Supply Chain Management Assignment Help
Introduction:
In the past few decades supply chain management (SCM) has been recognized as a significant construct demanding attention of practitioners and industry specialists. Supply chains have been in existence for a very long time, infect the concept is at least 80 years old, when Henry Ford initially started assembling cars at the factory premises. The assembly factory was so huge that the management time decided to vertically integrate with a group of completely owned suppliers. In early 1950s, the US retail sector established a daily stock replenishment system for perishable items such as fruits and vegetables. Japanese car manufacturer, Toyota in the 1970s developed its renowned Kanban mechanism, designed to facilitate the flow of materials while maintaining control over inventory levels. Eventually US followed suite with development and adoption of the just-in-time (JIT) methodology. Wal-Mart, one of the largest retailers globally adopted the JIT process and infect invested in developing point of sales capabilities to drive stock and reordering. (Ketchen and Giunipero, 2004)
Since then SCM has continued to evolve driven by the dynamic needs of the customers. The real challenge now is to find ways to cater to these demands at controllable costs. Organizations are continuously assessing their mechanisms to highlight improvements required to attain over business goals. Previously manufacturers exerted a lot of influence within the structure and determined the supply side factors including distribution. Now the customers drive the supply chain with competition soaring manufacturers cannot afford to lose them and must work according to the demand of the customers and also ensure quick availability of the product on the shelves. (Jain et al., 2010)
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Purpose of the Research:
In view of the above, the purpose of the research is to present an understanding of the construct ‘Supply Chain Management’ while highlighting its contribution to the success of the organization. The paper will also dwell into some of the popular supply chain strategies and models that have evolved during the years. Further an effort will also be made to identify the key challenges and provide a road map for the future.
Literature Review:
3.1. Understanding Supply Chain Management (SCM) and its Evolution: While supply chain management (SCM) is a construct which has been well researched in the past few years but we are yet to see an agreement on a singular definition for the concept. Earlier definitions suggest that supply chain management and purchasing are infact synonyms of each other. (Stuart, 1997 Article 91) Others have elaborated this concept to incorporate aspects such as lean supply approach, total quality management and just in time inventory amongst various other operational areas. (Storey et.al, 2006)
Mentzer et.al, (2001) suggested that it is a system under which business units coordinate with other business units within an organization as well as other external partners for promoting efficiencies and improving performance to create value for the customer. (Mentzer et al., 2001) Stock and Boyer (2009) based on their analysis of various suggestions provided by practitioners, authors and academics also attempted to explain the concept. They explicate supply chain management as an intricate set of relationships including business units and other mutually dependent firms who have different expertise and together collaborate in the frontward and backward flow of resources to provide value to the end consumer and enhance profitability of the entire value chain. (Stock and Boyer, 2009) To a certain degree, the definitions have moved away from the chain concept and more towards to integration of networks and value creation orientations.
3.2. Supply Chain is a Management Philosophy: There is also a need to realize that supply chain must be adopted as a management philosophy for doing business. It requires viewing the organization as a system which integrates the various facets within the chain from procurement to product/service delivery. The approach must be customer-centric, that is to add value for the end consumer and lastly must have a strong cooperative culture of harmonization within and outside the organization. For this integration of processes and behavior, sharing of information to improve the system, synergies between objectives and customer-centric orientation are a key. (Mentzer et al., 2001) It will also be important to highlight that the management has the prerogative to focus on only the primary stakeholders within the chain or extend their view beyond to a more holistic level. Refer to Figure 1 which identifies an extended view of the supply chain. (Tyssen et al., 2011)
3.3. Supply Chain creates Value: SCM is regarded as an important factor that drives customer satisfaction. An efficient supply chain will always focus on value creation for the customers especially since products and services even if it they are of remarkable quality will have no value in the eyes of the customer if it is not available at the time and place when he/she demands for it. Therefore every process occurring within the supply chain should only be there in the first place if it is maximizing the value for the customer. Value creation is significant also because consumers are willing to pay a premium associated with immediate product or service availability. (Ballou, 2004)
3.4 SCM requires Collaboration: Authors have also suggested that cooperation within the supply chain is a very critical aspect that demands attention. Adequate collaboration between the various partners helps in gaining a sustainable competitive advantage and results in enhanced performance. It has infact been indicated that if synergies can be created amongst the various players it will eventually lead to not only reduction in operating costs but also improve customer service aspects in turn yielding a higher bottom line. (Holweg et al. 2005) Other possible gains include effective resource utilization, reduced turnaround times, improvements in delivery times, enhanced product quality and strengthening of core competency of various stakeholders within the chain. (Gruat La Forme et al. 2007)
3.5 Supply Chain Integration: Having mentioned the aspect of collaboration, it will be essential to also discuss supply chain integration as there is an overlap in the two constructs. Integration between the various stakeholders is a key driver of an efficient supply chain. Primarily the partners tend to have a shared responsibility on assets, resources, benefits as well as risk elements. (Ajmera and Cook, 2009) Newman et al. (2009) suggested that supply chain integration has a long term orientation and is a result of continuous collaboration between the partners. (Newman et al., 2009) Effective supply chain integration helps in skill and knowledge building while identifying bottlenecks and solutions for the same. Further it significantly reduces revisions and production costs. Usually there are two types of integrations horizontal and vertical. Horizontal integration refers to amalgamation of various entities that deal with the same part of the production process, whereas vertical integration primarily is the degree to which a firm exerts control or ownership on its suppliers (backward) and buyers (forward). (Ragatz et al., 2002) Figure 2 provides a representation of vertical and horizontal integration within the automotive industry.
