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"It is unwise to pay too much, but it's worse to pay too little. When you pay too much you lose money - that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do." (John Ruskin, 1819-1900)
In today's globalised world, copies of products enter the markets almost as soon as the original products are introduced. It is thus understandable, that one of the major anxieties of today's CEOs is to build, and support, a competitive advantage over its competitors and product pirates. The extent to which organisations manage their internal and external human capital, the interactions between those, and how such actions affect the economic results achieved is evident from numerous studies in varied industries and sections of the economy. Substantial gains can be achieved by implementing certain high performance management practices.
This paper is to provide added insight into the capabilities of supply chain management by addressing the agents and practices which will enhance and promote the development of such a management practise. Where supply chain members are to enjoy co-jointed growth and expertise, such members are to acknowledge that the supply chain is improved by a learning environment, thereby improving the overall effectiveness of the supply chain, as well as the abilities of the individual members (Bhatt & Stump, 2001).
Keywords: change management, supply chain process, business process management,
ICT, competitive advantage
With Ð° rise in competition among organisations, one can observe an increase in the breadth of product offerings in the market, which, in turn, leads to Ð° shorter product life cycle. With the introduction of Ð° new product in the market, the life cycle of some other products, offered in the same product category, tends to reduce (Weil, 1997). It has therefore become essential for organisations to effectively manage their supply chains so that they can efficiently manage the supply and demand aspects of a product according to its changing life cycle stages. It requires Ð° clearly defined and reliable forecast, with respect to the future demands of products. It should however be noted that presently the majority of the forecasting techniques and tools employed by retailing organisations are focused towards products having long life cycles.
With an increase in global marketplace competition since the 1980s, companies began to seek new ways to gain Ð° competitive edge over their competitors. This was the time when the organisations identified the need for adopting Ð° new approach for supply chain management. Realizing the fact that modern day organisations have achieved their maximum cost cutting potential in terms of efficient planning and executions of their internal operations, companies began to divert their focus towards improving their external processes in order to develop Ð° competitive advantage (Quinn, 1997).
The result was the emergence of Ð° new concept of supply chain management (SCM), which was based on the concept of
integrating the overall organisational processes,
establishing communication channels at all levels of the organisation, and
increasing cooperation among all the departments which are involved in the supply chain process, whether they be external or internal.
Although most businesses have adopted some of the more basic IT systems, such as email and Internet web sites, the interfaces between elements in the supply chain are still far from ideal due to the lack of Ð° standard format of interoperability for the diverse equipment and software in use. Consequently, the hoped for benefits of an integrated SCM have remained elusive for most supply chain enterprises; and as Ð° result, waste and operating inefficiencies have continued to plague the supply chain process at all levels.
Fortunately, there are numerous new and affordable options available - especially for small and medium-sized companies - which will allow these to communicate with their larger trading partners. To achieve this interface, companies can either share IT resources, which are "owned" by other players in the supply chain (SC), or they can upgrade their own systems incrementally.
For quite some time now, leading retailing organisations have successfully integrated technological developments into their organisational structures and have developed sophisticated systems to run the business. Numerous management experts recommend that organisations that learn to spread out their organisational supply chain management will have a viable benefit. This learning process appears at the success that TOFAS-FIAT Corporation has had in running supply chain in Turkey (Bashein & Markus, 2004).
One important management practice for many companies is the relationship that they have with their suppliers. Supply chain partnerships are relationships between two or more independent entities in a supply chain to achieve specific objectives. Basically, these partnerships are generally created to increase the financial and operational performance of each channel. These objectives are accomplished through reductions in total costs, reductions in inventories, and increased levels of shared information. Over a period of time these partnerships can evolve and lead to improved service, technological innovation, and product design.
Definition of Competitive Advantage and Strategy
Competitive advantage can be achieved if the organisation is able to expand an overall cost leadership without ignoring quality and service. (Porter, 2008) defined three general strategies for competing efficiently:
Each involves a dissimilar route to competitive advantage, and winning organisations make a clear choice between these strategic options without forgetting the significance of the others. Management of such organisations recognizes that trying to do all of them jointly generally lead to poor relation position within its industry (Bhutta & Huq, 2002).
