Use of Supply Chain Management as a Method of Inventory Control - Essay Example

and number of paper: Use of Supply Chain Management as a Method of Inventory Control submitted Introduction In the current environment of highly competitive business and advancing technology, coordination across different business processes and operations have become vital ingredient of business strategy. With fast changing preferences of customers, the short life cycle of products have necessitated creative approach to manage inventory and supply chain to not only compete successfully but also to ensure continued customers’ loyalty. The emerging role of supply chain as integral part of inventory control has become hugely relevant issue for businesses. Indeed, successful SCM not only improves productivity but also provides the business with long term sustainability in the highly competitive business environment. The fast transforming business dynamics, including rapid globalization, technology and diversity in product variety and short life span have all contributed towards tough market conditions (Lee 2002). Thus, challenges of effective SCM, especially as a key method of inventory control, have become major issues to improve and improvise inventory management in order to optimize performance outcome and maintain competitive edge. Supply chain and its impact on inventory control Supply chain and inventory management are intrinsically linked to the wider goals and objectives of the business. Supply chain or the logistics can broadly be defined as ‘set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system-wide costs while satisfying service level requirements’ (Kaminsky, 2003:1). The various imperatives of SCM are mainly designed to meet the changing needs and requirements of the customers. The SCM therefore is network of activities that encompasses supply and delivery of raw materials for manufacturing goods and delivery of the finished product to the end customers. Inventory, on the other hand is collection of raw materials and finished goods which need to be used in future. The inventory control system helps to streamline the supply and demand of the products by making available the raw material and finished good at any set time for the manufacturers and the retailers. The inventory or stock maintained at different stages of production and distribution is important element of inventory control system that helps to assess the quantity and time when products need to be replenished with fresh stock or new stock as per the demand. The cost effective analysis of stock helps to anticipate demand and supply of products, both of raw material and final products. For example, fast moving products and products with short life are stored in forward warehouse and slow moving products, risky or costly products are placed at central warehousing as shipped or moved to the destination when required. Thus, delivery of product is fast through the warehouses where the inventory is strategically placed or stored. Inventory is used as key constituent in SCM to coordinate various processes in order to meet the challenges of time with high efficiency and timeliness. Consequently, various factors like time, availability of raw material, coordination with various linkages like suppliers, distributors, warehouse, retail outlets etc. become hugely critical issues that need to be incorporated for higher performance. Porter (1985) strongly asserts that efficient SCM is vital ingredient of value chain that facilitates business activities to gain competitive edge. In the current dynamics of contemporary global business, goods are highly sensitive to pricing and changes. Effective SCM enhances operational efficiency within and outside the firm to meet the challenges of the fast changing requirements of the customers. Moreover, increasing efficiency and cost effectiveness across the entire system is critical aspect of SCM that improves and improvises performance outcome (Chopra & Meindl, 2010). The logistic details from the transportation of raw materials from various suppliers to the distribution of finished goods to the warehouse, distributors and retailers are monitored through effective communication mechanisms that considerably help to minimize cost and enhance efficiency of controlling inventory at various stages of business operations. Indeed, inventory plays key roles in the overall system as it facilitates access to products and services by the customers. The various inter-related processes are synchronized for optimizing supply chain management and meet the dynamic demands manufacturers so as to meet the changing requirements of the customers while maintaining cost-effectiveness of the SCM and highlighting exemplary customer satisfaction. Thus, inventory control and management becomes crucial factor within SCM to achieve broader goals and objectives of the business and maintain leverage in the highly competitive global market. Integrated approach of SCM to manage inventory The uncertainty and risks involved in the complex process of SCM need to be assessed and evaluated constantly. The changing environmental conditions like fast transforming socio-political and economic conditions and shortening shelf lives of products with high demand have considerable impact on the inventory which needs to be updated timely and efficiently to ensure complete customer satisfaction. Effective logistic planning greatly facilitates in providing the businesses with the operational efficiency to synchronize its network of operations for improved organizational productivity. The uncertain environment increases risks for the businesses and necessitates an integrated approach that is backed by effective communication system to reduce the same. This enables the businesses to anticipate supply and demand of the products and customize them more efficiently to enhance customer satisfaction and customer service. Two key reasons considerably contribute in reducing cost and improving performance in SCM. The foremost is efficient management of inventory and creating successful channels of distribution. The second reason helps to meet the need of raw materials for the production of units and supplying the finished goods to the network of distributors or retailers so that goods and services can reach the consumers timely and efficiently. The integrated approach highlights forging of new relationships with external agencies to improve its efficiency and effectiveness of its business strategy. Most importantly, good SCM practices help to expand business across the globe and provide the organization with sustainable source of continuous income and strong motivation to be creative in approach. Through strategic SCM planning, organizations are better equipped to optimize operational functions for efficient receipt and delivery of goods and services. Challenges of SCM in managing inventory effectively Supply chain management is critical part of business as it helps develop network of internal and external linkages vis-à-vis raw material provider, distributors, warehouses and ensuring safe transportation of goods to various stores etc. supplying finished goods to customers. Supply chain and inventory are considerably influenced by external environment, especially recessive trend and increasing cost of transportation logistics due to higher fuel prices. Thus, improving supply chain becomes essential part of strategic planning to reduce overall cost and develop operational efficiency so as to gain