Customer Supply Chain - Assignment Example

Running Head: SUPPLY CHAIN Supply Chain s Supply Chain This paper shall address the critical issue of customer supply chain management and the importance it has on the entire organisation. The first part deals with the literature regarding this topic, and the second part shall link the theory with my observation of Customer supply chain at a Bank in Northern Ireland. A supply chain is the process of transferring goods from their points of origin to markets or to end consumers. A few decades back, supply chain management was given the least importance in organisations, but now firms have realised that efficient supply chain management results in satisfied customers, which in turn means more business. It has been noted that corporate and business level strategy has often overlooked the manufacturing function (Kotha and Orne, 1989). Indeed, Skinner (1969) claimed the focus of corporate strategy on a firm's business mix and short-term profitability had eroded the manufacturing infrastructure and its potential link with long-term profitability. Meanwhile, business level strategy has focused primarily on product positioning (Mintzberg, 1988) and has generated only limited discussion on how to actually produce a product or service that fits the prescribed Position (i.e., Porter's value chain (1985) and Kotha and Orne (1989). Now, however, banks are implementing a new type of supply chain management, where the firm views the supply channel as a whole system instead of concentrating on each part of the process. The bank focuses on all efforts, from the development of new products to their launch and successful implementation for the valued customers. This allows more communication to exist within the organisation and problems to be more easily identified. (DeCovny 2003) I shall show that implementing effective supply chain management is an advantage for banks that provide services. The tools of supply chain management that will be described include making and keeping relationships, implementing new technology in the supply channel, the use of forecasting to increase supply chain effectiveness, outsourcing to increase efficiency, and cost management as a strategic weapon. (Andraski, 1998) A case study from the Banking industry will be used to reinforce the importance and value of supply chain management in the service sector. I shall evaluate implementation steps and the benefits and limitations of supply chain management. Finally, a discussion of our conclusions on the subject of supply chain management in the service industry is provided (Ellram, 1991) Supply chain management has emerged as one of the major areas for companies to gain a competitive edge. Managing supply chains effectively is a complex and challenging task, due to the current business trends of expanding product variety, short product life cycle, increasing outsourcing, globalisation of businesses, and continuous advances in information technology. The Internet has contributed to both the increasing needs and opportunities for improved supply chain management. With the Internet, companies in a supply chain can be connected in real time with information and knowledge shared continuously, new products and services can be designed to fit special market segments, and new supply chain structures can be developed to serve customers in a more direct manner. When a company faces the pressure of excessive inventory, degraded customer service, escalating costs and declining profits, or a poor return on assets, its supply chain is out of control. On the other hand, when a company moves in to new markets or new technologies, it must have its supply chain prepared for the new business challenges and opportunities. Although there are many new supply chain concepts and fads designed to exploit the advantages of the Internet, successful companies understand that the right supply chain strategy is dependent on a number of factors: - The strategy needs to be tailored to meet specific needs of the customers. - A product with a stable demand and a reliable source of supply should not be managed in the same way as one with a highly unpredictable demand and an unreliable source of supply. - The Internet can be a powerful tool for supporting or enabling supply chain strategies for products with different demand and supply uncertainties. Service oriented supply chain management The service industry is becoming increasingly dominant in the United Kingdom, and employment numbers are shifting from manufacturing toward services. The problem is that the separation between the service industry and manufacturing is not always as black and white as many experts thought. Sometimes there is a grey area, a mixed industry that blends both the manufacturing and service sectors. An effective supply chain is needed to link these sectors. As the service sector grows in importance, it is evident that the face of tomorrow's business is service. In fact, "services account for nine of ten of the small business-dominated industries that have logged the fastest growth through 2004-5, according to analysis by the U.K. Small Business Administration (SBA)" (McCune, 2004). Other service industries experiencing rapid growth include, healthcare (childcare, medical, dental