The Supply chain encompasses all activities associated with the flow and transformation of goods as well as the associated information flows. Supply chain management is the collection of methodologies used to manage this flow by efficiently integrating key stakeholders such as suppliers, manufacturers, distributors and retailers in order to minimise cost as well as satisfy customer or service level requirements.
Across all sectors and industries a dispersion of resources and processes engaged in delivering value or other end objectives is observed mainly due to vertical integration. The supply chain rather than the individual enterprise has become as the "unit of competition" in manufacturing and service industry, and has become crucial in competing. Single enterprises focus on core capabilities and develop the opportunities of global outsourcing and collaboration, joining or forming supply chains to deliver products or services to the end-customer. On top of it, such theories have changed from linear supply 'chains' to 'networks' of contributors who work together in complex network with bi-directional flows of information and material, and dynamic linkages.
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These types of changes have raised the need of re-organising vertical integrated sector services into complex network of commissioned public and private sector organisation, and lead to the formation of "Public Service Network Management". The private and public sector market have become most discriminating, so that their requirements are at least dynamic and potentially unstable. Dynamic capabilities are required, which means dynamic network elements and structures. This network is powered by advance information and communications technology that has made easy access and exchange of information. At one end new business strategies have been enabled, whereas on other, new ways of socialising have emerged. Through this network information is shared instantly and at low cost across globe, facilitating decentralised control and closer integration.
Over last couple of decades companies are getting more worried about supply chain and spend lot of their management time on supply chain management. Many of today's top leading companies like Dell, Zara, and Wal-Mart have revolutionised their supply chain. On the other hand supply chain has great importance and a level of competition within the individual managers as well. For example Mr. Richard Sweet a senior manager of Marks & Spencer has been recently fired when he could not manage supply chain in a new store in China (Shanghai). Although he had decades of experience in opening stores in India, Russia and Middle East, but found him helpless by chain of misfortunes. It was mainly due to strict business/trading regulations of China which were over seen by the managers while making supply chain strategy.
An effective use of supply chain can become a weapon of competition of an organisation, especially when its competition is following a strategy that emphasis on lowering Bill of Material (BOM) cost. Ideally, supplier should work together as a team to support each other's needs. If supplier work together with supply chain and customer-recognised value, growth can be realised for all business involved. It shows that many organisations break the barrier to sharing data across and among department. It enables to virtually view all data and information as the property of individual business that can be controlled throughout the enterprises. The supply chain issues has risen so much that CFOs of companies are continuously striving to build capabilities across their organisation to have flexible endeavour to quick respond to any changes in business. According to a research it has been found that disruption of supply chain can result in 20 percentage reduction in company`s share price. Furthermore, as supply chain function reduces the cost it is highly linked to profit and loss account. The importances of supply chain issues are growing like, how and which level of management is responsible for supply chain, its strategy and any flaws occurring. Enrico Camerinelli, chief analyst and European director of the Supply-Chain Council, stated that Business Magazine Europe (2007), http://www.telegraph.co.uk/finance/sponsoredfeature/2955409/The-View-from-the-Boardroom.html
"Surprisingly, cost-saving efficiencies through supply chains are not the major process benefits that stimulate the interest of C-level executives, especially chief executives and chief financial officers. They are more interested in the role that supply chain management plays in offering a complete and unified perspective of all financial and business activities, even those that take place outside the company".
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The statement highlights that other than cost-saving supply chain plays a vital part in accomplishing business activities successfully. Secondly business strategies would change with revolutionised supply chain management.
It`s no secret that supply chain management has moved out of the shadows when it comes to business strategy. Organizations that once focused primarily on distribution networks, profit differentiation and improved marketing for their success have now embraced integrated supply chain management as an essential strategy component for growth and profitability in the global economy. Since last decade nature of competing among the companies has been changed. Advancement in technology, globalisation, recoiling time horizon and supply chain are driving force that has changed business strategies. Business strategy involves controlling the core competence of origination to achieve defined goals of company. It also involves decision making process like what (e.g., products and services), when (timing, business cycles, etc), and where (e.g., markets and segments) to offer according to competitive plans. While the business strategy defines the path of organization, the supply chain comprises of actual operation of company to meet the desired objectives. Generally speaking, a firm can compete on both cost and through differentiation. Supply chain can contribute significantly to both sets of goals. However, different business strategies are likely to be supported by different supply chain and its management. A business strategy of innovation and fast time market organisation would require different network of suppliers, manufacturing infrastructure and distribution infrastructure compare to business strategy that is based on low cost. Therefore it is crucial that implementation of strategies and decision of supply chain managers should be consistent and aligned with overall business strategy of organisation.
