This paper integrates important research into the effectiveness of supply chain management in gaining competitive advantage. A supply chain is simply a system of resources and processes that help in transforming raw materials into finished goods for customers. Business success is perceived to be derived from effective management of such resources through the supply chain; these include the management of inventory, processes, materials, and even supplier development. Therefore agility in Supply Chain Management should and must have the ability to quickly respond to customer needs and the changing objectives of the firm. The modern business environment goes through economic downtowns and sometimes buoyancy thus prompting firms to adopt business strategies for both of these economic events. In times of boom it will imply rich demand but recession exhibit shrinking demand, low revenues and dwindling business confidence from al the stakeholders. It is in such times that the reluctant customer needs to be cajoled by keeping standards as high as possible, by using mass customization strategies and by pricing competitively. In addition costs have to be kept low and processes have to more efficient to free cash and other resources to other projects. Supply Chain Management also determines how priorities in the product and market mix. When products are promoted through marketing, they have to pass through the logistical channels. Members of the supply chain also need to be managed across the entire chain in order to achieve company objectives. In addition, growth and profit-making are always suppressed during economic hardships. A strong Supply Chain Management is handy in tackling the dual problem of effectiveness and efficiency (Barratt and Oliveira 2001, p. 270).
Purpose of study
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The purpose of this paper is to define, explain and practically use the various theories behind supply chain management for the gaining of competition advantage in the industry. The paper looks in the current position of CMS as a firm and explains how the company uses the theory of supply chain management and further how it can use it to gain more competitive advantage in the industry. Anyone reading this paper is imparted knowledge wise. Thus the article in as much as it refers to a specific company (CMS), it develops a deeper understanding of effective Supply Chain Management. There is an obvious emphasis on how competency is harnessed through effective management with an aim of gaining competitive advantage in any given industry.
Company background information
CMS light alloy wheels is one of the leading companies in the Turkish automotive industry. It is well reputed in terms of industry success since its strong founders who made all ensured the success of the company. CMS was founded by Tonguç Ã-sen with and solely invests in the automotive sector. Tonguç Ã-sen together with his other partner in the year 1955 possible founded the first aluminum template casting company of Turkey. The business has been successful until the time CMS was created. CMS was founded in the year 1980 and rather became quite successful in the wheel manufacturing and exporting of wheel in large scale. This was laid in with the establishment of the CMS Jant ve Makine Sanayii A. S. in Izmir. Starting in the year 1985, the manufacturing of light alloy wheels for OEM and FIAT Turkiye FordOtosa was launched and up to today, CMS keeps its position as one of the foremost wheel manufacturing companies around the globe. CMS is specialized with expertise in production of Light Metal Wheel, implementing the latest technology and current innovation that produces the best ever products for clients globally. Currently, CMS holds among the best leading wheel manufacturers of the world since its inauguration of manufacturing wheels made of aluminum alloy for Ford Turkey and Fiat Turkey in 1985. This included the fact that it holds the highest technology and innovation governing the industries. With this entire struggling factor in production, CMS now holds a plant in Pinarbasi of 32, 175 square meters with closed area of 20, 944m2, headquartered in Izmir. It has a yearly wheel production capacity of 2 million units which makes it a globally large company supporting a wide economic spectrum. Still under its custody, it controls other branches that still maintain high production of units to boost its production rate. Above all, it holds many awards and certificates since the year 2003 to prove its effectiveness and success in the production industry (CMS, 2010).
Definition and scope of Supply Chain Management
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The Global Supply Chain Forum (GSCF) defines Supply Chain Management (SCM) as "the integration of key business processes from end user through original suppliers that provide products, services, and information that add value for customer and other stakeholders'' (Chan & Qi,2003, p.209). Thus, SCM is proactively the relationship between suppliers and buyers as wholly integrated in the Supply Chain and not merely first hand suppliers (Cox, 2004, p.352). Supply chain is directly linked to the processes and resources involving the conversion of raw materials through the delivery of finished goods to customers (Bridgefield Group, 2004, para.2). The distinction of supply chain processes among various departments in a given company yields economies of scale and specialization. However, there are several pertinent issues that need to be tackled in order to have a successful supply chain; this is in fact the chief purpose of Supply Chain Management. This is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers (Harland, 1996, p.70). It spans all the movement and storage of raw materials, work-in-process inventory and finished goods from point of origin or rather production point to the last stage usually the consumption point of supply chain (Lee, H.L., 2004, p. 112). In it being used in the policies for marketing, it serves as a break through to many problems regarding the smooth running of the business. Among other things, it helps in the distribution network configuration, distribution strategy, trade-offs in logistical activities, inventory of management, cash flows etc. so as to bring new development in the system. The movements that are observed by the evolution of supply chain management studies include; creation, integration, and globalization, specialization phase one and two, and supply chain management (Robertson, Gibson & Flanagan, 2002, p. 4029).