laboratory, individual and family services etc) and education just to name a few (McCune, 2004). This reflects the increase in the dual income family, which is a part of many British lives. As the number of working women grows the need for childcare and counselling increases. The extreme growth of the banking industry is largely due to the increased trust the consumers have upon the services of the banking industry. Handling the expanding volume while providing optimal customer service requires businesses to rethink their strategies for success. Supply chain management is becoming a necessity for continued competitiveness and success. (Ellram, 1996) Effective supply chain management in the services industry is a key aspect for the banking sector, as the recent growth in the demand for banking services have put pressure on quality supply chain management methodologies to be adopted (McCune, 2004). Relationships: The most important contributor to success in the service industry is building strong relationships with customers. (Pagh 2000) Banks can benefit in numerous ways from loyal customers, including increased revenues, predictable spread and profits, low customer turnover, generation of new business from word of mouth, and costs that can be amortized over a longer period. However, for the relationship to be successful and long term, the customer must also benefit. . There are traditional and modern views of supply chain management. Similarly, service banks can choose between the bow tie (traditional) and diamond (modern) approaches when building relationships with each other (Cooper et al., 1995). The bow tie idea provides for interaction only between the buyer of one business and the seller of another, while the diamond approach allows all functions to communicate (Cooper et al., 1997). The traditional process requires a kind of filter, in the form of an account manager (Cooper et al., 1997). However, this does not maximize communication between the firms, which may decrease relationships and lower efficiency (Cooper et al., 1997). In the diamond approach, advantageous relationships are more apt to occur and greater communication results. Reasons for forming relationships within a service industry include necessity, asymmetry, reciprocity, efficiency, stability, and legitimacy (Cooper et al., 1997). Technology: Changes in technology have extreme effects on how a firm manages its supply chain. Specifically, electronic commerce (EC) is extending value within the supply chain management process. Businesses use EC to integrate their internal functions with the applications of shippers, suppliers, and customers (Scarborough & Spatarella, 1998 EC allows shipment status messages to be received instantaneously and provides vendor-managed and continuous replenishment inventory programmes (DeCovny 2003)This new technology decreases inventory risks and maximizes the sale of products with short life cycles by reducing the time it takes to reach the broadest possible market (Scarborough & Spatarella, 1998). EC also promotes competitive advantages by having a more accessible order-entry process, decreased paper handling, and less re-keying of information (DeCovny 2003). Although there are obvious benefits for banks using EC in their supply chain, barriers to this technology also exist. The problem that most often arises is a security breach within the system (DeCovny 2003). Another difficulty is that many organisations lack the resources to integrate EC with their supply chain, including skilled employees (DeCovny 2003). Some firms choose to seek help from consultants and advisors before making mistakes with their technology procurement endeavour (Scarborough & Spatarella, 1998). This makes the switch to electronic commerce quite a bit easier. Forecasting: A bank can effectively use customer data to synchronize its supply chain operations with consumer needs. This can be done through customer-supplied forecasts, which many people deem a necessary part of managing a supply chain. Robert Altabet, who was the vice president of business management in the Alliance & Leicester and Abbey National, stated that, "the latest emphasis of forecasting has been in the areas of scheduling and logistics, renamed 'Supply Chain Management'" (Altabet, 1998). Another article says, "Forecast horizons can impact a host of functional areas in the supply chain" (Saran, 1998). An accurate spread forecast can have numerous advantageous results in the process of supply chain management. Effective forecasts provide vendors with more accurate data, improve efficiencies in product distribution, reduce supply chain inventories, and enhance customer service. In general, forecasting helps businesses serve their customers more efficiently, without the constant fear of excess inventory. However, if supply chain management uses an erroneous forecast, the results will be felt throughout the entire system. Outsourcing: Manufacturing and service industries are grappling with the decision of whether to make or buy the parts used to manufacture their products. To answer this question, a bank must weigh the cost factors. Experts believe that "banks are heading toward greater specialisation and outsourcing for the materials needed to make their product" (Laios & Moschuris, 