Why Is Supply Chain Management Business Essay

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Why is supply chain management? The best companies and organization in this whole world are looking for powerful new sources of competitive advantage. It's called Supply Chain Management (SCM). The one of the most significant paradigm shifts of modern business management is that individual businesses no longer compete as just autonomous entities, but rather as supply chains. Business management has entered the edge of internetwork competition. Other than the brand versus brand or store versus store, even now suppliers-brand-store versus suppliers-brand-store, or supply chain versus supply chain. In this developing competitive environment, the final success of the single business will depend on the ability of management to integrate the company's intricate network of business relationships 1, 2 and 3.

Increasingly, the management of multiple relationships across the supply chain is being referred to as supply chain management (SCM). Strictly speaking, the supply chain is not a chain of one business to one business, business-to-business relationships, but a network of multiple businesses and relationships. SCM give the opportunity to capture the synergy of intra- and intercompany integration. [4] These include Supply Chain Management-related activities such as warehousing, and inventory control. Sourcing, procurement, and supply management fall under the supply-chain umbrella, too. Forecasting, production planning and scheduling, order processing, and customer service all are part of the process as well. Importantly, it also represents the information systems is so necessary to monitor all of these activities. In that sense, SCM deals with total business process excellence and represents a new world to managing the business and relationships with other members of the supply chain.

Overview of Supply Chain Management

SCM and supply chain structure

Traditional supply chains are viewed as simple sequential or serial systems, like a flow line. Input (i.e. raw materials) enters from one end and transforms to output (e.g. semi-finished or finished goods) that leaves at the other end. This configuration is quite static in nature and is applicable for products which are changing less frequently and are produced efficiently by mass production in the last few decades. However, advances in information technology have changed the supply chain configuration in the last decade (Ahuja and Carley, 1999; Black and Edwards, 2000; Lin and Lu, 2005; Chan and Chan, 2005; Boyle et al., 2008). One of the phenomenal changes is globalization (Lee et al., 2006), and the other one is the concept of mass customization (van der Vlist et al., 1997; Aydin and Güngör, 2005). The former leads to the increase in the number of outsourcing activities and thus supply chains have been transforming from the said serial structure to network (Ahuja and Carley, 1999; Chan and Chan, 2005). The latter requires a system with greater flexibility and responsiveness (van der Vlist et al., 1997). Therefore, supply chains are now more dispersed and dynamic in nature than ever before, with most supply chain members separated geographically (Mowshowitz, 1997; Ahuja and Carley, 1999), like the two case studies in this paper. In this connection, coordination, which is the management of dependencies between the activities (Malone and Crowston, 1994), among supply chain members, plays an imperative role in SCM.

Networked organization is not new in industry. In the past, however, networked organizations seem to be found only within their respective firms (Khalil and Wang, 2002). In other words, only intra-organization networks were common. That is the reasons why they are not called virtual organization because they are physically belonging to a single enterprise. Nowadays, inter-organization communication is possible with the help of advanced information technology. Inter-organization networks, or virtual organizations, will probably become an emerging organization structure in the future. Such structures are characterized by flexibility, fast responsiveness, and high efficiency (Hughes et al., 2001; Khalil and Wang, 2002; Lin and Lu, 2005).

However, traditional mass production systems, or vertical integration approaches, cannot meet the demand of such flexibility and responsiveness (van der Vlist et al., 1997). Good cooperation among the members in the virtual organization is of vital importance to make the project a success (Martinez et al., 2001). Each entity of the virtual organization is proficient in a specific task and has possession of a particular core competence with respect to the supply chain or virtual organization. A collection of these core competences would result in a synergistic effect (Cunha and Putnik, 2006). Higher productivity and lower transaction costs are the expected consequences of adopting a virtual organization approach (Tuma, 1998; Khalil and Wang, 2002). In the next section, details of the virtual organization approach will be discussed.

The Advantage of the Supply Chain Management

To remain competitive, some of the small firms have to offer superior quality goods at the lowest prices possible. The need to minimize product costs makes effective supply chain management vital. There are costs involved in every process of the product life cycle, and it is the responsibility of management to ensure that these costs are kept low, so the company can continue to pass along these savings to the consumer.

The Supply chain management involves identifying those processes that increase cost without increasing the value of the final product. These processes are wasteful and do not add value, and should be eliminated whenever possible. The resource wastage is a common source of increase production costs. Often this is due to improper planning. A company that employs supply chain management is able to achieve efficiency of its operations since only that value adding activities are encouraged. This ensures that the organization's processes flow smoothly and output keeps in line with the company's needs. Besides that, A company that employs supply chain management can foster close-knit relationships with its suppliers and customers, ensuring the timely fulfillment of orders. A company known for its timeliness and responsiveness will attract more customers, and will grow as a result of increased output and sales. All Businesses existing in this market is to make profits. One of the most efficient ways of increasing a company's profit is by ensuring that costs are kept as low as possible. The application of supply chain management by a small company leads to cost reductions due to elimination of wasteful processes. Since these are operating costs for the company, the savings on these costs reflect increased profits by the company.

