Managing the Strategic Supply Chain - Essay Example

?Supply Chain Management For the organizations to survive and succeed, it needs to manufacture apt products by sourcing the needed raw materials and by reaching the finished products to the intended customers. These two processes of sourcing the raw materials and reaching the finished products can function optimally only if the organization actualizes an efficient Supply Chain, and follows effective Supply Chain Management (SCM) strategies. “The supply chain management involves all the activities associated with the flow and transformation of goods starting from raw materials till the finished product is delivered to the end user.” (Farahani, Rezapour and Kardar 2011). All the processes that are involved in supply chain will be carried out with the aid of various tools, starting from transportation, technological equipments to physical facilities like warehouses, etc, etc. Thus, the concept as well as the process of SCM encapsulates all the methods and procedures needed “for the comprehensive configuration, planning and control of cross business and company wide supply chains” (Thaler, 1999; Walther and Bund, 2001). Among all the ‘tools’, various modes of transportation forms an integral component, without which Supply chain cannot function and can even collapse. This was visible during the volcanic eruptions in Iceland in 2010. The ash in the clouds impacted the air transportation, which not only affected the passenger traffic, but also the movement of goods in the supply chain. The ash emitted by the Eyjafjallajokull volcano eruption in Iceland spread far and wide, particularly over many of the European countries, causing the closure of airspace and grounding of flights. “British government closed the country's entire airspace, grounding all flights at five airports, including the flights whose journeys originated elsewhere in Europe, North America and beyond and who would have only passed through Heathrow.” (Walsh 2010). All the to and fro European flights were grounded, leading to major negative impacts on the air transportation, with supply chains of sizable organizations all over the world struggling to function. Although the road and the sea mode of transportation play a major role in the supply chains due to their flexibility, ability to carry out large-scale transportation and also because of cost factor, air mode is also sizably used by organizations. “World container traffic in 1970 was virtually zero, today it is around 500 million tons per year.” (Short 2010). In addition, when there is need for quick transportation and delivery, air transportations are the best option, and this is particularly relevant in the current times with the manufacturing supply chain being quickened through various processes. “Iceland’s volcanic ash disrupted air transport across Europe and gave the world’s manufacturing supply chain one of its biggest tests since the advent of the low-inventory, just-in-time era” (The Economist). The grounding of the flights impeded the flow of raw materials to the industries in Europe from all over the world, as well as vice-versa. In addition, the finished goods could not also reach the customers within the stipulated deadlines, in both the ways. These restrictions on the supply chain resulted in heavy losses to the involved organizations as well as the airlines industry. The International Air Transport Association (IATA) estimated that due to wrecking of the supply chains as well as passenger traffic, airline industry lost at least $200 million per day (Banham 2010). This type of disruptions not only affects the major players but also the small local players in the supply chain, particularly the small retailers who sell the finished products to the customers. This can be seen during the Icelandic volcanic eruptions as well. That is, many retailers located in the UK and other European regions were affected by the lack of supplies and also delayed supplies. With many retailers not receiving “the goods needed to keep their stores in stock”, it led to negative economic impacts not only on those retailers, but also on the local economies, as buying dwindled. (Goessl 2010). These negative impacts due to detrimental environmental events can also happen to the shipping industry and it happened to the company Lauritzen Bulkers, thus obstructing supply chains in some way. As mentioned in the case, Lauritzen Bulkers is a Danish shipping company which specializes in the ocean transportation of dry bulk cargo, which includes commodities like coal, grains, bauxite, iron ore, food and steel products. They transport these products from Americas, Australia and Africa to Europe and Asia. During one such transportation of coal from Australia, one of the ships operated by LB, Pasha Bulker got stuck in the storm and grounded on the shores of Nobbys Beach on the Australian port of Newcastle. The ship waited on the shore to load 58,000 tonnes of coal. However, it “was pounded by 17.9 metre waves and vicious winds during the wild weather” and that made the ship run ground. (Sydney Morning Herald 2007). Although, the ship was re-floated after close to month of work, it obstructed the supply chain, impeding the movement of coal from the coal terminals in Newcastle to organizations world wide. The exclusion zone, created in the aftermath of the grounding, affected coal loading operations not only on the Nobbys beach but also at the adjacent Kooragang Island coal terminal. (Herald Sun 2007). From this incident, it is clear that any disruption of transportation due to environmental factors, could impact the supply chain maximally, affecting many stakeholders. Although, these types of situations created by environmental factors will be difficult to avert, if the shipping companies and even the shipping crew are extra cautious in those situations, and take quick and effective steps, it can escape from those difficult situations, thereby allowing the supply chain to function without any impediments. Thus, the right supply chain and transportation strategy, in relation to disruptive environmental factors as well as man-made disasters, is implementing pre-planned strategies. “Nature's vagaries are natural enemy of transport. But there are other large-scale risks, like