The operations of supply chain management


A supply chain is defined as a combination of customer, product and geography. Financial porting and other factors can also be included. As described by one speaker at conference of Council of Logistics Management (CLM) "The supply chain is all that happens to a product from dirt to dust" (Ayers, 2002).To be more precise supply chain is a network that is made up of customers, distributers, suppliers, retailers and manufacturers. There are three types of flow in supply chain network: Material Flow- Physical Product flow (product returns, servicing and recycling). Information Flow- Order transmission and order tracking for coordination. Financial Flow- Credit terms, payment schedules and consignment arrangements (Chen, 2007).

Since 1980 companies began to see the benefits of working as a single unit in a supply chain. Increased focus is now on highly integrated supply chains and wide range collaborative initiatives has been driven and observed Supply chain integration and collaborative initiatives with the supply chain partners to coordinate supply chain operations are critical factors to gain competitive advantage - it is accepted generally by leaders in academia, consulting and industry and mostly in high technology and apparel industries (Hope, 2001).

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For example, marketing excellence used to be the primary source of Procter & Gamble's (P&G's) dominance in consumer products industry. But when it expanded its products and services in response to market opportunities, it increased difficulties in fulfilling the needs of its retail partners and customers. Traditional marketing strategies involving in-store sales and price promotions resulted in great variations in product demand. To meet these heavy demands, P&G invested in huge manufacturing capacities, inventories, warehouses, and logistics capabilities. Finally, P&G modified its supply chain focus and remade itself through a series of innovative initiatives. Working both internally and with suppliers and customers, the company created a partnership with Wal-Mart, nearly eliminated price promotions, and streamlined its logistics and continuous replenishment programs. These changes reduced variations and uncertainties in demand, thereby reducing the need for high production capacities and large inventories. Thus, by changing their primary supply chain focus from marketing to production, inventories, and logistics in response to changing business requirements, P&G reduced costs, met customer demand, and build strong, coordinated relationships with retail partners and customers (National Research Council Staff, et al., 2000).

Most recently, leaders in the business world along with the supply chain field in academia have started envisioning gaining simultaneous visibility, coordination and collaboration across multiple strategic partners of the entire supply chain or supply network, which has lead to the evolution of tightly integrated supply networks that can be called as "The Supply Chain as The Unit of Competition" (Hope, 2001). It is debatable that who started a fully extended and functional supply chain model. UK Grocer TESCO is considered for this by many people in very late 1990's. Tesco was one of the first major foreign companies to jump into the fray with its own online home delivery model. In short we can say that was born in the crazy gold-rush days of internet boom (Boyer, Forhlich & Hult, 2005).

There are many reasons for this change in supply chains. First one is always more demanding customers. While buying products at anytime, anywhere, fast, cheap and improved technology are the standard expectations of customers in any kind of distribution channels (Hoppe2001). (e.g. by recognizing that market forces and new technologies can reshape industries, Hewlett-Packard (HP) is now offering its Digital Entertainment Services and Capgemini has created a digital supply chain practice and developed the content value chain (AMR Research, 2008). Then second is increasing Globalization of demand and supply. The data says that the volume of all goods and services traded in all the industries accounts for 45% of world's GDP (Gross Domestic Product) in 1995 which was just 25% in 1970. Third reason for this change is Time Based Competition. An exceptional created for the industries which provide their products in time and affordable manner than competitors. Fourth reason which led to this advancement is Shortening of Product Cycles. There is an increasing demand of faster responsiveness of supply chains in addition to decreasing the likely hood of achieving long-term competitive advantage. Final and a very important reason is Product Variety. There is requirement for handling large number of SKU (Stock keeping unit) and corresponding information (Hoppe2001).

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For example the supply chain of APPLE which is world's best supply chain according to AMR Research in 2009. For Apple's iTunes, Apple's traditional supply chain and services underwent a much needed transformation. To start this journey, Apple's innovators identified a new product that required significant effort and investment. While in approximately three years Apple sold one billion songs, Apple sales from $4B to $5B took only five months, with also other satisfying hardware sales of mobile products, the iPod, iPhone and iTunes. This shifting of supply chain investments to technology and infrastructure, provided a platform for higher margin hardware sales, increased lightness by higher cash flows, accelerated turnaround times and speed to market by new recognized web-based store front (AMR Research, 2008).

As a result, Apple built a supply chain that transformed its industry. iTunes is now considered as the No. 1 retail store for music, which provides significant information on demand patterns. So, its supply chain is helping to develop new products and services (AMR Research, 2008).