Cost leadership is possibly the clearest of the three generic strategies. Nowadays, most winning organisations use this strategy to increase the main market share. Organisations pursuing cost leadership resist to be the low-cost producer in their industry and sell their products/services either at average prices (to earn senior margins than competitors) or at below-average prices (to produce market share). A low-cost producer must find and develop all sources of cost advantage, counting economies of scale, asset utilization, proprietary technology, special access to raw materials, best outsourcing, and vertical addition, or avoid some costs all jointly.
Achieving a low in general cost position often requires a high relation market split or further advantages, such as positive access to raw materials. (Porter, 2008) additionally indicated that being a cost leader entails an awareness of being such, and that within any given industry, only one organisation can be the cost leader. When there is more than one hopeful cost leader, rivalry among them is typically fierce because every point of market share is viewed as critical. Explicitly, direct access to factors of production, as well as technological software advantages, have the most possible sovereign of scale to create continued cost-based competitive advantages (Carr & Pearson, 2001).
The second general strategy is differentiation. In a differentiation strategy, a organisation strives to be sole in its industry along a few dimensions that are broadly valued by buyers. To adopt this strategy, an organisation must have unique product/service offering attributes that are respected by customers and appear to be more attractive than those offered by competitors. Differentiation provides a buffer against competitive rivalry due to brand royalty by customers and ensuing lower resistance to price. In contrast to cost leadership, there can be more than one winning differentiation strategy inside an industry. A cost leader must attain equality on the basis of differentiation compared to its competitors to be an above-average performer.
Porter describes the last strategy of focusing on an exacting buyer group, section of the product line, or geographic market. As with differentiation, focal point may take lots of forms. The basis is that the wants of the segment can be best addressed by alert attention. And the focuser seeks a competitive advantage with its aim, even though it may lack a competitive advantage generally (Choy & Lee, 2003).
If an organisation achieves sustainable cost leadership or differentiation in its section, and the segment is structurally conducive, the focuser will be an above-average player in its industry. Most industries have a diversity of segments, and each segment that involves a dissimilar buyer requires or a dissimilar optimal production or release system is a candidate for a centre strategy.
Competitive Strategies through Supply Chain Management
A key strategic issue is the aptitude to leverage a partner's capabilities outside touchable assets and open knowledge. Some of these assets comprise employee know-how, standing and culture, which is part of the fabric of the organisation. It is not easily codified, often not instantly recognized; yet, it gives the organisation a relation advantage.
One important relationship that organisations engage in is with their supply chain partners. Supply chain management (SCM) is a continuous improvement process; make certain customer approval from raw material provider to the vital finished product customer. Using SCM, companies can make it a source for differentiation or cost reduction. However, coordinating the supply chain among raw material suppliers, distributors and customers is not an easy task. Two issues that emerge are ensuring quality all through the supply chain at a competent cost, as well as managing relationships crossways within organisational and international borders.
Another important management aspect is managing quality. Total quality management (TQM) is an integrative management philosophy intended at incessantly improving the quality of products and processes to attain customer satisfaction. TQM is based on the basis that both internal and external customers are the focal point of all activities of an organisation. TQM authorities advocate that organisations work straight with raw material suppliers to ensure that their materials are of the highest quality probable. In the present worldwide business environment, organisations must expand a competitive strategy that determines the position of the organisation with respect to other organisations in the industry. This can be achieved by doing a structural study, which is basic in developing a competitive strategy, as it relates the organisation to its environment. The organisation has to determine what its strengths and weaknesses are, and in what areas a change in strategy will yield the most benefit (Davenport & Stoddard, 2004).
Corporate Buying and Buying Practice
One can summarize the importance of buying practice using John Ruskin's (1819-1900) words. He says, "It is unwise to pay too much, but it's worse to pay too little. When you pay too much you lose money - that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do".
Definition of Supply Chain
According to Wikipedia, supply chain management is "Supply chain management is a cross-function approach including managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods out of the organization and toward the end-consumer. As organizations strive to focus on core competencies and becoming more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and the velocity of inventory movement."
Supply chain management allows companies to become leaner and more agile. Companies can use SCM to expand close partnerships in which every partner collaborates, using communal information to predict, produce, ship, and collect in true just-in-time (JIT) fashion. In the manufacturing procedure alone, SCM can provide set-up time reduction, improved process-oriented layout, better product design, and improved data imprison (Davenport & Stoddard, 2004).
