Study into Parameters of Cost Competent Supply Chain

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.


The purpose of this study is to identify some critical parameters of cost competence supply chain. Supply chain management involves dealing with a whole range of control parameters and a large numbers of key performance indicators. This paper reports on a study for understanding the impact of control parameters for a cost effectiveness supply chain. The understanding is used to identify the potential operating ranges that balance the desired performance objectives. In today's business climate has rapidly changed and has become more competitive as ever in nature. Businesses now not only need to operate at a lower cost to compete, it must also develop its own core competencies to distinguish itself from competitors and stand out in the market.

Design/ Methodology/ approach-

The universe of this study is the cosmopolitan city of Karachi. The study was based on primary source of data for this purpose survey method was used by closed ended Questionnaire. In Measurement Scale we used 5-Likert Scales as a tool for data collection & the sample Nature was chosen on Convenient Sampling.

Research limitation-----

The study had certain limitations and those limitations included time and resources constraints which limited our research to only city of Karachi.


The importance of supply chain management in business world is playing vital role in production to finish goods stage. Supply chain management covers materials procurement, their conversion into finished products and the distribution of these products to consumers. The facilities a business sets up for attending to these tasks and the related decisions it makes can determine whether the business is competitive or otherwise.

The second most important thing is inventory management system and those costs that are directly related with inventory like, Production cost, Transportation, and Location. These are all costs combine effect on cost effectiveness. Many manufacturing business are taking advantage from SCM, they are creating strategies to cover up all aspects of today's business. Supply chain management creates betterment in production chain which is leads to end user customer. Many suppliers are very conscious about their inventory which are stock in their warehouses because inventory has its own cost.

Keywords--- Cost effectiveness, Inventory management, competitive, procurement



In today's dynamic business world the importance of an efficient supply chain is critical. Competition has increased and customers have learned to expect more value from their products and services. To provide more value to customers while continuing to profit in a difficult economy companies are forced to find value throughout their supply chain. This study focuses on identifying some critical parameters that helps to implement the appropriate cost effectiveness supply chain. Along with the global marketplace arrives extraordinary competition. In addition, the slow economy has heightened the competition. Even with a possible expansion in the near future, companies will need to continue cost cutting and improving their operations to remain competitive. To be successful in such a difficult environment companies are being forced to find value throughout their supply chain.

In today's competitive markets, companies strive for any advantage they can get over their competitors. This has been recognized by a number of companies that supply chain excellence is an opportunity to create such an advantage. A superior supply chain includes, on time delivery, lower cost products and manufacturing flexibility as compare to their competitor.

Supply chain management has the vital part of inventory. Inventory velocity turns assets into profits. The faster inventory turns, the greater the profitability. Inventory is the key issue to supply chain management success. Customers demand that their orders be shipped complete, accurate and on-time. That means having the right inventory at the right place at the right time. Inventory management is the Gordian Knot of supply chain management. No one knows how to untie it, and it cannot be cut. The inventory quandary applies to all inventories-finished goods, raw materials, parts and components, MRO and work-in-process. It includes new products and existing products. It covers all types of businesses-manufacturers, distributors, wholesalers, retailers and others in about every industry.

Problem Statement

The purpose of the study is found out the critical parameters which are involved in supply chain management. In order to consistence study we found out the cost effective elements which shows the important roles.

To evaluate the critical aspects in supply chain management

To evaluate the utilization of production cost in proper manner

To evaluate the transportation facility fulfill the JIT process

To assess the location of production and stock sourcing points

To evaluate the stock and safety cost determination


The purpose of this study is to find the relationship between the deterministic parameters of supply chain on the cost effectiveness of supply chain. Or the impact of some critical parameters on the supply chain cost effectiveness.




