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Introduction To Supply Chain Management Concepts

Info: 5407 words (22 pages) Essay
Published: 1st Jan 2015 in Business

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The word supply chain management was first used by a professional of U.S industry in beginning of 1980’s and till the end of 19th century this theory is unrecognized.

The word supply chain management is coined for the effective management of all the partners and the information disseminated between them. Take an example of Dell computers, Micheal Dell cant built his business just by selling the computers to the customers, but he need to see the complex problems of the customers and solve these problems through just in time manufacturing of the product, then how to minimize the wastage in the production then to evaluate what customers are doing and how they can make their production efficiently (NYT 2010), as the manufacturer cannot sell the product at the higher prices than the competitors are selling but through effective management you can actually reduce the cost, so concisely he need to be a master of supply chain management.

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Before supply chain management there was effective inventory control system exist but due to some pit falls like; no supply chain metrics, inadequate definition of customer service, , organizational barriers, inaccurate delivery status data, simplistic inventory stocking policies, inefficient information systems, ignoring the impact of uncertainties, and an incomplete view of the supply chain (Teigen 1997). There is a need for another system that have all the competences to deal with all these problems, so the supply chain management is evolved which is not only efficient and effective but also have a good collaborative and communication strategies. Then the evolution of supply chain management activities is started and up till now six phases/era for the development of the supply chain management issues have been seen the first era of SCM development is focused on globalization, then the second era was also called as the phase of integration, the third era is the years of creation. After the success full achievement of these three period there come the era of specialization, which have three phases 1 and 2 and SCM2.0 (Movahedi et al., 2009)

2.2.1 Definition of supply chain management

There are many definitions formed for supply chain management as there are many different perspectives for the understanding of the concept from supply chain management, a global perspective says that in SCM the managers incorporate the main business procedure across their supply partners, to enhance customer value and satisfaction among all the stakeholders (Lambert, 2008).

Supply chain management was a quickly emerging, if still problematic, element of business-to-business e-commerce in the late 1990s and early 2000s. (Enclyclopedia of e-commerce 2009)

For the better understanding of the supply chain management, one needs to understand the term management. Management is defined as the planning, control the goal oriented activities and the execution of the plan to achieve the goal. The figure (1) will explain the whole process of the management. And as it has been that these days supply chain is become complicated so a proper management is required.

Figure 1. Management role in supply chain

Source: NEVEM-workgroup (1999)

Statistical data is vital to check the performance of supply chain because in today’s era supply chains cannot be controlled only on the basis of intuition. Today’s supply chains are too complicated to be controlled based on intuition. So it is crucial to have the access of the statistical data.

Supply chain management (SCM) is the management of supply chain is actually the management of equipments, finances, and information and manpower resources by ensuring the two way flow among the different organizations and in the organization itself. Through the effective management of these resources actually they are ensuring that the goods or service delivering efficiently and effectively to the end customers. So in supply chain management the important most factors Synchronized movement of the logistic from the supplier to the manufacturer, then the wholesaler and retailer, until the product reach to the end customer (TSENG,  2001). Through synchronized movement we mean that when the product reach to the distributer and when distributed to the retailer of for the sale, as if there is any delay in the delivery of the products then actually through the efficiency of the supply chain the customer get the product late and may b the product itself is not remain good.

For the service sector like the retail industry, customers are the main focus. So a customer focused definition of supply chain management by Hines (2004:p76) supply chain management is formed through linking the whole system together that will make the chain work efficiently, it also requires the linkage between the whole supply chain, to create customer satisfaction as in the whole process the main target is not only to generate sales but also to deliver the value to the customer. And through the same if the cost of the manufacturing and delivering is lowered then what actually generating the profits for the company, this all will be done through the effective management of the supply chain. Thus it is concluded that along with the demand and supply management the supply chain system must also be responsive to customer requirements.”