Evolution of Supply Chain Management
In the past few decades, supply management was basically technological driven; more emphasis was laid on cost minimization with little regard on product or flexibility (Tan, 2001, p. 40). Collaboration and integration in the supply chain was viewed as unacceptable. However, since that time competition has pushed manufacturing to greater levels of flexibility, lower costs of production and enhanced product quality. The business environment has witnessed formation of strategic partnerships between business partners. The view of supply chain management has shifted from technological approach to that of trust and cooperation (Ragartz et al., 1997, p.200).
Theories of supply chain management
Resource-based view (RBV)
RBV is a business management tool used to determine the strategic resources available to a company. It is a supply chain management theory with a fundamental principle that the basis for a competitive advantage on a firm lies on the application of the bundle of valuable resources at the firm's disposal (wernerfelt, 1984, p. 172; Rumelt, 1984, p. 172-558). In order to transform a short-run competitive advantage into a sustained competitive advantage, then these resources are required to be heterogeneous in nature and not perfectly mobile (Peteraf, 1993, p. 180) thus valuable resources that are neither perfectly imitable nor substitutable without great efforts are made in use, (Hoopes, 2003, p. 891).
Transaction cost analysis (TCA)
It has become an integral component of the trade process. TCA is usually crucial to achieve best execution, control trading costs and bring greater efficiencies to trading operations. It is most helpful to the firm's measure of how effective both perceive and actual portfolio orders are completed. Conceptually, it represents the difference between two amounts. Event processing platform can play an active role in computing TCA in real-time (Saul, Frazier & Victor, 1990, p. 200).
Knowledge-based view (KBV)
This type of theory normally considers the knowledge as the most strategically significant resource of a firm. Its proponents argue that because the knowledge-based resources are usually difficult to imitate and that they are socially complex, heterogeneous knowledge bases and capabilities among firms are the major determinants of the sustained competitive advantage and superior corporate performance. This knowledge is embedded and carried through multiple entities including organizational culture and identity, policies routines, documents, systems and employees, (Eisenhardt & Santos, 2002, p.139-156; Grant, 1996, 109-122).
Strategic choice theory (SCT)
This type of theory is concerned with forces and variables in the external environment which are dynamic and those business strategies are affected by the interactions between these factors (Kelly, 2002, p. 119).
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Other theories include the Agency theory (AT). This theory tries to explain the relationship that exists between principals, such as a shareholders, and agents, such as a company's executive. In the specified relationship, the principal delegates an agent to perform work. This theory deals with two specific problems: the goal of the principal and the agent are not in conflict, and that the principal and agent reconcile different tolerance for risk, (Jensen, Michael C., and William, 1976, p. 305-360). Another theory is the Institutional theory which emphasizes rational myths isomorphism, and legitimacy. (Scott, 2008). It exhibits two dominant trends which include: old institutionalism and new institutionalism. It considers the processes by which structures, including schemas, rules, norms, and routines become established as authoritative guidelines for social behavior, (Powell and DiMaggio, 1991). Finally there is the Systems theory (ST) network perspective (NP). This is a type of supply chain theory that takes a trans-disciplinary approach that abstracts and considers a system as a set of independent and interacting parts. The main goal of this theory is to study the general principles of system functioning to be applied to all types of systems in all fields of research, (Von, B. 1984).
Problems in Supply Chain Management
Supply Chain Management involves a number of a number of problems that need to be solved in order for the firm to experience efficiency in its operations. A myriad of these problems emanate from economic uncertainties' and lack of capacity to coordinate various activities and stakeholders (Turban, McLean, & Wetherbe, 2004, p. 220). The most common of these problems is the so called "bullwhip effect". This is where even small fluctuation in inventory and or demand levels of the top most (say final) firm in the supply chain are transmitted and magnified in the entire chain. This is due to information asymmetry, thus companies respond with unproportional decrease or increase in inventory levels thus further leading to even greater fluctuations in demand to other firms in the chain. Another problem is that firms will tend to optimize their own revenues, with no regard to the merits or demerits to the general supply chain. This is known as local optimization. McGuffog and Wadsley (1999, p. 218-225) have added that, human factors must also be put into consideration especially as it pertains the making of decisions due to information asymmetry on their part-human beings are not perfect when it comes to decision making (Holweg & Bicheno, 2002, p. 170).
Developments in Supply Chain Management
The advent in technology has led to the emergence of the development of e-business. E-business is a term used to refer to both to e-commerce (the buying and selling of products and services via the internet) and the development of business processes which make use of information and seamless information sharing in the supply chain (Wagner, Fillis, & Johansson 2003). Such technologies include manufacture resource planning (MRP), Computerized point-of-sale and Vendor Managed Inventories among others (Trkman, Stemberger, & Jaklic, 2006, p.3). However, it is noteworthy to state that the use of information technologies alone is a panacea for all Supply Chain problems. In retrospect, most problems of online transactions are not technologically related but are logistical in nature (Hoek, 2001, p. 190).