Management of material and information flow in a supply chain to provide the highest degree of customer satisfaction at the lowest possible cost. SCM requires commitment of supply chain partners to work closely to coordinate order generation, order taking, and order fulfillment thus, creating an 'extended enterprise' spreading far beyond the producer's location. (Business Dictionary)


This paper reports on a study for understanding the impact of control parameters for a cost effectiveness supply chain. The understanding is used to identify the potential operating ranges that balance the desired performance objectives. In today's business climate has rapidly changed and has become more competitive as ever in nature. Businesses now not only need to operate at a lower cost to compete, it must also develop its own core competencies to distinguish itself from competitors and stand out in the market.



The Council of Supply Chain Management Professionals (CSCMP) is the most well-known organization regarding Supply Chain Management. CSCMP was originally founded as the National Council of Physical Distribution Management (NCPDM) in January 1963. In 1985, recognizing the growing field of logistics, the association's focus broadened as it changed its name to the Council of Logistics Management (CLM). It stayed that way until 2004 when CLM's Executive Committee voted to become CSCMP, effective in 2005.

Supply chain is the reality which has a long and the important history, either in a form of bartering or in the form of exchange of goods that would be an example of supply chain in the simplest form. The simple model for the supply chain was developed in the medieval communities and economies which were typically operated in the localized market place apparently much of the systems, structures the processes today's supply chain were in existence already (Brindley, 2004). (Mentzer,J. T., Stank, T. P. & Esper, T. L., 2008) describes that "Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, demand creation and fulfillment, and all Logistics Management activities. Thus, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence; supply chain management integrates supply and demand management within and across companies." (Hofman, 2008) Explains that how, where and when reliable value throughout the entire supply chain including flows of material, intellectual property and money in a global context can be created.

(Womack, 2003) Discusses that the operational excellence of a firm has been demanded with the increased responsibilities of supply chain and more complex process are required for supply chain risk analysis than ever before. This includes lean manufacturing principles, process control theory, process mapping and modeling to the entire supply chain. This phenomenon is also applicable to the concept of risk management in throughout the supply chain risk analysis in a broader term than ever before.

Supply chain (sometimes called the value chain or demand chain) management consists of firms collaborating to leverage strategic positioning and to improve operating efficiency. For each firm involved, the supply chain relationship reflects strategic choice. A supply chain strategy is a channel arrangement based on acknowledged dependency and relationship management. Supply chain operations require managerial processes that span across functional areas within individual firms and link trading partners and customers across organizational boundaries (Bowersox, 2002).

The Supply Chain as the network of facilities (warehouses, factories, terminals, ports, stores, and homes), vehicles (trucks, trains, planes, and ocean vessels), and logistics information systems (LIS) connected by an enterprise's supplier's suppliers and its customer's customers. Logistics is what happens in the supply chain. Logistics activities (customer response, inventory management, supply, transportation, and warehousing) connect and activate the objects in the supply chain. To borrow a sports analogy, logistics is the game played in the supply chain arena (Frazzelle, 2002).

Supply chains are complex networks of enterprises that experience continual turbulence, creating a potential for unpredictable disruptions. In fact, executives identify supply chain risk as the highest threat to their firms (Global, FM, 2007). The development of logistics services and communication technologies has revolutionized supply chain management and has created a "global" market. Shippers and consignees require efficient logistics services that can move their goods to the right place, at the right time, in the right condition, and at the right price (Grant, 2006).

It is, therefore, of great importance that linkages within and between Asian countries be strengthened to facilitate trade and integrate supply chains for better access to the global market. Supply chain management is an integrative approach for planning and controlling the material flow from suppliers to end users (Carter, J. R., and B. G. Ferrin, 1995)

The Role of Logistics Providers in Handling Supply Chain Dynamics

Supply chain objectives are rarely fully met because of the individual behavior of decision makers in firms along the supply chain, as their behavior is neither optimal nor rational (Parnaby, 1979)

Due to the dynamic nature of the supply chain, amplifications and fluctuations occur from suppliers all the way down the chain (Sterman, 1989). What is needed is a robust control system that is flexible enough to counteract any disturbances along the supply chain.