2.2.1 Basic elements of supply chain management

There is a difference between the term supply chain and supply chain management, as supply chain is only defines how the process and different partners of the supply chain work. Whereas in the supply chain management it tells us how to they can work effectively and efficiently and what should be the strategy to handle them all, it is about the network of interconnected business (Harland,1996)

The question arises that what’s the need to supply chain management as the process (Stylusinc, 2008), things can be manage and the delivery of good can be done through anyway, supply chain management is not the delivery of the goods alone nor it is the inventory management. Through effective supply chain management managers are actually answering many questions (figure. 2) so the supply chain management’s mainly constitute of the strategy, the planning of the supply chain the how the supply chain enterprise will work, Asset management and procurement process of the supply chain management, then how they will handle the product life cycle and finally the logistic arrangements for the effective supply chain management.(NYT 2011)

Figure 2. Functions of Supply chain management

Source: Awesome Inc. template (2010)

According to the “process modeling pillars” (SCOR 2007) typically it has been seen that there are five basic components of the supply chain; plan, Source, Make, Deliver and Return. So in effective supply chain management in include the pan to buy the product and from where to buy it, then the sources that either it can be brought or they need to make it themselves, then other components include the sale or delivery of the product to the end customer and last that the customer return for the other purchase or evaluate the customers feedback.

So for the supply chain structuring it requires an understanding about the patterns of demand what service level is required, also keep in focus the other consideration like the distance, cost and other related factors. The factors of supply chain are highly volatile because they all depend on market forces. Moreover the interplay of the complex considerations for the analysis of the supply chain analysis is the jest of supply chain management and have significant impact in bearing the outcomes.

According to RCG (1999) supply, inventory, production, transportation and location are the six key elements of supply chain, effective management of these are crucial for success of supply chain management.

Production: Production planning depends on demand of customers in market. It is the foremost step to take in supply chain that what to produce and how much to produce further from where to produce either local or out source. These all decisions are taking by considering quality and quantity of goods to satisfy the consumers’ demands as well as provide them contentment whereas decisions regarding operations supply chain management deals with maintenance and advancements of equipments and machinery further keep pace with the workloads and market demands.

Supply: In the component supply of the supply chain an organization find out whether it is capable enough to produce effectively as well as efficiently while having good quality too. For better production selection of supplier of Raw materials is the core factor. Raw material supplier should be flexible, quality focused while reducing cost or maintaining low cost and time saving also.

It’s hard for an organization to provide low cost, high quality and timely product that’s why in majority cases companies compromise quality on production. One way out is outsourcing, Outsourcing is the best option available for the organizations that cannot keep their production according to the required quality or quantity because of their limited resources. Briefly strong planning is required to make judgments regarding either adopt manufacture or outsource.

Inventory: inventory control is highly required to save cost as well as extra loss of inventory. a proper balance is to be retain because more than needed inventory will result is loss of obsolesces and other wear and tear further cost for maintaining it is a separate expense conversely shortage of inventory will incur stock out cost and may sometime lead organization to bear loss of customers hence it is crucial issue in supply chain management. Appropriate controlling methods and monitoring policies are used to keep the inventory according to the market demand. These operational assessments not only help the company to hold the right level of inventories but also stay their customer satisfy and please.

Location: Every product, even it has demand, considered necessary to be placed at the right place means the place of the target market of a particular commodity. Choice of distribution, placement and facilities relating stock maintaining is the main strategies of the component location in supply chain management.

Transportation: Planning regarding transportation depends upon the planning of stocking and the deadlines for fulfilling consumers demands. Good transport system that makes required delivery on time helps any organization to retain its customers as well as its name in market thus transportation also necessary for a better performance of supply chain.

Information: Information means the views of customers or the feedback of market, this information necessitate to be circulated in the organization specially among those who regarded as key management in organization to make the product worthwhile and keep the consumers content. Therefore, flow of proper information via good communication either personal or virtual makes the supply chain keep on working and improving.

Today is the world of e-commerce and all supply chain managements is done through softwares like account management software, product configurations systems, enterprise resource planning system and softwares and even for the global communication the softwares are there to effective supply chain managements. But as always the more the facilities the tougher the competition become. So the supply chain management can take many forms, the most basic route is the coordination between the data base of the supply throughout the world through extranet, there are many known brands that work specialized software designing for SCM.

2.3 Basic components relating supply chain management

The components of supply chain describe step by step the journey of a product from manufacturers or producers to the end customers. Firstly a product need demand or order to develop after acquiring order for a product it goes into production then process of keeping it save then way to distributers for customers. Satisfaction of customer is always supreme. As explain in figure. 3 there is a process of conversion and then exchange, product is first converted from raw material to the finished good and then it is exchanged between distributors, retailers and finally end consumer.

Figure. 3 Product cycle from conversion to exchange

Supply chain involves taking orders then processing it afterwards other services cargo, price, arrangement of inventories and customer contentment but all these needs an information service network to make successful the chain of supply.