Demand forecasting and inventory management in supply chain has forced many organisations to change their business strategies and realised them the importance of supply chain in competing. To elaborate this statement a case study of Nike is taken into consideration. Nike is one of the leading designer, maker and distributor of athletic footwear, apparel equipment and accessories for sports and fitness activities. Nike had a well-set demand forecasting system till 1980s, but later as the number of customers increased considerably, Nike was unable to forecast demand accurately and ended up with shortfall of $200 Million worth product. This loss was due to inappropriate information given by Nike`s demand forecasting software (i2). Later, Nike changed its business strategy from "make-to sell" to "make-to-order". It is extruded from the case that Nike used to manufacture its product according to the demand shown by Nike`s software, but now it's changed, production is dependent on the order placed by its retailers, unless order are received Nike don't start its production inorder to prevent from over production and producing only those models which has a high market demand. This led Nike to change its strategy due to inappropriate demand forecasting system in supply chain.
Another case study2 can be used to support the topic of this essay. Xilinx a California based company that manufactures electronic components that are used by major manufacture of electronic products across the globe. Cisco is one of the world`s largest buyer of electronic components, and is a major customer of Xilinx. Xilinx did not deal directly with Cisco and supplied products through intermediate distributor as per requirement received from them. In 2003 there was a mismatch between the quantity supplied by Xilinx through its distributor and actual quantity required by Cisco. This mismatch resulted in excess inventory of USD 2 Million at Cisco's end; inorder to tackle this problem Xilinx was urged by its customer to improve its supply chain efficiency. This could be possible by having a track on Cisco's inventory by its supplier. The management realised that with intermediate distributor company would not be able to track inventory therefore decided to remove distribution from the supply chain and started meeting Cisco directly. To make this possible Cisco gave excess to its supplier to track its inventory online (website) and prevent over stock. Furthermore, Xilinx initiated a "Xilinx Virtual Direct Program" that is component of "Vendor Managed Inventory" (VMI). This VMI program solved the supply chain problem and changed system from "Demand Push" to "Demand Pull". This initiative helped Xilinx to reduce inventory time in distribution channels. It can be concluded from the case that supply chain is playing a great role to run both company`s system successfully. If Xilinx would not have changed their strategy by removing intermediate distributor then Cisco who is a big customer of Xilinx would have stopped buying from it. Some changes in strategy did not only solve the problem but also benefited both companies in maintaining healthy relationships and good business.
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According to the chief procurement officer of IBM, IBM has a set of fundamental values. There is strong relationship between their company`s people, shareholders, communities (where people lives and work) and network of suppliers. It makes them easy to manage their responsibilities. He also highlighted that other than managing it is the responsibility of IBM to hold itself and its suppliers to high standards of behaviour. This means strong commitment to work with suppliers to encourage practices and develop big global markets. As now-a-days in interconnected global market the expectations of all supply chain is raising, therefore IBM has maintained an open channel of communication with suppliers inorder to manage smooth and healthy supply chain. These open channels are being practised after rearranging existing and introducing new business strategies that has aligned with supply chain to give highly stable business.
Most companies develop a supply chain strategy after the business strategy has been defined. While this approach can deliver some value, it does not support the mixture into the business strategy development of very powerful supply chain model organisation which could significantly improve the business strategy. A supply chain strategy should always support the goal of the business strategy and it is precisely because of different "levels" of the enterprise at which strategies necessarily must be developed, that companies so often have major gaps between their highest level business strategy and their supply chain strategy.
It is fair to conclude that supply chain has great importance in running the business successfully. With the rise of growing demand and more complex operations, every organisation is focusing to control inventory, reduce cost, forecast demand and provide better services by enhancing supply chain, it made supply chain a "unit of completion". With the advancement/alteration in supply chain, organisations are forced to change their operation and business strategies to align all entities in order to retain in business world. As in today's volatile market forecasting accuracy is almost non-existent therefore future will be a demand-driven world.