The selection of a logistics provider is critical to supply chain competitiveness (Hensher, D. A., and G. Chow., 1999). Third party logistics plays a pivotal role in the design and provision of an integrated supply chain that responds to the client's needs. In order to help their customers, logistics providers need to behave more like partners of their clients. Not only do logistics providers have to arrange for the transport of cargo and facilitate its clearance through customs, they also need to manage their clients' order processing. This means that logistics providers are involved not only in lowering their clients' costs by reducing waste in ordering operations, but also in integrating their clients' supply chains. The aim is to make the partnerships so tight and seamless that the logistical services provided become part of the clients' own businesses. Figure 1 illustrates how logistics service providers control a global supply chain.

Figure 1: Role Played by Logistics Service Provider in Global Supply Chain

The task of a logistics provider is to facilitate trade to the extent that the trader needs only to produce and sell the goods (or to order the goods, in the case of imports). Once this has been done the logistics provider can take over and provide every subsequent function from factory gate to final delivery. As the distance between the manufacturer (i.e., the exporter) and the distributor or retailer is often quite considerable (and vice-versa for imports), problems relating to both material and information flows are common.

Jorn-Henrik Thun debates the potential of cooperative game theory for SCM, giving a mathematical approach to SCM results. The game theory can be used to evaluate each firm's performance and each process' results inside a supply chain.

This approach was build-up thinking at the SCOR model (Supply Chain Operations Reference Model) developed by Supply-Chain Council - SCC. The model is a way to see supply-chains, rather than an optimization tool. (Stadler, H., Kilger, C.,, 2005)

Figure 2:General processes identified using SCOR [Stadler and Kilger: 2005: 42, Poirier and Walker: 2005: 14, Bolstorff and Rosenbaum: 2003: 5]

Plan covers processes to balance resource capacities with demand requirements and the communication of plans across the supply chain. Source covers the identification and selection of suppliers, measurement of supplier performance as well as scheduling of their deliveries, receiving of products and processes to authorize payments. In the scope of make are processes that transform material, intermediates and products into their next state, meeting planned and current demand. Deliver covers processes like order reception, reservation of inventories, generating quotations, consolidation of orders, load building and generation of shipping documents and invoicing. In the scope of return are processes for returning defective or excess supply chain products.

When Just in Time Stop?

Why is supply chain resilience important? To start with an example, a natural disaster brought most of Japan's automobile manufacturers to a halt for several days. On July 16, 2007, a 6.8 magnitude earthquake in central Japan severely damaged the facilities of Riken Corp., a supplier of automobile components including specialized piston rings. Riken had chosen to locate all of its plants in a single area of Japan to increase efficiency, but this strategic decision combined with Just-in-Time deliveries made the entire production capacity vulnerable to a catastrophic incident (Chozick, Amy, July 20, 2007)

What is Resilience?

Resilience is defined as the capacity of a system to survive, adapt and grow in the face of turbulent change (Fiksel, Joseph, 2006)

Supply Chain Resilience

All firms rely on their suppliers to maintain smooth operations and their customers for continued revenue. Therefore, a resilient firm is truly only as resilient as its supply chain. Jack Welch, former CEO of GE, wrote in a Business Week segment that resilience should be on every manager's must-have list "because anyone who is really in the game messes up at some point" (Welch, Jack and Suzy Welch, May 14, 2007). He concludes that "the most successful people in any job always own their failures, learn from them, regroup and then start again with renewed speed, vigor and conviction." Anticipating, identifying, reacting and learning are all at the heart of resilience.