Moreover for achievement of a better supply chain the speed is very vital in each step because speed gains more customers satisfaction. Further benefits in supply chain can avail through proper decision making regarding cost, product availability and quality of the product. These decisions are taken considering long term conditions as well as short term situation.

Decisions are based on planning that is Strategic planning regarding corporate policies, structure of supply chain and whole design then decisions relating to operations means everyday activity and problems of an organization. However operational decisions are taken after strategic decisions therefore only long term examination is not enough day to day activities also need to focus on at the same time.

Therefore keeping in mind all the components of supply chain management and effectively evaluate all the components and then finally to see that which component effecting whom (figure. 4) like the main components of supply chain management is strategy formation, logistic control, procurements of the raw material, information management, supply chain planning and finally the most important is asset management however the effect of all these components will be directly on supplier then manufacturer, then product move to warehouse then the stores and finally the customers. Therefore the supply chains managers should alert enough to check that at all the stages of supply, manufacture and warehouse all the components of the supply chain management are fulfilled and no way at any stage the things are diverted from their strategy.

Figure 4. main components of supply chain management

These days supply chain management is broadly classified to the few other segments like the basics or the framework on which the supply chain managements strategy is build on, other main component of the supply chain managements, is the integration how different partners of the supply chain is integrated and how effectively and efficiently the partners collaborate with each other, these days a new important component added in the supply chain management is the software, how to use the software and what kind of software is suitable for the company’s effective supply chain management and how to obtained or designed that.

The basic purpose for the effective supply chain management is to ensure that the whole process will done effectively and efficient. For the better understanding of the management of supply chain is to understand the concept of efficiency and effectiveness

Efficiency: Efficiency can be simply explained as that time and effort that is consume for attaining the proposed job or function, efficiency of the product or thing can be transformed in to the quantitative standards, as the input to output ratio was 9:4 then when efficiency implemented then the ratio become 6: input to output ratio was 9:4 then when efficiency implemented then the ratio become 6:4

Effectiveness: Effectiveness means the capability of producing an effect, and is commonly used to describe the capability of creating a particular, wanted result. it is only measure in qualitative descriptions.

Thus the product form keeping all the components and all the quality standards in mind will actually deliver the value and the standards of the company. So for the maintenance of the company own standards and strategies, more companies are now involve in supply chain management, there is also seen that these days less control or managerial scrutinization is exercised over the logistic operations (ismall-business, 2007)

The idea of supply chain management was created as a result of increase in competition between the suppliers, (Xiaohong and Liu Da, 2007) as it has been seen that these days more companies involve in production and for almost all the products the markets become competitive. As it has been seen that there are many components of supply chain management but all the components work on two basic things; the degree of trust between each other (the members of supply chain) and the collaboration between the partners. As effective supply chain management not only gave the visibility to the company and its inventory but also at the same time improve the velocity of inventory.

As it has been discussed earlier that the effective supply chain management have five(5) components; Planning, sourcing, making, delivering, and returning (Oppenheimer, 2011)

The Plan: that defines the strategy of the SCM including the methods for the monitoring and control and feedback is designed in this category

The Source: this component refers to the supplier who will provide the goods and services necessary for the running of the business.

The Make: or manufacturing, refers to the execution of the process that is required to test after the development of the product, then the package the product or service.

The Delivery: after the product or service is make sourced and planned there come a important most channel, the delivery of the product to the end customer, this phase include the receiving of the orders, then develop a network for the warehouse, distributors and retailers, how to give the payment and receiving and giving the invoices.

The Return: Those include the feedback and the repetitive purchase. Or if the company has some claim cell then how to give the customers support.

Companies require an effective in terms of cost as well as efficient plan that its customer also value and that make available good quality products and services and that all is delivered through the effective supply chain management. Making the product involves not only production and packaging but also need to be test and proper store. After production the step of delivery seems very easy however finding a trustworthy supply for delivering goods is itself a challenge moreover train the carriers for safety, invoice making, defective product provisions all comes under the head of delivery which is also a big task in the supply chain management.

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2.3.1 Levels of supply chain management

Organization have different ways to make their product visible and there are numerous route for the delivery of a commodity from seller to the customer (oracle.com, 2011), that is not only depend on the type of business but also on the industry the company belong with. Therefore there are three basic levels for the effective decision of supply chain management; the operational level, the tactical level and the strategically level. As demonstrated in figure. 5 each level have its own importance for the decision making and strategy formation.