The use and management of power is an important aspect in a supply chain. If a particular player takes advantage of the chain as a whole, the supply chain can be destroyed and all benefits are lost. The nature of power regimes differs from one supply chain to other and from one industry to other (e.g. buyer dominance /supplier supremacy). By understanding power regimes and the roles of different players can be used positively to improve the performance of the supply chain e.g. (supplier development). There are many advantages for partnerships in supply chain. (1) Operational improvements through cost reduction and asset optimization. (2) Supplier support and development of through assured contracts. (3) More value in added to products and services. (4) Improved focus on core competencies. (5) Improved flexibility in supply chain. (6) Commercial developments and brand awareness. (7) Financial gains through risk and benefit sharing.

But like every methodology supply chain also have some disadvantages. First is loss of control of operational activities. Second is loss of competencies within organizations. Third is the difficulties in agreeing cost benefit sharing model. Fourth is the loss of commercial flexibility through capacity reduction, confidentiality, etc. Fifth is high implementation cost. Sixth is that there can be a possibility of declining performance of suppliers. Seventh is there could be possibility of unrealistic demands from customers.

Similar things happen with the business strategy of the firms associated with a supply chain. The business strategies in a supply chain cannot be made by a single multiple members of a supply chain. Overall organizational strategy should be aligned with the supply chain strategy. Also decisions like where to make and what to make are now supply chain dependent. Inventory decisions like quality, quantity and location also supply chain based.

The supply chains across the world are improving every year but as the world and its requirements will change in the future so the trends in the supply chain will also need to be changed.

There is a strong correlation between sustainability and the future trends in supply chain of the consumer goods and the retail industry. This was published in "Future Supply Chain 2016: Serving Consumers in a Sustainable Way" a new study by the Global Commerce Initiative together with Capgemini. It represents a new integrated supply chain model that takes into account the sustainability parameters such as CO2 emissions reduction, reduced energy consumption, better traceability and reduced traffic congestion, as well as traditional measures dealing with on- shelf availability, cost reduction and financial performance. It is also said that in the coming years consumer products and retail industry will face critical challenges like resource scarcity, climate change, new regulations and security (Consumer Goods Forum. Capgemini). For example in a recent news which says that "SAINSBURY'S WIDENS CARBON EFFICIENCY SCHEME". Annie Graham, Sainsbury's head of brand sustainability, said the scheme was not just about environmental improvements, "It's also about increasing efficiency, thereby improving profit margins for our supplying farmers. Our motivation as a supermarket is to secure our supplies into the long term future. If our farmers are farming sustainably and making a profit then we are on our way to keeping them in business." (,2010).

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Other components of the future supply chain include existing leading practices, new ways to calculate the impact on supply chain and applications to example supply chains (Consumer Goods Forum. Capgemini).

Application to Example Supply Chains: More simplified supply chains are used to demonstrate how a new supply chain model can be used and how it can be utilized in individual companies. That's why taking the main characteristics of example supply chain appropriate new solutions are posed (Consumer Goods Forum. Capgemini).

Leading Practices: The leading practices help in clearing that the benefits are real and achievable. Examples of existing successful practices are integrated into the model to show how they can help to address these solution areas (Consumer Goods Forum. Capgemini).

New Ways to Calculate the Impact on Supply Chain: The calculation models along with the new parameters are an essential part of the future supply chain to determine the impact of leading practices and solutions (Consumer Goods Forum. Capgemini).

There are four collaboration concepts which are collaborative warehousing, collaborative city distribution, collaborative non-urban distribution and information sharing. For improving the collaboration there is a demand of working together in new ways in a physical supply chain. (Consumer Goods Forum. Capgemini). Jim Gahagen (2007) from Sterling Commerce said, "We have to provide that enabling technology, and in providing the technology, we also have to provide the visibility across the business processes to all stake holders. Supply Chain information has to be consistent so everyone can see where we are in the process and react in concert."

As a future trend the evolution of the quality role in supply chain and operations management will consider factors like reducing procurement risk and overhead. These also involve reducing the effects of sub-standard materials on product quality, process efficiency, and exposure to product liability. Successful supply chain management programs will evolve from more collaborative vendor/customer relationships. Complete integration of process information will be the target. A vendor needs information on how their raw material is used in the customer's process to make necessary improvements in their system. The systems which affect supply chain management will also expand integration and communication capabilities. This includes greater use of Web technology for both efficient and improved data collection and reporting. Accompanying the increase in supply chain management technology, companies need to train their staff to be aware of how to effectively use the increased visibility of quality information. The long term goal of supply chain and operations management is to reduce risk and variation, increase functionality and profitability (Cawley, 2002).

So a supply chain is a very important concept in today's world. Most of the companies now have realized that very few are secured from the heat of global competitors. So in a supply chain one must be mindful of the concerns of supplier and channel partners. A well functioning supply chain should be regarded as unit of competence in which all the partners play a significant role and neither one can drive the supply chain completely of his own, without cooperating with others. Whereas the future trends for new supply chains development and improving existing supply chains profits and market share is not the only basis for companies but they are also considering the environmental issues and also planning of working in collaborative measures and with proper sharing of knowledge.