Efficiency in supply chain management can be enhanced by the reduction of the number of manufacturing stages, reduction of lead-times, increasing interaction, and expediting the process of information flow (Persson & Olhager, 2002, p. 233). It has been proved that the use of electronic data interchange (EDI) significantly minimizes inventory swings and increases safety of stocks. In their experiment, Owen and Levery (2002) showed that use of information technologies reduces the standard deviation of stock levels implying a reduction in inventory swings. However, the adoption of new technologies should be accompanied with changes in firm's operations in order to fully realize their possible competitive advantages (Mentzer, John T., 2004, p. 11).
In recent years, a number of studies have shown the significance of information sharing within the supply chain (Barrat, 2004, p. 36). Mason-Jones & Towill (1997, p. 140) have summarized that, information sharing is the cornerstone of a successful Supply Chain management. In as much as the process of information sharing in the Supply Chain is important, strategic planning of the process in critical (Birgit & Tage, 2005, p. 110). Information must be well utilized and should be made available to various stakeholders as deemed necessary. Information sharing becomes problematic when firms in the supply chain refuse to share important data such as lead-times, especially those firms that are closely linked (Ketchen & Hult, 2007, p. 570). This is simply lack of trust, which is the main obstacle towards effective information sharing (Lee, H.L., 2004, p. 108).
Measuring Supply Chain management success
The question of measuring the success of Supply Chain Management is a crucial one. Some scholars have proposed that this can be measured by looking at the effectiveness of service, competitiveness of the supply chain, customer satisfaction, and profitability in general. However, in reality it is very difficult to develop a standard metric for monitoring improvements. Therefore more operational metrics have been developed to measure the success of supply chain management. These operational indicators include lead-time, quality, and total costs in the supply chain (Persson & Olhanger, 2002, p. 236). Customer responsiveness is one of the most common measures used by firms. The metrics of performance can be categorized into resource (e.g. cost of production, inventory), output (customer service) and flexibility (the ability to adjust to changes in the environment). Chan and Qi on the other hand emphasize on the significance of measuring inputs (lead-time and costs) and output (reliability, quality and product or service innovativeness). Thus composite measure comprising all the above include efficiency, productivity and resource utilization. Tatsiopoulos, Panayiotou, & Ponis, (2002, p. 118) in their survey indicated that lead-time and resource utilization are the most considered measures of supply chain effeciency.
By synthesizing the above literature on measurement of supply chain effectiveness; it is clear that the attainments of customer satisfaction at low costs, plus flexibility to react to market changes are critical. The customer is interested in quality and efficiency in the supply chain. However, research on individual firms in the supply chain is important. Though it is obvious that a firm is unlikely to be involved in an integration project that is not beneficial, the main essence of cooperation is to share risk and reward (Arora, S. & Kumar, S. (2000, p. 68).
Performance measures need to be well integrated across the departments and all firms in the Supply Chain (Barrat, 2004, p. 280). Failure to integration only implies that all the efforts of improving supply chain management are doomed to fail. Ideal measures of performance will lead to the attainment of double benefits-improvement of supply chain management and effective measurement of the achieved benefits. A common modern day approach to measuring and predicting the effect of Supply Chain management is the use of simulations (Bosilj-Vuksic et al., 2002, p. 109; & Terzi & Cavalieri, 2004, p. 40).
CMS has a better reputation in its proceedings thus rendering the corporation successful. This can be justified under some facts and figures about the production where the company holds a production capacity of about 2 million units. This also is seen with the ÇiÄŸli plant, which promotes the holdings sales by 2.200 million units per year. Not only in production is the corporation successful, but also in the technology it uses. This makes it produce better quality products capable of making those large amounts of sales volume. It also holds the capacity of providing foreign companies such as TofaÅŸ, OYAK- Renault, Ford- Otosan, Toyota (TMMT), Honda Türkiye, and Karsan with some of the some of its services. It also holds to the use of current technology in the market for the production of the best quality tires. CAS, CAD, CAE, FEA and casting simulation is used in designing wheel models and accessories whereas CAD/CAM and CNC technologies are used in mold manufacturing. Low pressure casting techniques are used as well (CMS, 2010).
The hypotheses for this research are;
Flexibility in supply chains improves the competitiveness of firms.
Most companies use the theory of supply chain management.
The theory of supply chain management is effectively used by CMS to gain a competitive advantage in its industry.
Effective supply chain management is used by most firms as a tool of competition advantage.