terrorism”, which can throw the transportation in the supply chains into a mess. (Short 2011). The first key strategy that needs to be implemented by the organizations including LB before the crisis or even in the immediate aftermath of the crisis is facilitating “better flow of useful information - among operators, between modes, from provider to user” (Short 2011). When such a communicative structure is facilitated, all the players in the supply chain can be briefed about the impeding risks, and also the precautionary steps that need to be taken. During the volcano crisis, “international co-ordination was virtually nonexistent”. (Short 2011). Thus, as part of right supply chain strategy, proper communication channels have to be actualized to prevent the crisis and manage it, when it cannot be prevented. The second right supply chain strategy that can be implemented is the optimum use of various technological tools. Tools like GPS, RFID, etc., can be incorporated into all forms of transportation including aircraft, ships and road transport automobiles, so that the product can be aptly tracked in the ‘maze’ of supply chain. “Both GPS and RFID technologies are seen as emerging technologies for improving the tracking of air cargo in the supply chain” (Elias 2007, pg.25). The other right strategy that can be implemented by organizations including LB to prevent any risks in the supply chain is the adoption of insurance covers. Although, “insurance coverage for supply chain disruption requires physical damage to the insured’s assets to trigger a claim”, in the post-Icelandic crisis, many organizations are approaching the insurance companies for insuring the supply chain processes. (Marsh Risk Consulting). If the organizations are able to get the non-physical damage insurance policy wording, they can obtain extensive coverage for its supply chain, thereby get adequate compensations for the “loss of a supplier, stoppage of the supply itself, or a related interruption in service.” (Marsh Risk Consulting) Apart from this aspect, shipping organizations including LB as part of their supply chain have to fulfill all the current environmental regulations. Already LB is fulfilling environmental concerns in its supply chain by having one of the youngest fleets, which has an average age of just 5-6 years. In addition, LB is committed to reducing CO2 and other exhaust emissions including NOX and SOX. The latest MARPOL Annex VI, which is International Convention for the Prevention of Pollution from Ships, stipulates that there should be a global cap in the NOX and SOX emissions. That is, “the fuel used in ships should have only 4.5% m/m sulphur in it and in SECA areas (Sulphur Emission Control Area: areas of the North Sea and the California coast); a more stringent 1.5% m/m sulphur content is only allowed.” (Reach in Formation). Through these latest regulations, the shipping industry need to reduce the NOx and SOx emissions by about 70-90% range for both new as well as the existing ships as soon as possible, but no later than 2015. (catf.us 2006). LB is focusing on these key regulations by implementing key technological structures like the Lab-On-A-Ship (LOAS) on two of its Bulk Carriers. “With the LOAS system, the sulphur content of both the bunker oil and the exhaust emissions are measured and documented which is important for the verification of the MARPOL Annex IV regulations.” (Green Ship). Thus, it is clear that LB is taking effective steps in line with the current environmental regulations. From the above analysis, it is clear that organizations including shipping companies like Lauritzen Bulker could face many issues in its supply chain particularly due to environmental problems. In those cases, right supply chain strategy has to be formulated, plus, the environmental regulations have to be aptly followed, so the supply chain is ethically and environmentally correct as well. References Banham, R., 2010. Managing the Strategic Supply Chain, [Online] Available at http://online.wsj.com/ad/article/managingrisk-managing(Accessed on April 17, 2012) Clean Air Task Force., 2006. Revision of MARPOL Annex VI, the NOX technical code and related guidelines, [Online] Available at http://www.catf.us/site/catf2010/diesel/policy/international//air_pollution_standards_negotiation/20061113-2-11-FOEI.pdf(Accessed on April 17, 2012) Elias, B., 2007, Air Cargo Security, [Online] Available at http://www.fas.org/sgp/crs/homesec/RL32022.pdf(Accessed on April 17, 2012) Farahani, RZ., Rezapour, S and Kardar, L., 2011. Supply Chain Sustainability and Raw Material Management: Concepts and Processes, IGI Global Goessl, L., 2010. Economic impact of the Icelandic volcano ash cloud across Europe, [Online] Available at http://www.helium.com/items/1808988-Business- Issues?page=2(Accessed on April17, 2012) Green Ship. Lab-on-a-ship, [Online] Available at http://www.greenship.org/projekter/operations/labonaship.html(Accessed on April 17, 2012) Herald Sun., 2007. Explosion fear on cargo ship, [Online] Available at http://www.heraldsun.com.au/news/more-news/explosion-fear-on-cargo-ship/story- e6frf7l6-1111113933170(Accessed on April 17, 2012) Marsh Risk Consulting. Supply Chain, [Online] Available at http://usa.marsh.com/RiskIssues/SupplyChain.aspx(Accessed on April 17, 2012) Reach in Formation. Information On SECA, [Online] Available at http://www.reachinformation.com/define/SECA.aspx(Accessed on April 17, 2012) Short, J., 2011. Lessons from the Breakdown: Making Transport More Reliable, [Online] Available at http://www.oecd.org/document/31/0,3746,en_2649_35131810_47244511 _1_1_1_1,00.html(Accessed on April 17, 2012) Sydney Morning Herald., 2007. Salvage team boards beached ship, [Online] Available at http://www.smh.com.au/news/national/salvage-team-boards-beached- ship/2007/06/09/1181089384735.html(Accessed on April 17, 2012) Thaler, K., 1999. Supply Chain Management, Process optimization in logistics chains, Fortis verleg. Walsh, B., 2010. Why Iceland's Volcano Is a Hazard for Air Travel, [Online] Available at http://www.time.com/time/health/article/0,8599,1982328,00.html(Accessed on April 17, 2012) Walther, J and Bund, M., 2001. Supply and Chain Management-New Instruments for Customer Oriented Design of Integrated Supply Chains, Frankfurter. Read More