the purposes of the chain.
The ways employed to enhance this process consist of modeling various alternatives, efficient measurement, and enhanced forecasting. Others are cross-docking inventories (products are not allowed to stop as inventory in the distribution chain), direct store delivery (bypass distribution center) and electronic data interchange technology.
Direct store delivery method involves products that are needed when fresh or when fast restocking is needed. Electronic data interchange technology involves the use of computers as a method of communication among two or more organizations and it is used to process various issues that arise due to transaction. Big retailers such as Wal-Mart and Kmart have initiated this technology, which ensures that information is transmitted quickly.
Other ways are present that employ changing roles to attain SCM objectives. These are postponement strategies (interrupts the differentiation of products to address the changing consumer requirements), vendor managed inventory (companies reach beyond their boundaries and combine their energies with suppliers and consumers), and supplier integration (organizations focus on allying with all the key suppliers in the supply chain).
Supply chain operations reference
The Supply-Chain Council (a not-for-profit trade association) set up the supply chain operations reference (SCOR) model. The model was made to illustrate all the activities of an organization that are related to meeting the requirements of the consumer and it divides the entire supply chain activities into five management processes of plan, source, make, deliver, and return.
The model has numerous subdivisions. By illustrating supply chains, SCOR can be employed to illustrate supply chains that are extremely easy or extremely difficult through employing a standard of terminologies. Therefore, unrelated organizations can be connected to illustrate in detail the parameters in any supply chain. Global projects and site-specific projects have triumphantly adopted SCOR as a foundation for meeting their objectives.
SCOR is an important tool employed by organizations to evaluate the arrangement of their supply chains, discover and assess metrics in the supply chain, establish weak points and attain optimal outcomes. SCOR is a cross-industry guideline for supply chain management.
It gives a universal supply chain framework, guideline on terms used, and regular metrics with related point of reference. Organizations, suppliers, and consumers are able to establish integrated supply chains using it since the model can be employed as a standard guideline for assessing, locating, and adopting SCM practices.
Principles of supply chain management
The first principle involves starting with the consumer by appreciating their values and varied needs. Consumers are grouped depending on the service requirements of the different groups. The supply chain is then altered to efficiently meet the needs of these groupings. These groupings assist the organization to provide products customized to the targeted market segment. The second principle involves managing logistics assets across the entire supply chain, not only within the organization.
Plans that are concerned with the location of distribution plants, pipeline inventory, and transportation activities must involve both down-channel and up-channel partners, for example, retailer-managed inventory plans will need corporation to determine various delivery issues. The next principle appertains to organizing consumer management. This ensures that it gives one “face” to the consumer for any information needed as well as providing optimal customer service.
It involves corresponding suppliers’ fulfillment processes with the consumers’ purchasing behavior and it necessitates that information technology to be organized to give a single window on the order status. The subsequent principle involves integrating sales and operations planning. This forms the foundation for a more responsive supply chain, for example, ensuring that all the functions have the same forecast number. This calls for sharing of information amongst the various stakeholders in a supply chain.
The fifth principle appertains to leveraging manufacturing and sourcing to ensure flexible and competent processes. Leading organizations are implementing other strategies besides the traditional approaches.
Postponement tactics, for an instance such as controlling production in order to lower inventory while maintaining optimal operations in the levels of stocks, can be practiced effectively. The next principle involves building strategic alliances and relationship management within all the members of the supply chain. Even though building a true collaboration is a daunting task, the reality is that if strategic relationships are lacking, controlling the whole supply chain as a distinct unit is difficult.
The last principle deals with developing consumer-driven performance measures, which will eventually be the reference point for the behaviour of all the partners in the chain. The comprehensive supply chain strategy entails coming up with measures and performance criteria that checks the financial position of the entire supply chain.
As the strategy of total quality management (TQM), Supply chain management is an advancing process since it lacks a definite stopping point.
Implementing SCM ensures that an organization records increased benefits in costs reduction and competency improvement. Supply chains involves organizations together with the business operations required to design, make, deliver, and make use of a product or service. Organizations rely on their supply chains to provide them with what they need to survive and thrive in the competitive business environment.
Each organization fits into one or more supply chains and has a duty to perform in every one of them. SCM attends to difficult matters and business rivalry by exploiting and improving the supply chain in order to give tactical, economic, and profitable outcomes to the organization.
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