Figure 5. Levels of supply chain management

Source: Teigen (1997)

This model of Supply chain management is proposed by a forum called as the Global Supply Chain Forum (GSCF). Supply chain activities can be grouped into three levels operational, strategic and tactical levels. There is a great importance of every level for the supply chain management, like the strategic activities involve optimization through networking, which can include the size, location and number of distribution centre and warehouse and other, facilities where the production will take place. This means that at the strategic level long term decisions will be made by addressing the partnership issues between the supplier, customers and distributors by developing strong communication channel. Also the dissemination of the information will take place at this level.

The tactical level is the medium level for the decision making; most of the managerial level decisions are taken place through them. Along with that at the tactical level, the information dissemination takes place between the strategic level and the operational level. Then it comes the operational level that include day to day activities of the supply chain that mostly include the staff that directly contact with the customers and distributors so the effective working and planning at this level is far more important.

All the levels of strategic management have its own importance as if at the top most level the planning will be done nicely and all the information and communication id transferred properly, then at the second level short term or medium term plannings and working will be done as the flow of information will be from top to down and down to top. So these two levels are ultimately affecting the last level of the decision making and this all make the supply chain effective. As the supply chain management is not only for the market demands, customer service and transport considerations but also for the pricing constraints. So these all things are only handled effectively when all the levels of the supply chain management work in good collaboration. And the proper structure of the supply chain management is work with proper structure in supply chain.

2.4 Theories of supply chain management

The theoretical areas of Supply Chain Management (SCM) are mostly based on the theoretical framework provided by organizational theories; many authors urge that the concept of SCM is mostly originated from the organizational structure and functions, that include the knowledge base view (KBV), Strategic Choice Theory (SCT), Materials Logistics Management (MLM), Resource-Based View (RBV), just in time (JIT), Agile Manufacturing, Systems Theory (ST), Transaction Cost Analysis (TCA), total quality management (TQM), material requirements planning (MRP), Quick Response Manufacturing (QRM), Agency Theory (AT), Time Based Competition (TBC), Network Perspective (NP), Institutional theory (InT), customer relationship management (CRM), table of constraints (TOC) etc, (Halldorsson, et al., 2003 , Ketchen and Hult 2006 and Lavassani, et al., 2009) however literature also suggest that there is some gap between the literature and the practical approach that is available in context of supply chain management students, and there no general theory that can define the boundaries of supply chain management along with the boundaries of SCM issues.

Merely some other famous theories in relation to quality testing in logistic arrangements that can define the supply chain management are third (3rd) party logistic, quality function deployment (Akao), BPR, business process reengineering, and many more. There are many models been disclosed and proposed for the better understanding of the activities from the producer to the end consumer and how the material move from the functional and organizational boundaries of the organization. SCOR (Supply Chain Operations Reference-model) is a famous supply chain management model, that is approved and accepted by supply chain council and they promote this model for the effective supply chain management. There is another model CSCMP (Council of Supply Chain Management Professional) that is adapted by The American Productivity & Quality Center (APQC), through which the process classification of the high level industry process and the enterprise models are being managed, APQC also allows corporations and organization to develop their own view points according to their business process, through which the SCM process is not only customized but also effective. But there is no theory comprehensive enough to define the quality aspects for the supply chain management.

Theories are many but the jest of all the theories is hidden in a statement the logistic of the supply chain management is to deliver the right product at right time with the right quantity at the right place (or at the right moments as for minimal costing) the figure (6) below explains the four main basic areas of concerned in supply chain management

Figure 6. Basic areas of SCM


Source: NEVEM-workgroup (1989)

2.4 factors affecting supply chain management

The success of supply chain depends on strong commitment, high trust among partners and proper flow of information between the partners (Shermen 1992). According to a research one-third of the supply coalition are failed due to lack of faith between trading allies. Since sharing of knowledge require much insight information to be in open which is impossible without building trust as there is danger of competition as well as loss to the internal operations of company (Bowersox et al. 2000). Relationships in supply chain is heavily build on trust and the risk of competitors (Londe 2002) as if the information is shared with the wrong person then it will result in high risk for the company similarly if the information is not shared with the trust ones then prosperity of company is in danger (Sherman 1992) thus faith is thought to be a basis for a great partnership (Spekman 1988) because it’s the only commitment and the faith that make the company efficient and effective both (Morgan and Hunt 1994). A few studies emphasize that if there is a good foundation of belief between the allies then they can easily create barriers for the opportunists or the new entrants in the market (Ellram and Cooper 1990; Gardner and Cooper 1988)    

