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The aim of this report is to analysis on how to sustain the current production and operational effectiveness and the ways to improve the manufacturing operational efficiencies, effectiveness and productivity of the plant within the next year (Course Profile 2010). There are too many suppliers to the plant and it has caused major problems in terms of delivery, quality of product and raw materials, productions scheduling and customer satisfaction.
This report will analyze supply chain management which would be use to evaluate the efficiency and effectiveness of the operational management. Besides that, this report will also measure the effectiveness of performance management by achieving their desired able result. This report will discuss about the future of supply chain management which will influence the plant operations and the recommendation which can be made to further improve the supply chain in the operations of the company.
Let's first examine what, exactly, is meant by supply chain management. Supply chain management is defined as an improvement a company makes in obtaining raw materials required to manufacture a product or develop a service, then deliver it to customers (Wailgum 2010). This involves everything from finding the right materials at the right price, to ensuring those materials are delivered in the right quantities, in a timely fashion, to finishing the product or service and ensuring it reaches the market in a form, and by the deadline, to satisfy the customer.
There are three basic principle elements of supply chain management (Power 2005):
Managing the information and financial flows
Manage the relationship between chains
SUPPLY CHAIN MANAGEMENT
Supply chain management is describe as a combination of firms that bring services and products to market (Lambert et al 1998).Very few companies have similar supply chain strategies. Individual companies will have different supply chain strategies determined by a large number of factors including company structure, customer requirements, available technology and complexity of product, lead time and costs.
Over the years, supply chain management (SCM) has developed into a very important business strategy for the manufacturing company in order to have the competitive advantage over their counter-part. The impact of supply chain management in the industry has increase dramatically with the help of Internet, improvement in logistics business, much more control in the inventory management, relation management between buyers and suppliers and also meeting customer satisfaction.
Objective of Supply Chain
The productions and operations management function have always been essential to the activities in a manufacturing plant. Two of the most important activities which been discussing in many plant are the:
Slower increases in productivity within the manufacturing sectors
Consequent loss of competitiveness in world markets
These activities have stressed the importance of manufacturing and operations in order to be successful in the business. The company must constantly strive for improvement in its supply chain. As an operational manager, having effective business strategy is important in order for the company to have proper operational business and also provide ideas to improve so that the company can compete in the industry. Besides that, the company needs to have a good relationship with the supplier because they are the one who provide the raw materials. In order to build those relations, proper strategies need to be implemented.
Importance of SCM
How important is the supply chain? A couple of years ago, supply chain risk were one of the most important issues for businesses and profits, with the fear that any disruption to the supply chain could have a direct impact on profits (Stern 2008).
A supply chain is a connection of services and supply options for the entire network of different type of business to work together to deliver, design, produce and service products (Sousa 2003). As Power (2005) stated, the shift of power from the manufacture to the customer, user-friendly technology, internet and economic deregulation leading to hard competition are just some of the advantageous in living in this century.
Plant effectiveness can depends on many things - appropriate delegation, flow charts and timelines are just a few factors (McCabe 2010). McCabe (2010) also stated that another factor in efficiency and effectiveness is proper supply chain management. Poor supply chain management can cause a plant problems ranging from delays in manufacturing to decrease in the quality of products. Supply chain management inefficiencies can be costly, not to mention frustrating.
In facing an increasingly competitive and changeable environment, the company requires the proper strategies to face the challenge. Some of the strategies are by:
Managing their organizational resources
Maintaining industrial relationships with the other business.
Reorganizing their supply chain management strategy.
Supply chain management is an importance strategy in managing customer and supplier relationship. With the success of managing these relationships; the company can become more competitive while still provide quality product to the customer (Sousa 2003). Having a good relationship with the supplier will increases the product efficiency and quality and it will result with customer satisfaction because at the end of the day, the product will be used by the customer. Using an effective communication between people in the value chain, the relationship will be established.
Manufacturing plant nowadays has avoided obtaining all of their inputs from a single source of supply unless no other supply sources existed (Quayle 1999). Maintaining two or more sources for items having identical descriptions has been normal for the business. Quayle (1999) concluded that the best purchasing strategy was:
Combination of competitive (multiple sourcing)
Co-operative (single sourcing) strategies.
However the attitudes toward these strategies are changing as described Quayle (1999), the impacts of various purchasing strategies are designed to promote competition and not the opposite. According to a report by PR Newswire (2008), all the group of suppliers shares the same end result which is to meet customer's requirements for delivery, quality, responsiveness and flexibility.