Supply Chain Decision Levels
Supply chain management decisions are generally said to belong to one of three managerial levels; the strategic, the tactical, or the operational level. We usually find SCM at the operational level. The three levels of SCM decisions are structured as a pyramid-shaped hierarchy as circumscribed in corporate decision levels functioning in a top-to-bottom flow of decision-making.
On the strategic level, long-term choices are made. These are connected to location, production, inventory and transportation. Location decisions are worried with the size, number, and geographic site of the supply chain body, such as plants, inventories, or sharing centres. The production decisions are destined to decide which products to produce, where to create them, which suppliers to use, from which plants to supply sharing centres, and so on. Inventory decisions are worried with the way of organisation inventories all through the supply chain. Transport decisions are made on the types of transport to use.
Supply Chain Evolution
The supply chain was recognized as in significant power on product quality and price during the quality rebellion of the 1980s. The idea was formalized in Michael Porter's 'Theory of Competitive Advantage' in 1985, which postulated that a company's relative power in the supply chain (one of Porter's 'Five Forces') was a significant influence on the competitiveness and, thus, its productivity. Since then, the topic has constantly occupied the pages of management journals and has been the subject of dozens of conferences. Most large organisations are engaged in a permanent program to improve their buying practices. Some are just aiming to increase control over a disjointed and incompetent process, others are seeking better buying power through alert procurement, and the majority accomplished are looking for ways to harness the originality and energy of their suppliers to support their own objectives.
The Financial Supply Chain (ERP)
Its origins were in Manufacturing Resource Planning (MRP), a system used by mechanised companies to optimise materials, purchasing, run lengths and inventories with the goal of dropping the total variable costs of manufacturing. ERP broadened this to envelop the entire manufacturing venture and, seriously so in the mid-80s, to go beyond the boundaries of the company to converse with the supply chain. It is argued, that whenever there is lack of visibility into its sources or uses, both inventory and cash holdings are required to be kept at higher levels. In both cases, doubt can be abridged by managing and taking information from the pertinent supply chain, and making it visible rapidly and precisely.
Using the Financial Supply Chain to Reduce Costs
The idea of Financial Supply Chain Management can diminish the amount of capital that corporations must hold. There are two aspects to this:
Firstly, there is no doubt that one of the keys to winning cash management is precise information on what the future sociable cash requirements will be and of incoming cash. Secondly, the internet has lately become a really cost effective solution for inter-organisational communications and a trusted infrastructure for business processes, sufficiently safe to carry forward the technical advances being made in e-payment systems (Dzever, Merdji, & Saives, 2001).
However, although e-ordering now takes seconds and goods can be delivered the very next day, it still takes weeks or months for the money to be moved. Several futurist companies are building systems to address these issues, automating the entire billing and payments process and enabling contact down the supply chain with ensuing benefits in:
Cash Flow: aptitude to take early discounts and better price terms for e-payments,
Operating efficiencies: self-service vendor management and abridged cost of invoice processing,
Internal controls and visibility: better period-end accruals and removal of payment duplication.
Implementing Financial Supply Chain management
There are four stages of implementing Financial Supply Chain management:
Convert paper documents to electronic: Electronic invoices can be further simply reconciled with purchase orders, dispersed for endorsement and quickly passed through the system using normal workflow processes, devoting time only to the exceptions enclose errors that engage resolution of disputes.
Automate financial transactions: The move from blue-collar to e-payments gives full control over the payment procedure, paying when you want to pay.
Automate liability management: Sarbanes-Oxley legislation has made compulsory new fulfilment burdens onto a previously onerous area of operation. Requirements for precise, rapid and transparent reporting cannot be sensibly achieved devoid of end-to-end automation solutions.
Execute working capital management: Once the processes have been automated, contact with the supply chain financial departments is improved and the majority of the qualms are taken out of the payment chain, companies can finally begin to optimise their cash management.
Combining Competitive and Supply Chain Strategies
A final concept to mention is that of Strategic Fit. For any company to be victorious, its supply chain strategy and competitive strategy have to fit together. Strategic Fit means that, in combination, the competitive and supply chain strategies have a similar goal of constancy among the customer priorities, which the competitive strategy hopes to please, and the supply chain abilities, which the supply chain strategy aims to build. The issue of achieving strategic fit is a key thought during the supply chain strategy or design phase.