There was a paper written on “Factors Affecting Efficient Supply Chain Operational Performance of High and Low Technology Companies in Thailand” (Tippayawong – 2010)This article is actually about the differences between two groups of companies which are dissimilar to each other in terms of technology influence on their supply chain operational acts and the potential features that makes the supply efficient. The research is based on 407 contributors of manufacturing sector of Thailand who examine themselves the usage of SCM logistics scoreboard(LSC). The main attention of LSC is on four crucial area that are corporate and inter-organization alignment, planning and execution capability, logistics performance and IT implementation and management. Basically LSC score is a comparison to recognize powers and limitations, that comparisons is between companies one have high degree of technology where other is not much advanced.

2.4.1 issues in supply chain management

Every operation has issues that is why these need to be handled and educed in order to make the operation better working similarly in supply chain there are issues too, major issues that affecting a supply chain are cost containment, supply chain visibility, risk management, increasing customer demands, globalization. As per (figure. 7) the factor supply chain visibility has a great impact that is 70% second major challenge is risk management that is 60% where as cost containment and increasingly customer demands effects 55 % and the lowest degree of issue is globalization is 43%.

Figure.7 five major factors affecting the supply chain management

Source : AMR (2011)

Before going in to the issues of the supply chain mangement it is important to understand that what are the key questions that the managers should answer before designing the strategy for the effective supply chain management, below in fgure (8) are given the different strategies, constraints, training and issues that are together define the ojbjective of the firm and then these all together form a strategy(Yu, 2006) and this strategy will design the supply chain management.

Figure 8. factors forming the strategy of the organization

Source: Yu, 2006

Supply chain management is perceived as a management of process from taking in the raw materials till giving out the finished products, in the whole process the thing that is needed over the years as the companies getting more independent, flexible and doing outsourcing is the criteria of doing job at reasonable cost (exforsys.com 2011)

2.5 fast food retail industry of UK

Construction of a better supply chain management system is not only required for progress but it is also a defensive act due to high demand in the mid of 2000 e-commerce predicted to touch $6.8trillionand such a big demand cannot be fulfilled by the existing supply chain management. This increased demand is a great opportunity but more it is a challenge because to meet the demand corporations need to advance their internal as well external systems all over.

Evidence as per early 2000 shows that heave in e-commerce is due the existing supply chains. Companies were competent enough to fulfill the demands but the e-commerce force the companies for managed and refined supply chains. Where e-commerce brings convenience for customers it also brings pressure and hard time for corporations to satisfy customers demand on time. (Encyclopedia of commerce 2011)

2.6 Supply chain management of Fast food retail industry of UK

This era is the era of globalization, when the firm has huge impact over each other this impact created a greater competition among different business process, so the supply chain management is one of the important processes for the firms, as for the global networking the corporations have to manage their supplies effectively. Specially for the service sector and retail industry of a developing country like UK where almost all the big retail brands are global and there is intense competition between all in terms of customer satisfaction and sales targets as the prices of almost all the brands are competitive with other brands the only thing they are competing these days is on business process.

A lot of changes are seen in the business in terms of procurement, production and distribution. As the organization these days become more and more focused to get different competencies where they can edge on their competitors in terms of effectiveness and efficiency as these days the main focus is not to satisfy the existing customer but also to attract the new ones. As the matter of fact alike from past there are many outsourcing companies and facilities available for the companies to outsource their less competitive areas and get more focused on the competitive ones or not.

As in the retail sector like UK the outsourcing of different function is very common, so the importance of supply chain management is increasing day by day to see that all the partners are working effectively and efficiently and the flow of information is smooth between the partners, and thus ensure the smooth work flow (Karthik Deepak, 2011)

For the retail industry it is very important to see that at all the levels the supply chain function will remain effective, as for the service sector the most important sector is the market component of the supply chain management s shown in figure (9) below that the supply chain is divided in three major components, the designing of the Supply chain then see the operation part of it and finally design the market components of it, like from where the customer get it and how they will use it, where the product should be placed and what are the point of sales, how and when the distributors will deliver can customer get the product from retail only or can have it through the distributors as well. So the strategies for all is important to design when it is about the fast food industry of a developed country like UK

Figure 9. Division of supply chain management process

It has been seen that supply chain management is never a integrated part of the strategy in past, but since the outsourcing


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