Who Should Be Responsible For Supply Chain Management?

Purchasing and supply management professionals should become increasingly involved, and where possible lead, the development of supply chain management. However, it is recognized that not all buyers have the skills necessary to manage even the upstream part of an organization's supply chains; these can be complex networks of complex supply chains, although the supply chains within and downstream from the organization. For best results, supply chain management requires a senior sponsor appropriate to the sector; this is because it is such a central function and is fundamental to the commercial management of the business. Supply chain management is at the fulcrum of the business as it involves responsibility for the end customers' demand right through the organization to the suppliers, and where appropriate, beyond. Such a role requires objectivity, an open mind and an ability to work with all stakeholders within the chains such as Sales, Marketing, Finance, Production (if manufacturing), Procurement, Logistics and Distribution. In particular, supply chain management need to work closely with Account Managers who are best placed to feed information back into the supply chain. Many organizations still work in functional silos instead of cross-functionally - supply chain management demands this crosscutting approach to managing the customers' needs.

The key skill of an effective supply chain manager is relationship management. Good purchasing and supply management professionals are well equipped in this skill. The ability to manage customer relationships, both internal to the organization and external, and supplier relationships is fundamental to success in supply chain management. In essence both supply chain management and backward integration are means to an end, and companies should select whichever of these two approaches is most appropriate for them in specific circumstances. There are also many hard skills which are also key, notably process design (redesign); IT integration/role of ecommerce; supply chain modeling; and performance management. The skill of the purchasing professional working in a supply chain management environment lies in getting suppliers interested in working with the buying organization i.e. so that the suppliers position and perceive the buying organization as a valuable long-term client relationship which is worth investment. A key competence is sophisticated interpersonal skills e.g. an ability to persuade, influence, communicate, facilitate, coordinate and manage the human implications of change Purchasing and supply management professionals wishing to promote and develop supply chain management must adopt all of the above skills and competencies but most importantly, should be able to think in terms of the whole business. To achieve maximum benefit, supply chain thinking would of course pervade the whole of the company's corporate strategy; supply chain considerations would be as integral a part as Marketing, Production or Finance. [5]

Development trends

Another difficulty in understanding and defining supply chain and supply chain management is that it is never stand still and the subject has been continuously evolving since its inception in the early 1980s. The continuous development is partly propelled by the changed of overall business environment and heightened competitions in the global market place. But partly it is influenced by the new understanding of the supply chain that they participate. There are number if early development trends that can be observed evidently.

From functional to process perspective. Business management used to see and take action on the functional silos in the business, It was understandable that naturally the function is what seen to be the delivery part of the business. But, today with supply chain management concept manager can see their problem more from the process perspective, understanding the functions can only make sense if it is perceived from a supply chain process perspective.

From operational to strategic viewpoint. At early years of applying supply chain management concept, managers trends to see it as another operational tactics that will help to reduce operational cost, such as purchasing function improvement and optimizing the logistics operations. But, gradually more and more managers realized that the defective changes can only be achieved it the operational issues are addressed from the supply chain wide strategic viewpoint. Operational excellence can only be manifested through its strategic fit.

From single enterprise to extended enterprise. Enterprise management is now arguable displaced but the supply chain management, where the supply chain is by definition the extended enterprise.

The long established enterprise centered management thinking was based on that the competition was raged between the organizations. Thus it becomes obsolete as the competitions are now predominantly between the supply chains. Management thinking over the extended enterprise produces great ideas that single enterprise alone cannot.

From transactional to relationship based engagement. Business engagement between firms in the pass was predominantly transaction based and cost driven. The merit of any purchasing and procurement of externally soured materials and services was judged by the transactional measures such a price, volume and delivery terms. But what's now more of the practices in working with external organizations within the supply chain is so called relationship based engagement. This relationship approach does not abandon the transactional activities but put its decision baking on much wider consideration of knowledge exchange, long-term commitment, incentive and rewards.

From local to regional, and from regional to global. Connections of supply network have over the last two decades grown from local to regional and to global. Hardly any major enterprise and suooky chain in not connected to some part of the world. You need to get out before toy can get up. This trend is spurred by the lower cost of labor and materials in many parts of the world, as well as first mover advantages in setting up global market presence.

The trends of supply chain development are not always positive and encouraging. There is now enough to support that supply chain risks are now continuously growly to the level that is higher than ever before; and supply chain integration still remains as the major management shortfall across all industrial sectors (PTRM global supply chain trends report 2012-12). The task of managing and improving supply chain performances across all industrial sectors in only becoming tougher, not easier. This calls for deeper and more through understanging of the challenges supply chain are facing.