This chapter highlights various methods and procedures that are to be used in the achievement of the main objectives of this study. The purpose here is to describe the process involved in designing the study and to demonstrate how the researcher will collect, analyze and interpret the data. This research is more investigative and as a result I would use both qualitative and quantitative data which will enable me to interpret the obtained information, (Creswell, J, 1998).
This research will utilize both qualitative and quantitative approaches. Qualitative research is whereby narrative data will be collected in a more natural setting so as to gain insights into the phenomena of interest (Ronald, J. 1995).This research method will assess variables over a period of time so as to conclude how things are, how and why they came to be that way, and what it all means. The will be collected through observation and use of questionnaires (Creswell, J. 2003).
Since CMS is has been operating for some time and in an industry with several competitors, the research will use a correlation approach to determine the relationship between two or more quantifiable variables that will be taken into consideration (Grace, D., Schelling, E., Willingham III, A.L and Randolph, T. 2007.) Data from at least two variables will be collected and then calculation of correlation of coefficient between the variables will be determined. The testing of hypothesis for qualitative data will be done by the help of a causal-comparative approach (Joubish, Farooq, 2009).
Methods and techniques
Data collection is one of the vital measures in the research activity since it ensures that data gathered is both defined and accurate and subsequent decision based on argument embodied in the findings are valid. Various methods of collecting data were put into consideration for the success of the research work. The researcher used different methods to collect data which tend to give more accurate information. Also there was he use of empirical research which was used in the feasibility of the solutions. This was used in collecting primary data through interview with the IT department director. This instrument was used to establish the knowledge and the appropriate use of accounting policies in financial reporting. Its appropriateness was evident in that it covered a large population. It also provided standardized and similar tests to all the information thus increasing the reliability of the empirical test instrument. Below are the techniques that I used in collecting the data. Primary data collection will be collected by the participants using interviews, questionnaires, observation, case studies focus group interviews. More specifically, data collected is unique to you and your research and, until it is published, no one will have an access to it.
The advantages of these methods include: Data is collected in its original form through experimenting, examining and observing the subjects or through by interviews or questionnaire; the researcher has a realistic view about the topic in consideration; and Conclusive information can be easily deduced since it includes a large population in a wide geographical coverage.
However these methods have several disadvantages such as: There is large volume of data that can be generated; sometimes it involves huge volume of population which might bring about discrepancies; It is time consuming since it involves a lot of movement, crowds and designing of surveys which consume a lot of time; In the collection of data, there must be close intervention to ensure that correct data is collected and without mistakes; and there is the collection of raw data, which means you need further investigations to get clear information about what you were researching about.
Collection of data is done by someone other than the user. Common sources: for qualitative data; semi-structured and structured interviews, focus groups, transcripts, field notes etc. for quantitative data; census, housing, social security and other related databases, (Moore, N., 2006, p. 265-268).
The advantages of secondary data collection are: time saving; for quantitative analysis, it provides larger and higher quality data base than would unfeasible for any individual researcher to collect on their own; It is impossible to conduct a new survey that can adequately capture past change ad/or development; Uses existing information; and Web-based materials and search engines are readily available.
The disadvantages are: Information may be incomplete, obsolete, inconclusive or inaccurate; Secondary data does not permit in progression from formulation of a research question to designing methods to answer the questions since it is limited to what already exists; and It is not feasible for me to engage in habitual process of making observations and developing concepts (O'Sullican and Rassel, 1999).
When supply chain management strategy is well implemented, there would be pronounced evidence in the competitive advantage of the firm. This is so because there is incorporation with new powerful information technologies that boosts the chain' goal together with the third party services in the supply service. Consequently, more companies (both large and small) posses the capacity to utilize expanded supplier options. Therefore the strategic policies of such companies need to be reshaped in order to reap benefits such as efficient monitoring of their status and activities of their suppliers, production plants, and storage facilities among others across the globe. In addition, the implementation of a strategic supply chain management plan will help firms to minimize delays since there is an ignition of hard work with the complaints from different clients. This would be the best time for the improvement in the supplies of company and as seen in the CMS, it has generated effectiveness when defined considering the amount of output generated yearly. With the use of the software also, there is wide usage in the information and the supply of the current resolutions to so many people without delay. This ensures online interactions with clients.
In order to realize the full potential in supply chain management, it is quite necessary to integrated firms in a supply chain. It is clear that the intense interest in various initiatives such as JIT, quick response and efficient consumer response all share a common themeâ€¦..supply chain integration. There are a myriad of problems that are related to inventory positioning within the supply chain occur in the part because of lack of information flow between supply chain members. This will need to watch out for the bullwhip effect which affects the entire supply chain thus marring the efficient flow of information and coordination among supply chain members is the solution. The attainments of customer satisfaction at low costs, plus flexibility to react to market changes are critical. The customer is interested in quality and efficiency in the supply chain. However, research on individual firms in the supply chain is important.