A company's success or failure is thus closely linked to the following keys:
The competitive strategy and all useful strategies must fit jointly to form a coordinated in general strategy. Each functional strategy must sustain other functional strategies and assist a organisation reach its competitive strategy goal, and
The dissimilar functions in a company have to suitably structure their processes and resources to be talented to carry out these strategies effectively.
A company may not succeed either due to a lack of strategic fit, or because its processes and resources do not offer the capabilities to sustain the preferred strategic fit. To attain strategic fit, a company has to ensure that
They appreciate the customer and supply chain indecision, and
They understand the supply chain capabilities.
Exploratory research is the research into an area that has not been studied, and in which a researcher wants to expand initial ideas and a more alert research question. I will be using this method supporting the research with a sturdy literature review.
I have mainly used secondary data from previous researches, surveys and some contemporary issues to support the idea. The minor information services register and describe main documents for the reason of retrieval and documentation. One of the foremost advantages of using secondary data is that it helps the researcher formulate and understand better the research problem, broadening at the same time the base for scientific conclusions to be drawn. Nevertheless, it should be taken under consideration that other researchers, organisation or government departments for studies with different objectives and purposes collected the data; therefore, it might not be suitable for the current research.
I will also use conclusive research design techniques. Conclusive research is designed to support the decision maker in determining, evaluating, and selecting the best course of act to take in a given situation. There are two research types, namely a descriptive and a causal research.
All research has been done off the internet, as this is currently the most powerful source to gather information concerning companies, published copies, journals, samples, literature and secondary data. Additional research has been done where necessary by using e-book copies off internet websites and online libraries.
Like with most studies, this research had limitations and will offer suggestions for future studies. In order to obtain a more integrated view on business process management, one needs to study the host organisation and top management of the respective supplier companies. Secondly, this study needs to be simulated over time to view if advantages are retained over a period of years.
Describing the observations and the relationships among variables will help me to assess the situation as well as the circumstances under which precise relationships exist. This might be completed and presented in the form of a discussion using secondary data as proof to check the supposition.
In the current globalised and technological world, the relationship between a company and its suppliers should be strong and the number of suppliers preferably be small. In selecting suppliers, and also in seeking criteria for reducing the supplier base, the organisation needs to look for vendors who are able to accept the concept of "co-makership". Typically, today's sophisticated buyer is looking for assurance that the supplier can consistently meet predetermined quality standards. A flexible, highly receptive supply chain is a suitable commercial goal to the corporate buying strategy, so the power of the supply chain will be effectual over suppliers. Though, if the strategies that are too violent in terms of difficult lower prices and shorter lead times, it might make it very hard for suppliers to meet the required standards for labour and excellence for the products. Therefore, expectations and goals should be balanced against each other to become successful.
Companies should engage in supply chain strategies and its implementation using the contemporary techniques like Financial Supply Chain Management, Just-In-Time and Supplier Associations. The supplier base should be chosen and scrutinised in terms of more favourable benefits gained, less risk taken and increased reliability, thus leading to a natural reduction in the size of the supplier base. Relatively, supplier selection should be based on purchase price, cost based information, and centralized purchasing including logistics costs. These selection methods make sure and hearten the competition amongst suppliers. Punishment and return actions may be taken according to performance assessment.
Surprisingly, one of the recommendations of the research is that the company's suppliers drive the company's buyers in terms of management, so if the buyer is lacking management skills the integration of the supply chain will be weak and the lowering cost policies will be unsuccessful. I believe that the approaches in the conceptual development part will provide an effective framework for an efficient supply chain. It is understood that the buying power and the buying practices are the main point to lower costs. Buyers seem to understand the significance of focusing on core competencies and leveraging the skills and capabilities of their suppliers.
This study also infers that the usage of information technology is very important for both company and suppliers, as information technology assures the integration of the supply chain, as long as the partners properly share it. While it extends the level of knowledge it also ensures the accuracy in cost management. Moreover, information technology is a factor in evaluating the supplier value and in due course leveraging capabilities throughout the entire supply chain.