According to Das and Tyagi (1999), the strategy of concentrating most purchases in single supplier has long been downgraded by procurement specialists. The opposite multiple sourcing is acknowledged to increase complexity. Splitting purchases between suppliers, giving more than enough order quantity to a second source and is often recommended in order to avoid the error of single-sourcing.
In the context of buyer-supplier relations, single-sourcing may yield its principal benefits in reducing administrative complexity and becoming a more important customer, thereby being able to negotiate better prices and to obtain better service and more access to the supplier's market information (Das & Tyagi 1999).
Suppliers Performance Management
Supply chain management started in the early 1980s and been describe as range of activities coordinate by an organization to procure and manage supplies (Oliver & Webber 1982). It came to a widespread use in the 1990s because previously the business used terms such as logistics and operation management instead (Hugos 2003).A major dimension of a supplier is its level of performance. According to Quayle (1999), buyers hold expectations and therefore make demands of their suppliers across a broad range of dimensions. Some of the examples are:
Offering favorable prices and terms of trade,
Making prompt deliveries,
Assuring quality control
Providing marketing support.
Buyers who see their suppliers meeting more of these demands will consistently rate the supplier as offering superior performance, a highly desirable characteristic and superior performance because the buyers will develop a preference for such suppliers. Quayle (1999) found that the better the supplier's performance in the judgment of the buyer the more the buyer will increase purchases from that supplier.
Based on Chopra and Meindl (2001) studies, the supply chain processes can be categorize into three methods:
Customer Relations Management (CRM) - These processes focus on the interaction between the company and their customers.
Internal Supply Chain Management (ISCM) - Process that happen within the firm.
Supplier Relationship Management (SRM) - Processes that focus on the interaction between the company and its suppliers.
It means that, in order to be success in the supply chain business, combination between the three methods is required. By having the three methods, the company will have a good record of the performance of all the clients and the feedback from the customer.
Supply Chain Process
In order to generate income in a supply chain business, there's a list of course needs to be taken. The flows required in order to gain profit are (Chopra & Meindl 2001):
Information - The update status of the order transaction and delivery
Product - Delivery of goods or services from the supplier to the customer
Funds - Transaction arrangements.
These flows will provide the income needed in the supply chain business. By having the effective supply chain and using these flow correctly, will give the advantage to the plant. By combining those flows of information, product and funds will capitalize on the plant profitability.
There are a lot of models that have been developed to show the business processes as a whole. The presence of standard processes within an organization will assists them in order to optimize the product flow (Lambert 2008). In his research, Lambert (2008) stated that the supply chain management processes as:
Customer relationship management
Customer service management
Manufacturing flow management
Supplier relationship management
Product development and commercialization
These processes will be running by a team that specialized in each task and the team is responsible for developing the methods which will be used in day-to-day activities within the supply chain (Lambert 2008).
Supply Chain Activities
Suitable activities were an important part for the success of supply chain management. Some of the recommended activities are (Chopra & Meindl 2001):
Sharing information between the chains,
Sharing risk and rewards,
Cooperation between chains,
Similar end results which is customer satisfaction,
Maintaining long term relationship.
Bahl (1989) stated in his research that the design of information and decision systems for allocating resources and scheduling activities is very importance. Some of the things that are required are (Bahl 1989):
Material and resource
Manufacturing control systems
Besides that, one of the activities that need to be manages is the inventory management. Some manufacturing plant makes their inventory as an investment. The reason for that is because it can create income that could be used for other purposes and they may have to borrow money to finance the inventory investment (Chase et al 2006).
OPERATIONS IN SUPPLY CHAIN
A supply chain consists of many phase either direct or indirectly involved in satisfying the customer request. The supply chain consists not only with the manufacturers and suppliers, but also logistics, warehouses, retailers, and customers themselves (Chopra & Meindl 2001).
Here are some of the problems which are faced by the operations manager in supply chain management:
Inability to meet customer satisfaction.
Not enough communication between businesses and suppliers.
Management in the inventory control.
Too many suppliers in the value chain.
A warehouse is a storage facility which can be describe as a place for products to be stored. A warehouse can be attached either to the main plant, the distributor or even to the retailer. It also can be used to stored in-process inventories, raw-material inventories and also finished product inventories. By having a large warehouse, the status of the inventory needs to be managed. In order to do that, the company needs to have a reliable inventory control system. Inventory control is a very important component of the supply chain management in any organization especially in the manufacturing industries. Inventory control concerned with the way on how to minimize the total cost of inventory.
With the current challenging industry, the plant should have a proper inventory control. With the new technologies, the use of inventory control system would be the most ideal way to improve and update the status of the inventory without the needs to use the manual way on dealing with the update task.
