Supply Chain Is A Cross Function Approach Commerce Essay

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Supply chain management is defined as the flow and conversion of product from the raw material stage to the finished product as well as reaching the end users involving key player such as the suppliers, manufacturers, distributor and the consumers in order to improve efficiency, reduce cost and satisfy customers. Supply chain is a cross-function approach including managing the flow of raw materials in an organization, the raw material undergo certain internal processing into finished goods and movement of the finished goods out of the organization and to the end consumers. The flow not only involves the product but also the information that is associated with the product. Supply chain basically involves three main flow; product flow, information flow and financial flow.

Product flow usually involves the movement of material or products from supplier to customers as well as customers to suppliers (reverse logistics). The information flow involves the flow of information on orders and updating the status of delivery while financial flow comprises arranging the payment terms and methodologies for exchanging funds across entities with the supply chain. This means that the execution of supply chain is the managing and coordinating the movement of materials, information and funds across the supply chain. This flow is bi-directional. Managing these flows give the supply chain manager the ability to respond dynamically to changes within the supply chain. However, how the final product is distributed is of special concern to managers. First the location of the production facility will affect the supply of labour, the cost of shipping materials, the timeless repair services and the various aspect of production supply process. Secondly transportation of the final products will place certain barriers on the product supply regarding weight, throughput time, fuel cost, sturdiness and so on. In recent times, supply chain plays a major role in our globe and its importance cannot be under emphasized. Although research studies shows the criticality of supply chain in the manufacturing industries by competitive edge through core competencies and added advantage.

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. (Razamith Sovereign, 2008).

SCM has allowed business nowadays to not just have productivity advantage alone but also on value advantage. Productivity advantage gives a lower cost profile and the value advantage gives the product or offering a differential 'plus' over competitive offerings. Through maximizing added value and also reduce the cost in the same time, more innovation can be added to the product and process. Mass manufacturing offers productivity advantage but through effective supply chain management, mass customization can be achieved. With mass customization, customers are given the value advantage through flexible manufacturing and customized adaptation. (Razamith Sovereign, 2008).

The importances cited above are all related to manufacturing industries. It should also be taken into account that without the existence of supply chain food will not be in our homes. For example, imagine a world without supply chain, every product produced by an organisation will be stored in the warehouse without delivery which in turn makes farming the only available profession because all homes will have to produce their own food leading to a big gap between the industries and the consumers. Supply chain bridges this gap between the industries and the consumer, and the desired outcome is a win-win relationship where both parties benefit and a relationship in time required for the design cycle and product development. Several links exist between the industries and consumers such are retailers, distributors, brokers e.t.c. Activities related to obtaining products and materials from outside suppliers involve resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling, quality assurance and product customization. Many of which include the responsibility to coordinate with the suppliers on matters of scheduling, supply continuity, hedging and research into new sources or programmes.

BACKGROUND

By the early 1990s, progressive companies had begun to realize the need to refocus from 'fixing' manufacturing to readdressing how to better manage the supply chain, a fact confirmed by a 1996 European-based survey. This identified that 88 percent of the companies reviewed had been carrying out significant overhauls of supply chains and saw supply chain management as the focus for improvement in their overall performance (Terry Hill 2000). This work was carried out on how to improve supply chain in retail stores based on the availability and stock out of products, causes of low sales of products, effects and managing inventory. For the purpose of this coursework, limitation was made to immediate retailers such as Tesco, Iceland and ASDA. In recent times, it was observed that certain products seize to appear in the retail stores for consumers and little or nothing has been done to avert the situation - the reason why products make low sales and the role of inventory as a measure to curb this problem. This research study also bring into the limelight the implementation of supply chain in the various organization and the competitiveness between the retailers in order to produce more customer satisfaction services as well as meet their immediate demand.

DATA COLLECTED

The goal of the supply chain is to link the market, distribution channel, operations process and supplier base such that customers' needs are better met at lower cost. Perhaps more importantly, retailers sit in a very important position in terms of information access and power for the supply chain. Power within the supply chain is a central issue, one that in today's marketplace centres on information sharing. Although not universal to all industries, there has been a general shift of power from manufacturers to retailers over the last two decades. Retailers can now make demands for manufacturers to meet such as a specific quality of the products and customization of the product supplied. For several reasons, major retailers such as Tesco, Iceland, Sainsbury and ASDA have risen to this position of prominence through technologies such as bar codes, scanners, sheer size and sales volume and most importantly their position within the supply chain right next to the final customers. This combination of factors has put retailer in a very powerful position within the supply chain.