Supply Chain Strategy:
Supply chain strategy is a critical driver of how to operate with efficiencies in order to gain a sustainable competitive advantage. While SCM identifies the main processes and players, strategy drives how to utilize them. It assists in evaluation of costs and benefits associated with the operations within the supply chain. Strategic alignment between the organization’s business/competitive strategy and the supply-chain strategy is a key goal of SCM. While the business strategy provides the overall mission, vision and path that a company wants to pursue, while the supply chain strategy supports to operationalise the business strategy. (Happek, 2005) Supply chain strategy must be tailored in a manner to understand consumer demand/needs which will in turn assist to narrow down on cost structure and service related gaps to be filled.
Happek (2005) emphasized that a supply chain strategy should not be developed in isolation from the business strategy since it will carry some inherent risk including inaccurate estimation of costs. Another issue is that it might lead to utilization of resources in the operational chain which were not sanctioned under the business strategy. (Happek, 2005)
Having discussed the necessary alignment of the business strategy with supply chain strategy, it will be important to address the various sub-themes within supply chain strategy that constitute the basic framework. Based on the literature researched, an effort has been made to identify four key dimensions that have evolved during the years within the ambits of supply chain strategy. These subsets include operations management, outsourcing, channel management and customer centricity/demand orientation.
4.1. Operations Management:
Operations management is the design, enhancement and the supervision of the overall production process that converts inputs into meaningful output. The objective of any organization is to understand the embedded operational systems and work to improve them on both efficiency and effectiveness related aspects. One widely recognized operational model is ‘Supply Chain Operations Reference (SCOR) that is primarily used to restructure the supply chain processes through a recurring mechanism which aims to map the design of the supply chain, enables performance measurements against internal and industry benchmarks as well as realignment of the processes under ever changing environments. (Naslund and Williamson, 2008) The original model comprised of four core supply chain processes including ‘plan, source, make and deliver’. In 2001, another aspect of ‘return’ was incorporated to augment the strength of SCOR. Please refer to Figure 3 which briefly highlights the processes embedded within the model that need to be evaluated on a frequent basis. (Bozarth and Handfield, 2005)
It will also be critical to discuss one key concept, ‘lean manufacturing’ since it is strongly embedded within operations management and provides operational efficiency. Lean production approach combines the benefits of ingenuity with mass production avoiding the high cost of the former and rigidity of the latter. Its objective is three fold improvements in terms of productivity, quality and flexibility. The lean philosophy, sometimes also referred to as Toyota Product System emphasizes that supplies right across the assembly procedure to the end consumer should flow smoothly without any stocking of:
- Raw material at any stage of the production process
- Unfinished products at any stage of the production process
- Finished product
This ‘just in time’ approach requires that supplies should arrive from the suppliers on the assembly line at the precise stage of manufacturing just when it is required and as soon as the finished good is produced, the same should be dispatched to the consumer. (Goldsby et al., 2006) Refer to Table 1 which highlights some of the popular lean tools which are currently being utilized in the industry.