Even when the plant has a good management, there are still issues with the process. The three main issues in inventory control decision-making process are (Vitasek et al 2005):
The cost of holding the supply
The cost of order transactions
The cost when there's shortage of supplies.
Inventory control is not just a resources issue. Some of the problems which contribute to the problems with the inventory process and records are (Vitasek et al 2005):
Vitasek et al (2005) discuss that if any of the problems mentioned arises, it will contribute to shipment delays, production stoppages, purchasing the wrong items and also having too much stock in the inventory. Inventory control and inventory management must be combined in order for the plant to meet the demand of the market and also to help the company's future strategy. Lack of stock inventory, not enough staff and poor relationships with the supplier can all contribute to declining of customer service.
Constant planning and forecasting the future market and the demand of the customers will make managing the inventory becomes very difficult (Vitasek et al 2005). The storing of completed product that is not in demand by the customer will be costly for the company. The needs of staff for the company will also changes along with the customer demand which cause the bullwhip effect (Lee et al 1997). Lee et al (1997) stated, the bullwhip effect occurred when increasing of demand in the market as they moved up the supply chain. Lee et al (1997) continued, in result of the bullwhip effect, it will creates many financial error for the company.
The traditional view of a buyer and supplier relationship was adversarial where each party attempted to cut costs or maximize profit from each other (Christopher 2005). One emerging style is for companies to work together to improve profit for everyone involved in the value chain. This requires an efficient means of communication in order to be successful.
Communication is a vital part of any logistics or Supply Chain strategy, without timely and accurate information flow, a company has little chance of planning or managing any of its transactions or delivery. Many businesses are finding that logistics costs account for a large percentage of total costs so significant savings may be made. The management of the company needs to buy into the processes of supply chain management and ensure that every organization plays its part.
In order to make sure that the logistics management used within a business is effective it is important to employ measurable standards or performance indicators. These standards should be either qualitative, quantitative, or both. Staff should be able to easily access the data collected and be able to ascertain whether the transactions is effective and if necessary they can spot the areas where improvement is required.
Some researchers have stressed the importance of sharing information within the supply chain (Lambert & Cooper 2000). They (2000) stated that there is no doubt that the importance of the supply chain and information technology such as the using of internet applications for their business transactions can lessen down the company expenditure.
It was also found that the use of the internet in SCM is rapidly increasing (Lancioni, Smith, & Oliva 2000). They (2000) claimed that internet will continue to provide manufacturing managers with important information and enable them to improve the profitability of the supply chain.
The primary role of internet in SCM is by creating the information link between different department in the value chain which will provide smoother and faster transactions or services (Phillips & Baltzan 2009). In addition, the most typical role of internet in SCM is by reducing the friction in transactions between supply chain partners through cost-effective information flow (Cross 2000).
Future of SCM
In facing an increasingly competitive and changeable environment, the company requires constantly managing their organizational resources as well as tightening their industrial relationships so as to maintain competitive advantages. More specifically, the company requires reorganizing their supply chain management strategy to go with the external environments by integrating the organizational resources, information, and activities. However, it may encounter many difficulties as it involves numerous organizational functions and resources integration among various departments.
Jamison and Murdoch (2004) discuss that the future challenges for the manufacturer company who will engage in the supply chain management include:
Aligning commercial and ethical agendas by examining purchasing practices.
Building suppliers' capacity to manage the issues for themselves.
Engaging with local governments and organizations to widen the impact of activities.
The enormous number of different factors that need to be studied and assessed increases the probability that what works for one will not work for another. The common goal of all strategies is to be the most efficient it can be in terms of cost, reliability, responsiveness or customer satisfaction.
As argued by Christopher (2005), "While the phrase supply chain management is now widely used, it should really be named demand chain management because of the fact that the chain should be determined by the market and not the suppliers". Equally the word "chain" itself should be replaced by "network" since there will normally be multiple suppliers and, indeed, suppliers to suppliers as well as multiple customers and customers' customers to be included in the total system" (Christopher 2005).
ISSUES WITH SCM
In this report, the operational manager has to take on the role of a plant that has been struggling in areas such as delivery levels, product quality and scheduling which, in turn, has led to a decrease in customer satisfaction. One possible reason for the issue is because there are too many suppliers to the plant. The question we need to ask ourselves here is how the operations manager can streamline the suppliers, improve the product quality and production capacity and ultimately, customer satisfaction.