1999). Product complexity and. commercial uncertainty is linked to how much technology is involved and the degree of risk for the business (Laios & Moschuris, 1999). In the service industry, satisfying the customer is the highest priority. Businesses must link the decision to make or buy based on which option provides optimal customer satisfaction and the most cost-effective methodology. This is why procurement is being recognized as an important tool for improving a service corporation's bottom line (Anderson & Katz, 1998). Generally, the end product and ultimately the customer will benefit from outsourcing in the service industry. This importance is being pushed on the outsourcer to ensure that materials will arrive on time and in good condition. Service firms must consider quality, reliability, transportation costs, the costs of acquiring and managing, and the value of the final product to the customer (Anderson & Katz, 1998). Cost Management: Cost management is an important strategic weapon for a business. "External purchases of products and services account for more than 50 percent of total costs" (Degraeve & Roodhooft, 1999). Without sacrificing quality, services must create a reliable, cost effective supply chain to be competitive in the marketplace. Technology has increased the reliability of cost management systems using computer packages designed for specific banks (Anderson & Katz, 1998). A mathematical model has been created to weigh the different costs of a supply chain. The objective of this model is to choose the right combination of suppliers, with the particular criteria important for the purchasing decision. The model's benefits include the ability to compare the cost savings from one year to the next. Results can even be used as a negotiation tool with a firm's suppliers (Anderson & Katz, 1998). An effective way to save money is for a business to increase efficiency through technology and improved accounting systems. (Roberts 1998) Supply chain management in the Banking Industry Increased revenues and enhanced service are key corporate objectives. With this in mind, the Banking sector is trying to figure out ways to cut costs but still keep their customers satisfied, and many are now looking to their supply chains for the answers. A Banking supply chain deals with factors such as the enhancement of products, product quality and target market, multiple product mix (to build custom packages for customers), multiple branch locations, multiple methods of payments, and multiple accounts and types of customers (Smith, 1997). Banking sector have to specialise in many different types of services and supplies based on customers' diverse needs, while still increasing revenues and satisfying the customer (Smith, 1997). This can be nearly impossible to achieve. The position of a bank product development manager is becoming important because of the decisions he/she make which might have a drastic impact on the success of the banking services. He/she have the responsibility of choosing what, when, and how much to order. Hiring people to deal with the logistics of the bank benefits the customer in the end. Efficient customer care management leads to greater profits by decreasing customer care costs and increasing customer satisfaction. (McIvor, 2000) With these improvements in supply chain management, banks are searching for more breakthroughs to help cut costs and make the supply chain more effective. A shorter supply chain decreases the costs and distributions that are involved and often makes the supply chain more effective and efficient. This was the motivation for Anglo Irish Bank, although its one-stop banking theory is was thought to be highly risky by critics, (for e.g. Speer, 1997). I believe that the idea of one-stop banking has proven to be highly profitable if implemented cautiously. Banking sector will be evaluating the effectiveness of one-stop banking. Bank in Northern Ireland's goal was to hire salesperson who would sell all of its services and products to potential customers (Speer, 1997). Implementation of this approach will necessitate restructuring the new bank, including building highly automated treasury house, offering same-day service, and reducing the total number of branches (Speer, 1997). The organisational restructuring in banks has extended its customer base from 39% to 49%, says spokesperson John Lawrence (Speer, 1997), a great success for the bank. However, there will always be competition, and the likelihood of Anglo Irish Bank monopolizing the market is very unlikely. The prospect of combining technology with effective supply chain management and enhanced customer support is appealing to many supply chain managers who wish to increase revenue for their banks. (Lonsdale and Cox, 1997) A service business must be cautious when implementing supply chain management. The concept of supply chain management is holistic and must focus on all efforts. "An understanding of how cost accumulates through the supply chain in a holistic way, based on the combinations of products and customers, is essential to handling the business issues associated with the supply chain" (Braithwaite & Samakh, 1998). It is also important that both internal and external customers be taken into account when establishing