4.2. Outsourcing: Corporates in the recent years have been reevaluating their position within the supply chain due to the increasing trend of globalized competition. Leadership decisions to increase their influence in certain parts of the supply chain and to reduce their influence in others are being driven due to this particular reason. (Gulen, 2007) Outsourcing is a critical element which has emerged in the forefront of this change. The verdict to outsource is driven by various goals such as cost reduction, resource elasticity or capabilities and closing knowledge gaps. (Grobler et al., 2012) Earlier authors focused on the outsourcing construct primarily in a production environment, with the make-or-buy decision being the key question firms must address. However later on transaction cost theories emphasized that the sourcing decision should be based on cost reductions including of both manufacturing and transactional (operational) nature. Another approach of outsourcing available in the literature is associated with the resource based view. This primarily refers to focusing on the core competence i.e. those activities which an organization does best and can create value for the customer, while outsourcing non-critical activities or those activities where they lack distinguishing capability. (McIvor, 2008)
The outsourcing decision has some key organizational implications which must be acknowledged and addressed. Firstly there has to be a careful evaluation of the causes that result in poor performance. Secondly clearly understand the current procedures and related dependent factors that will be impacted by the decision. (McIvor, 2008) Thirdly to analyze whether the supplier to whom a particular function is being outsourced will have a strong influence on the supply chain or has opportunistic tendencies, therefore a supplier’s bargaining power must be evaluated. One way to dealing with reducing opportunistic behaviour is by building a deeply intertwined relationship with the supplier. (Gulen, 2007)
4.3 Channel Management: Channel management traditionally refers to the structuring of logistical and distribution activities such as stock, order taking and processing, goods warehousing and materials management along with management of the relationships existing with different members of the supply chain. (Mohr et al., 2006) Inefficiencies with the channels arise due to the disconnect that occurs amongst the relationship between suppliers, producers and distributors. Efficient channels enable an organization to achieve significant cost advantages by identification of inefficient processes but most importantly by building a strong association with core members of the channel. (Mohr et al., 2006) Channel management must focus on harmonization across suppliers and forward supply chain i.e. distributor and retailers since if the activities throughout the channel are well synchronized it will result in higher profitability. (Swami and Shah, 2011)
A logical question to address now would be how to foster channel development for improving efficiencies. Sustainable relationships with suppliers can be built by offering discounts, marketing support, financing facilities and training programs. This in turn will increase influence over the backward channels. Further this also results in reduction in switching costs associated with changing suppliers. Similarly good credit terms, sales promotions, volume based commissions and adequate training for distributors will help in improving efficiencies across the supply chain. Another aspect of channel development is to act as an advisor to the suppliers and distributors. This is an effort to engage and create synergies by sharing top practices, benchmarking exercises, recommending innovative changes to structure and providing knowledge based support to these partners. (Ingram, 2013)
Another key differentiation that is required to be made relates to the forward (distribution) channels i.e. direct and indirect distribution. (Refer to Figure 4 which identifies the structural difference in the two models).The direct channel mechanism is in which a producer is directly selling to the end consumer; this could be through its own sales team or even through the internet. Internet is an innovative driver which has infact changed how business look at selling to customers. An indirect channel refers to one in which a producers engages an intermediary to perform the marketing, selling and delivery functions. Most of the organizations utilize both channels rather than one which is also referred to as a hybrid channel. (Mohr et al., 2006)
4.4. Customer Centricity/Demand Orientation: Customer orientation refers to the entire supply chain collaborating for purposes of creating value including handling complaints, building loyalty and improving satisfaction which will in turn creates a demand for the product or service. Customer centricity ensures that there is appropriate customer segmentation, whereby organizations must understand which segment it wants to focus upon. The organization must be clear on the level of support it requires from suppliers or other stakeholders within the supply chain to provide for customers needs and requirements. (Toyin, 2012)
As customers influence continues to increase in the evolving market dynamics, organizations must establish a relationship with them. It is critical to obtain consumer feedback and assessment of customer satisfaction levels with regards to the products and services. Efforts should be made to obtain real-time knowledge by investing in information technology driven solutions, this will enable organizations to assess the dynamic nature of demand created by the consumer and it respond more effectively. (Casals, 2001)
With dynamic consumer requirements it is also important for an organization to move away from the traditional model to a customer centric approach. Figure 5 highlights this very shift which primarily can be referred to as an all encompassing network based on the individual demands of the consumer who are increasingly seeking customized products. Demand for such products has impacted production also by having shorter product life cycles; therefore mass scale manufacturing runs are lesser. Therefore mass customization is becoming a critical area that organizations are considering under which the benefits of mass scale production remain yet the option to customize remains. (Casals, 2001)
Current Trends/Challenges & Future Implications:
Having discussed the four major components of the supply chain strategy, this section will highlight some of the key trends which are challenging conventional ways of thinking as well as provide future implications for practitioners.
5.1. Developing a Receptive Supply Chain: A major challenge organizations face in the global era is creating a receptive supply chain structure. The need is to utilize the supply chain as a key to gaining a sustainable competitive advantage. This requires transformation and innovation within processes which in turn will enable organizations to adjust to unforeseen events. Receptiveness means acknowledging and overcoming not only erratic changes in demand but also the capability to lesser lead time, developing broad range of products and meeting higher service levels. A receptive supply chain must also ensure that they have established key performance indicators with benchmark targets assigned against which performance measurement is done. (Mitchell et al., 2003)
5.2. Risk Management is largely or partially ignored: Risk management is largely or partially ignored: There is an impending need to understand and manage the risk elements that prevail in any supply chain. The right equilibrium between buffers, rescheduling and optimizing costs requires developing of a better understanding of risk drivers supply chains. Managers therefore must have an in-depth understanding of processes, mechanisms and bottlenecks that disrupt supplies as well as adequate knowledge and analytical tools to assess the associated risks. Sometimes the risk management is directed towards supply side alterations (reduction in supplies) only but ignores the demand side. This is a caveat which must be avoided since both can negatively affect supply chain performance. (Melnyk et al., 2006)