Almost all of the problems being discuss earlier points to one issue concerning proper supply chain management; that being technology (Puschmann & Alt 2005). They (2005) stated that the most common technology used in SCM is through an enterprise resource planning system (ERP), which can help streamline activities along the chain
But how does one manage a supply chain when the issue is that of too many suppliers? It would be tempting to simply suggest that the manufacture cut away its suppliers, but this isn't always possible. Platt and Platt (2009) remind us that certain manufactures, such as those in the automotive industries, use just-in-time logistics, meaning cutting of any supplier could bring a disruption to the supply chain. If one supplier is unable to deliver a particular component or material, another can step in to help out (Platt & Platt 2009). Other researchers point out those sometimes long-term relationships on the human level can have a bearing on supply chain management (Dani et al 2006).
Dixon (2007), however said that the belief of narrowing the supplier base is probably the most effective way to help streamline the supply chain and its processes. The reason, he points out, is because it's easier to take advantage of opportunities and to deal with problems if a company is able to work with fewer, but better-qualified, suppliers (Dixon et al 2007). But doing this shouldn't be done the easy way, that if a supplier base is to be narrowed, he points out, it's important to help the suppliers remaining to develop the right capabilities so they can better supply the buyer with what the buyer needs (Dixon 2007). This may involve offering tools such as technical support, training and even mentoring which is better on a narrower base of suppliers (Dixon 2007).
Modern businesses are dynamic in nature and in order to stay in the industry, the plant has to optimize their business processes by having an understanding to the speedy changes of the environment (Banavar et al 2005).
The challenge which will be faced by the companies in the future is to get the trust of their suppliers and customers. In order for the manufacturer to face those challenges, they must develop a good supply chain management programs that work towards making the real improvements to the life of the people in the supply chain (Jamison & Murdoch 2004).
With all the discussion been done earlier, the following are recommendations for the plant in terms of dealing with its suppliers to streamline its processes (McCabe 2010).
Examine the supplier base to see where redundancies are occurring. If two suppliers are handling essentially the same thing, it might be a good idea to cut one of the suppliers out. But don't make the cuts based on cost. Rather, examine the entire value proposition. For example, one supplier may be slightly higher than the other, but also makes up for it by paying for shipments and in an ability to turn orders around more quickly.
Determine which suppliers are more capable of taking on more responsibility. One key to streamlining suppliers who can do more and with less cost. The suppliers that can offer more with costing less are the ones that should be kept on and provided with more responsibility.
Be prepared to train, mentor and encourage. Many times, providing a supplier with more responsibilities involves additional resources in the area of helping that supplier upgrade to the point where the buyer is satisfied with what is going on. The buyer that is more willing to interact with its supplier in this way is the buyer who will have efficient suppliers.
Invest in the right type of technology. After conducting a needs assessment, this particular plant should acquire the right type of supply chain management system to help increase efficiencies and to keep an eye on the overall supply chain. This is not a short-term process, however - selection and implementation of an enterprise resource planning system is time-consuming and requires a great deal of analysis.
In short, streamlining the supply base in this scenario involves more than cutting off the most expensive suppliers. The operational manager needs to conduct a careful analysis on where the value in the chain is located and then make decisions based on that analysis.
Most managers recognize the advantages of developing a close working relationship with a limited number of suppliers instead of purposely maintaining a large supplier base so that suppliers can discuss their problems against each other to obtain the best terms. This recognition typically results in a movement to reduce the supplier base. With a few suppliers, administrative complexity and order fragmentation may be kept within acceptable bounds.
These strategies will allow the supply chain to share the same information in an effort to have all members of the chain to achieve the same results. It will also show the importance of the business rather than only on the end product and meet the customer satisfaction as the customers will always looking for complete solutions.
There is no end for supply chain problems, companies must determine and understand all the factors applicable to their business model and plan the strategy accordingly. The supply chain management model cuts across organizational boundaries and it is essential to the survival and competitive advantage of the organization.
While it's good to have a proper operations management within the internal part of the company, it is the external operations which need careful planning because that's where SCM do all the works. If the company ignoring the other people in the chains, it will affect their business transactions, delivery and manufacturing of products and worst, the company will lose their customer. With proper strategy and management skills, the supplier can have an effective and efficient ways in dealing with each other so that there will not be major problems in delivery time or quality of the product.
Finally, a strong supply chain is a systematic process for delivering goods and services when and where needed in a condition that will cause customer satisfaction. The challenge is to create the vision that will set the ultimate objective for supply chain strategy. Visionary is about sight and creating is about developing.
The vision must be translated into policies, procedures and practices, and then reinforced with training and documentation as well as data tracking. The proverb says, "Without vision, the people perish" (Burkett 2008). It shown that the business operations need suitable strategies to optimize their production and operational line effective and efficiently in order to get the profit they desired.
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Accessed on 27th September 2010 from http://www.cio.com/article/40940/Supply_Chain_Management_Definition_and_Solutions