a supply chain. Although most banks realise that the supply chain is affected by external links with such members as suppliers, partners, and customers, they often forget that success also depends on internal departments that serve one another and contribute to the value adding process (Morash & Clinton, 1997). Benefits of supply chain management: There are many benefits to supply chain management, which outweigh the added energy that must be spent. These include decreased lead times, faster product development, increased quality, and reduced costs (Choi & Rungtusanatham, 1999). In addition, supply chain management greatly improves customer service and contributes to synergy within the process. This is especially crucial in service industries, where the emphasis is on meeting the customer's needs. All of the benefits lead to greater competitiveness. (Supply Chain Streamlining Nets Big Savings, 1998) Limitations of supply chain management: There may be severe resistance within the bank when implementing supply chain management, because it requires modification of the attitudes and behaviour of those involved in the system - employees and the employer. Resistance to change is common and predicting employee behaviour is difficult. A lack of understanding by senior management is another possible reason for the resistance to supply chain management (Andraski, 1998), given that an unwritten rule of business is to minimize risk and cover all angles. Executives may feel that supply chain management is too simple and is merely a passing whim (Andraski, 1998); however, their commitment is vital to guide other employees and to obtain required resources. The Supply chain process has established and created its own inefficiencies, as the methodological process should be intended from both the strategic and tactical vistas. (Cox and Lamming, 1997) The appropriate operational design must lecture the details to make the process function realistically. (Weele and Rozemeijer, 1996) The supply chain should be intended from the end user back via the different product and service providers. The purpose should be clear. Each party's role in the transit of product and information should be completely defined and substituted. Communication should be patent and flow both ways. (Thompson, 1998) The likelihood for exceptions should be allowed and be constructed into contingencies for the plan. When exceptions happen too often, there is no course. Supply Chain management and latest technology Some uncertainty characteristics require supply chain strategies with initiatives and innovations that can provide a competitive edge to companies. These strategies can be classified into four types. Information technologies and the Internet have played an important role in shaping such strategies. - Efficient Supply Chains --These are supply chains that utilise strategies aimed at creating the highest cost efficiencies in the supply chain. For such efficiencies to be achieved, non-value-added activities should be eliminated, scale economies should be pursued, optimisation techniques should be deployed to get the best capacity utilisation in production and distribution, and information linkages should be established to ensure the most efficient, accurate, and cost-effective transmission of information across the supply chain. The role of the Internet in this case is that it enables the supply chain to have tight and effortless information integration, as well as enabling production and distribution schedules to be optimized once the demand, inventory, and capacity information throughout the supply chain are made transparent. - Risk-Hedging Supply Chains --These are supply chains that utilise strategies aimed at pooling and sharing resources in a supply chain so that the risks in supply disruption can also be shared. It is therefore a risk-hedging strategy. (Degraeve & Roodhooft 2003) A single entity in a supply chain can be vulnerable to supply disruptions, but if there is more than one supply source or if alternative supply resources are available, then the risk of disruption would be reduced. A company may want to increase the safety stock of its key component to hedge against the risk of supply disruption, and by sharing the safety stock with other companies who also need this key component, the cost of maintaining this safety stock can be shared. Such inventory pooling strategies are quite common in retailing, where different retail stores or dealerships share inventory. Distributors such as Ingram-Micro have also provided similar pooling of inventory for their customers. The Internet plays a key role in providing information transparency among the members of the supply chain that are sharing inventory. Having real time information on inventory and demand allows the most cost-effective transhipment of goods from one site (with excess inventory) to another site (in need). - Responsive Supply Chains --These are supply chains that utilise strategies aimed at being responsive and flexible to the changing and diverse needs of the customers. To be responsive, companies use build-to-order and mass customisation processes as a means to meet the specific requirements of customers. The customisation processes are designed to be flexible. Order accuracy (i.e., accurate