competitive advantage within the industry. Another very important aspect of effective SCM is that firms save substantially on idle inventory in the warehouse or the retail outlets. In the current times, it has emerged as vital issue because the large stock of slow moving products could raise the cost of business and adversely impact its performance. Hence, improving supply chain is very important aspect of business to become cost effective through well-organized inventory control mechanisms. The supply chain is complex due to its dependence on different external agencies and importance of flow of information across them. The customers’ demands are reflected in shopping centers and orders are generated for logistic hubs which are then analyzed for demands then sent to manufacturers. As a result, the manufacturer uses suppliers for raw materials and semi-finished goods and sends finished goods to the retail outlets through distributors and warehouses where they are stored. In the contemporary times of high competition, the challenges of information technology and real time collaboration based network becomes critical to SCM as it uses information and data to address the changing demands of the customers. The computerization of its various inter-related processes help monitor, evaluate and analyze market imperatives for creating effective chain of information system for keeping deadlines. The readiness of delivery is highly crucial for businesses to maintain their competitive advantage within the industry as it helps to track inventory at any time and expedites production and delivery to the end customers. Factors that increase the effectiveness of SCM and inventory management Cooper et al. (1997) have described SCM as planning and management of information flow through the organization to evolve network solution for supplier and customers at competitive cost. Information flow helps to identify and fulfill the requirement to improve operational efficiency of the various functional imperatives of the firm. The various processes like movement and control of raw material from the procurement to the manufacturing process and sale and distribution of final product to the customer require judicious planning so that customer gets the desired product at the right time. Using technology greatly facilitates smooth flow of information across different inter-related units. It helps to forecast the products requirement so that it can maintain the inventory and meet the requirements of the customers at short notice or distributors demand for fast moving products. It becomes highly desirable as it reduces cost of storing vast amount of inventory which could become a huge liability as demands for it may vary due to fast changing preferences of the customers (Christopher, 2005). The network solution through information technology also creates critical linkages and alternatives for meeting contingencies to justify economy of scale. The perceived value proposition of the technology based SCM optimally manages the flow of products, services and information across the organizations, including suppliers, customers and various stakeholders. It is highly relevant in the current era of globalization when the firms are fast expanding across geographical boundary and have to maintain inventory of items across widely dispersed areas. The challenges of meeting local demands could be effectively met through an integrated system that is able to exploit benefits of differentiation offered within operating divisions of the firm. The distribution of inventory within the divisions can be used to meet the needs of the local demands. State of the art SCM also helps in sharing of resources, joint purchase, sales and marketing to reduce the overheads. The complexity of the supply chain management across different partners and within and outside the firm, including firms’ different outlets, especially due to their location and extent of coordination amongst them could significantly influence performance. The smooth flow of information and sharing of the same across firms’ divisions and branches could be exploited by the use of technology. It would introduce empowered decision making and at the same time, equip the centralized office to monitor the operations of widely distributed network of its divisions and products. The use of technology in the various areas like accounts, sales and marketing, supply chain, purchase, inventory control etc. would help to generate important information timely. The divisions and various retailers can share the resources within and across the units to enhance efficient delivery of goals and objectives. Thus, technology can considerably simplify SCM to manage firms’ inventory of raw materials and finished goods as well as the inventory of products maintained by distributors and retailers. Nestle is prime example of an organization that uses supply chain management as a method of inventory control. It is a flagship company in the food industry that has expanded its interests across the globe. It has huge product variety across its different divisions, located in different geographical areas. An integrated SCM, using technology based resource management technique, helps to exploit its differentiation of products by sharing information vis-à-vis inventory of products at different units on a real time basis (Knolmayer et al., 2009: 183). The subsidiaries and branches are therefore able to coordinate and share resources to optimize performance. At the same time, effective SCM ensures availability of differentiated goods at short notice. It efficiently integrated internal and external business information across the firm’s subsidiaries and divisions for empowered decision making based on informed choices. Conclusion The inventory system is hugely crucial ingredient of effective supply chain management. The cost of supply chain management could be significantly reduced by managing its inventory judiciously, using technology and information flow. The information helps to monitor and supervise inventory at different stages of supply chain management across its different partners. Indeed, using technology within supply chain management greatly optimizes inventory management in fulfilling high demands and utilizing excess inventory by encouraging sharing across its network. Large inventories at various units could become huge liability for firms if their demands diminish. They need to be shared and moved across the network not only to reduce cost of idle inventory but also to create new spaces for products that are currently in demand and may have shorter life cycles. An effective SCM therefore, uses inventory as key element to develop network solution and increase productivity. Reference Cooper, M.C., Lambert, D.M. and Pagh, J.D. (1997) Supply Chain Management: More Than a New Name for Logistics. International Journal of Logistics Management, 8(1), 1-14. Knolmayer, Gerhard et. al. (2009). Supply Chain Management based on SAP System: Architecture and Planning Process. Berlin: Springer. Kaminsky, Philip, A. (2003). Designing and Managing the Supply Chain: concepts, strategies and case studies. NY: McGraw Hills. Lee, Hau. (2002) Aligning supply chain strategies with product uncertainties. California Management Review, 44(3), 105-119. Porter, Michael. (1985) Competitive Advantage. New York: The Free Press. Sunil Chopra, Peter Meindl. (2010). Supply Chain Management: Strategy, Planning and Operation. (4th ed). NY: Pearson Education Inc. Read More