CASE STUDY 1

Tesco is one Europe's largest supermarket chain. During 2000, in an attempt to form close partnership with its suppliers as well as improve the effectiveness of supply chain coordination into its stores.

An interview section was held with the stock manager of Tesco Metro who started in Tesco Metro since 1990 revealed that:

Tesco has 10 to 12 distribution centres in the UK and supplies are made on order.

Keep low stock of fresh and frozen foods due to short storage life.

It also has 2 distribution centres for fresh foods called Wincanton and Middlewich.

Tesco has over 200 best seller products i.e. best buy.

Reduced prize to sell volume e.g. 24packs of beer instead of 18pack.

Reduce pay role cost.

Reverse logistics only on clothes and electrical components.

Save £400,000.00 on transportation cost based on fuel consumption.

Reduced stock holding by £1,000,000.00 this year.

Five delivery each week was cut down to two which reduces transportation cost

Apply benchmarking principles by comparing Tesco performance with other competitors.

Reduction of price to some of the products.

Each product has a shelf life and a book stock.

Run out of sales during special offer (buy one get one free and half the price)

Supply chain business and material management has the potential to improve the time-to-market of products, reduce costs, and allow all parties in the supply chain to better manage current resources and plan for future needs. It is essential for our organisation to have very low stock (inventory) in order to cut cost and prevent wastage especially for fresh foods and frozen food items. The store manager reports to the distribution manager and the distribution manager reports to the distribution head, who oversees all the activities in Tesco Stores. (Stock Manager - Tesco).

CASE STUDY 2

An interview was also held with the stock manager of Iceland Stores. Iceland Stores, which is also a prominent retailer store in the UK, are involved in the sales of groceries and food items. The interview with the stock manager shows that Iceland Stores:

Has 5 distribution centre in the UK and supplies are made on order

Keep low stock of fresh and frozen foods due to short storage life

Low price system compared to other competitor e.g. Tesco

Very low reverse logistics due to only food items

Each product has a shelf life and book stock

Reduced stock holding by 5% compared to last year

Apply benchmarking principles by comparing with other competitors

More sales on price reduction.

No reason for unavailability of product.

Orders are made twice a week depending on volume of sale and stock level.

Supply chain management is a way our organisation tries to make it appropriate to satisfy our customers and I think we've achieved that. (Stock Manager - Iceland Stores).

Products

Inventory

Reduced Inventory

Sales

Reverse Logistics

Inventory

Reduced Inventory

Sales Reverse Log.

Fresh foods

Low

By £1m

Daily

No

Low

5% down

Daily No

Packed foods

Low

By £1m

Daily

No

Low

5% down

Daily No

Electrical components

Low

By £1m

Daily

Yes

Low

5% down

N/A N/A

Clothes

Low

By £1m

Daily

Yes

Low

5% down

N/A N/A

Can foods

Low

By £1m

Daily

Low

5% down

N/A N/A

TESCO ICELAND

Table 1: Comparison of Product Availability between Tesco and Iceland

Reduced inventory is for the total available products, N/A - Not available

ANALYSIS

Managers increasingly find themselves assigned the role of the rope in a very real tug of war-pulled one way by customers' mounting demands and the opposite way by the company's need for growth and profitability. Many have discovered that they can keep the rope from snapping and, in fact, achieve profitable growth by treating supply chain management as a strategic variable. However, when asked about the unavailability of certain products in their respective store each with a response that we are expecting supplies from our suppliers and we don't know why there has been some delay but we hope it should arrive soonest.

These managers recognize two important things:

They think about the supply chain as a whole, all the links involved in managing the flow of products, services, and information from their suppliers to their customers.

They pursue tangible outcomes, focused on revenue growth, asset utilization, and cost without putting much emphasis on availability. (David L. Anderson, Frank F. Britt, and Donavon J. Favre, 1997).

CAUSES OF UNAVAILABILITY OF PRODUCT

This interview with also reveals that products that seize to appear in retail stores (Tesco and Iceland) are due to:

The inability for producer to meet the retailer's request on quality and customisation of products.

Development of better product which causes low demand for previous product, followed by the extinction of the product.

Uncertain excess demand i.e. when the demand for a particular product far exceeds the availability of the product.

Stock out

Excess demand in festive period.

The poor performance of product in the market.

REASONS FOR LOW SALES

Low or poor quality product: The quality of a product is of high importance to the retailers and consumers. Products with low quality from manufacturer often suffer long period of display due to customer rejection. For instance a product which is not properly wrapped or sealed is best marked as poor quality and products falling off the shelf can lead to poor quality due to dents and slight leakage.