specification of customer requirements) is the key to the success of mass customisation. Again, the Internet has enabled very accurate and timely capturing of highly personalised requirements of customers as well as fast transfer of order information to the factory or customisation centres for the final configuration of the product. (Andraski 2002) - Agile Supply Chains --These are supply chains that utilise strategies aimed at being responsive and flexible to customer needs, while the risks of supply shortages or disruptions are hedged by pooling inventory or other capacity resources. These supply chains essentially have strategies in place that combine the strengths of "hedged" and "responsive" supply chains. They are agile because they have the capability to be responsive to the changing, diverse, and unpredictable demands of customers on the front end, while minimizing the back-end risks of supply disruptions. When supply processes are still evolving and therefore are faced with uncertainties regarding yield, process reliability, supply source, and lead-time, companies must find ways to prevent such uncertainties from ultimately affecting demand fulfilment. These companies should aim at establishing "risk-hedging" supply chains. Here is where inventory pools can be most effective. Such inventory stocking points decouple the supply chain so that the uncertainties of supply can be shielded. When the component with the evolving supply process is of low value, then it is clearly worthwhile to stockpile the components so that the order fulfilment process will not be disrupted due to part shortages. With an evolving supply process, companies may also need to develop multiple supply bases so that backup supply sources are available. The costs of managing the multiple supply bases may be higher, but the risk of supply outages can be reduced. The Internet can serve as a means for companies to have supply and demand information and thereby enhance the efficiency of inventory pooling. (Lee and Whang 2001) The Internet can also be used to support risk-hedging supply chains. First, supply conditions can be shared quickly and accurately via the Internet, so that the downstream sites can use that information to plan accordingly. Second, the Internet enables a buyer to quickly identify alternative supply sources in the face of supply uncertainties. Third, the Internet, via market exchanges, can extend the reach of a typical buyer to suppliers from a global market. See Commerce, a new start-up company based in Palo Alto, California, was instrumental in helping DaimlerChrysler's service parts division improve its service performance drastically by providing total visibility of its service supply chain.(Chen et al., 2000) Similarly, Instill Corporation, a major market exchange in the food service industry, helps risk-hedging food operators (such as Subway) significantly improve their efficiency. Market exchanges (such as Covisint in the automobile industry) help to expand the supply base of manufacturers, as well as to identify availabilities of scarce components. Conclusion Supply chain management in the service industry has taken off in recent years, and many banks are considering it. How a manager handles his bank's supply chain will help determine if its product will make a profit in the marketplace. Because there is a lack of knowledge and understanding to assist managers in the service sector, it is crucial that today's managers obtain a full appreciation for what supply chain management is and how it can be implemented successfully. A better appreciation for the supply chain management process can be gained by understanding service industries. A crucial example is the banking industry, as the banking industry is attempting to implement a supply chain that delivers quality products at minimal cost. Some of the problems that have arisen have to do with the lack of an efficient programme to deal primarily with banking facilities and just-in-time management. Benefits, limitations, and the implementation steps of supply chain management help show where the new Banking phenomena are headed. (Austin and Lee 2003) Supply chain management is not a passing fad but rather an evolution in the operations of services. I predict that services entering the supply chain management gate will save millions of Pounds in expenditure that would otherwise be spent because of a dysfunctional supply chain. As supply chain management is an important part of most big organisations in the world, it is vital that managers do not make a "leap of faith," so to speak, but research the process thoroughly. This should enable them to choose a supply chain that will be most beneficial in obtaining the main objective for any bank, which is to make a profit. As one author stated, "the reward - a remarkable competitive advantage that generates high growth in spread and profits" (Pagh & Cooper, 1998). References Altabet, R. (1998, fall). The forecaster as a key member of the strategic planning team. The Journal of Business Forecasting Methods & Systems, 17 (3), 3-6. Anderson, M. G., & Katz, P. B. (1998). Strategic sourcing. The International Journal of Logistics Management, 9 (1) 1-13. Andraski, J. C. (1998). 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