Designing Supply Chains

The Role of Logistics Providers

In Asia, supply chain control processes, including production scheduling, shipment of product, and inventory maintenance, are frequently decentralized and remote from each other. The processes usually operate independently of one another and in serial order. Slow feedback from the marketplace causes scheduled production to over or under manufacture in relation to the actual demand. Another issue in the region is the relatively high cost of logistics-the result of inadequate physical facilities and cumbersome administrative barriers, coupled with a legal framework not adapted to modern international business practices (Banomyong, R., P. Cook, and P. Kent, 2008). Limited resources and operational constraints are not unique to logistics provider operations in Asia. In each region or country in the world, various resource limitations and operational constraints exist. It is the duty of Asia-based logistics providers to make the best use of their resources within the existing physical constraints and the limited institutional framework prevalent in many Asian countries (Banomyong, R., and A. K. C. Beresford. , 2001). The logistics provider sees its function in the supply chain as that of a distributor. Its main role is to move goods from one end of the supply chain to the other within the constraints imposed by both clients and the commercial environment. "Customer panic" occurs when a client is faced with a difficult situation in the supply chain-usually a stock out-and is unable to rectify the situation. When a break in the supply chain occurs or is going to occur, there is a very strong risk that the whole supply chain will be immobilized, generally for a longer period that it took the break to occur (Hong-Minh, 2000)


Method of data collection

The sample was chosen on convenient sampling .The sample size for this study is 30 respondents from supply chain and logistics firms. The questionnaire is designed on LIKERT scale and is analyzed through Correlation and Regression technique.

Sampling technique

For knowing the effect the critical identification parameters in supply chain management process a lot of efforts have been put in the gathering of data. A sample of 30 experts of SCM has been used to conduct the study. I had got the information within 4 to 5 weeks.

Sample size

A sample of experts is not more than 30 respondents due to specific results. I had required the minimal platform for measuring the parameters of supply chain management.

Research Model developed

I have designed the research model in the sense of variables, one of dependent and others are independent variables.

Dependent Variable Independent Variable

Cost effectiveness





Dependent Variable

Cost Effectiveness

In this model cost effectiveness is taken as dependent variable. I have designed the five questions that belong to the questionnaire 9 to 13. These questions are covering whole research. Cost effectiveness is the dependent of other factors of supply chain and logistics because if any of one factors fall down due to any condition so overall cost would have effect.

Independent Variables


In supply chain and logistics, inventory is the major part and showing the shadow of profits. All factors of supply chain depend on inventory. In model I have designed the five questions that belongs 1 to 5 in questionnaire. Inventory is key to profitability. Inventory velocity turns assets into profits. The faster inventory turns, the greater the profitability.


In this model production is another independent variable and most important one. I have designed three questions that belongs 6 to 8 in questionnaire. Supply chain and logistics firms are totally concern about production because the core business turns into more and marginal turnover. As quick as productivity enhance profit would increase rapidly.


In this variable I have designed the four questions that belongs 14 to 17 in questionnaire which are directly hit on cost effectiveness in overall. In supply chain and logistics transportation cost are very significant and flexible. In those countries where transportation cost is high JIT process become fail therefore firms take alternatives to reduce the non-added value activities in inventory.


In this model location is another independent variable that contain three questions that belongs 18 to 20 in questionnaire. In logistics and supply chain firms chose very cost effective place where they can easily move their goods to another at right time.

Statistical technique

Researcher used different analysis from SPSS i-e, Mean, median, mode, t-test, regression analysis, correlation. All these analysis confirmed the data from different angles and proved very useful.


The average of a set of figures.


The central item in a group of observations arranged in a ascending and descending order.


The most frequently occurring number in a data set.

T- Test

A statistical test that establishes a significant mean difference in a variable between two groups.

Pearson's Correlation

The Pearson Correlation matrix obtained for the five interval-scaled variables. The Pearson coefficient is appropriate for interval and ratio scaled variables.

Regression Analysis

The threat to internal validity that results when various groups in the study have been selected on the basis of their extreme scores on some important variables.


Finding and interpretation of the results

Regression and Correlation Analysis

Hypothesis Assessment Summary




Implication and Recommendation

Future Research