Customer's preference: The choice of customer is another major factor contributing to low sale in the retail stores. Since all customers have the right of choice a customer might prefer to purchase a product A rather than product B base on choice.

Seasons: Seasonal products tend to sell more in their season and sell less when its season it's over. The sale of Christmas lightings rise during Christmas season and fall after Christmas which causes the product to remain in the store till the next Christmas season.

High Price: Price can also lead to low sale but it's not a major factor since some customers can pay any amount at the right quality.

IMPROVEMENT OF THE SUPPLY CHAIN IN THE RETAIL STORES

In order to improve the efficiency of the supply chain in these retail stores certain factors need to be considered such as competitive dimension, working with the right information, adequate inventory management and efficient customers' service.

COMPETITIVE DIMENSION

Given the choices that customers face today, how do they decide which product or service to buy? Different customers are attracted by different attributes. Some customers are primarily interested in the cost of a product or service, and correspondingly some retail stores attempt to position themselves to offer the lowest price. The major competitive dimensions that form the competitive position for retail stores include:

Cost: Within every retail stores, there is usually a segment of the market that buys solely on the basis of low cost. To successfully compete in this niche, a retail store must be low-cost store, but even doing this does not always guarantee profitability and success. The competition is so fierce and many stores are lured by the potential for significant profit

Product Quality and Reliability: The goal in establishing the proper level of product quality is to focus on the requirements of the customer. Overdesigned products with too much quality will be viewed as prohibitively expensive. In contrast, underdesigned products will lose customers to products that cost a little more but are perceived by the customers as offering greater value. Quality is important because it relates directly to the reliability of the product.

Flexibility and New Product Introduction Speed: Flexibility from a strategic perspective (Richard, Robert and Nicholas 2004) refers to the ability for a retail stores to offer a wide variety of products to its customers. An important element of this ability shows the competence of the retail store.

WORKING WITH THE RIGHT INFORAMTION

The availability and visibility of the right information to enable the right product, at the right time, at the right place to ensure cost-effective decision-making for efficient product or service delivery, (Hitesh Attri, Supply Chain Consultant at eKNOWtion).  To achieve improved customer performance and reduce internal costs, supply chain visibility is needed. A clear supply chain visibility roadmap is critical for implementation.  Some aspects to consider are: identify the right metrics and define targets, identify root causes for missing information, set up a cross-functional team and involve all stakeholders in the process. A clear process with responsibilities, automation of data acquisition wherever possible and continuous improvement is vital for success. Clear supply chain Visibility and information can create value for shareholders and a competitive advantage for all retail store businesses.

ADEQUATE INVENTORY MANAGEMENT

Inventory is best described as a stored cost that will eventually be turned into income. An increase in inventories generates income and decreases available cash while a reduction in inventories has the reverse effect i.e. a positive cash flow. This presents a conflict in that managers in most organisations emphasise income as a measure of performance over cash flow, therefore it is best to optimize inventory. Inventory optimization is part of the inventory right-sizing strategies of organisations; this should be formalized in inventory policy. The connection between target inventory days and product life cycle is a vital factor to be considered. Aspects of the inventory policy are demand, lead times, number of products, objectives (like service levels or minimizing costs) and the general cost structure.

The inventory strategy should be set by the business strategy and can be mapped out in a simple format, (Douglas Kent, President of eKNOWtion, showed in his presentation). It could be composed of competitive requirements, like reliability and responsiveness.

Therefore, it is essential for all retail stores to have enough inventories to cover the customer demand no matter what and at the same time not so much in order not to keep too much investment.

EFFICIENT CUSTOMERS' SERVICE

The relationship between the retailers and the customers can not be under emphasised in the sense that the retailer is the last contact between the product and the customer. In order to keep the customers, the need of high service level arises. Apart from availability of products for the customer other resources can also be used to improve the services in retail stores such as customers feedback on service level provided, provision of shopping tools, cordial interpersonal relationship between staffs and customers, immediate attendance to customer's queries and the use of electronic gadget for ease of shopping.

CONCLUSION

Collaborative initiatives such as price discounts, flexibility and other promotions can be planned jointly; tracking the progress of a sales promotion and evaluating its effectiveness can minimize stock outs and reduce waste. More also inventories should be calculated based on the lead time demand and the available safety stock and not only on the level of sales. It is this immediate supply of data which helps with supply chain coordination. As a key factor it became clear that not one supply chain strategy fits all organizations. The future can be seen in the concept of supply chain design and optimization, where an optimal business result will be generated from the combination of supply network optimization and inventory optimization.

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