The Concepts Related to Supply Chain Management - Coursework Example

?An introduction to the supply chain and the firm's position within it Introduction: The rising global completion and business complexity has given rise to the concept of effective Supply chain management in the recent years. Additional emphasis is being given to attaining sustainable competitive advantage through various means including improved supply chain management. This paper discusses the concepts related to supply chain management and how businesses can gain from it. Any firm can not exist in isolation in terms of the flow of materials, information and cash. The supply chain includes a flow of materials and relevant information from the suppliers to manufacturers to the end customer on one hand and the flow of information and cash from the customer to manufacturer to the suppliers on the other hand. Discussion: A Supply Chain may be seen as a series or network of facilities and distribution channels which facilitate the procurement, processing and conversion of raw materials into finished products and their distribution from the place of production to the final customer through a series of distribution stages. The stages are characterized by the distributer at the given stage and the activities that are performed by the distributor to ensure the delivery of the product to the end customer (Wiley 2012). The supply chain usually takes diverse forms. The structure of the firm varies in length, size, shape and the kind of activity involved. Also, a firm may be part of more than one interconnected supply chains, whose final outcome might be differentially diverse (Enporion 2009). Thus the Supply chains may sometimes more appropriately be referred to as Supply networks. For example Kellogg’s the world leading breakfast cereal and snack producer, sources raw materials from different sources which are functionally as well as geographically diverse. Further, Kellogg’s collaborates with a huge network of distributors like wholesalers, retailers and other outlets like hotels etc to make its product reach to the end customers (The Times 2012). Once the concept of a Supply chain as part of the value chain is established, the concept of Supply Chain Management (SCM) comes to the fore. However it is important to understand the concept of logistics first. Logistics is concerned with Flow of materials and information to and from a firm’s boundaries aiding in the production and distribution of its products to the customers. At the same time, supply chain is a network of companies performing these logistical activities together to bring a product or products to the market. Also, a supply chain, apart from the logistical activities, also includes activities like marketing, finance and customer service. Supply Chain management thus is concerned with the coordinated activities of production, location and inventory among the various participants of a supply chain. The activities are directed such that a mix of responsiveness and efficiency that is best suited to the market is achieved (Wiley 2012). Supply chain management is therefore concerned with the efficiency and effectiveness of a supply chain. One of the major objectives of a supply chain is to reduce the logistical costs. Also, it strives to achieve an incentive within the system to remove waste from the processes or activities involved. It is through effective Supply Chain management that a firm can achieve the objective of a giving a better and differentiated value to the end customer. Kellogg’s for instance achieves this value through activities like partnering with supermarkets like Tesco. It follows close relationships with such partners. It has come up with a shelf ready unit at Tesco, which helps gives better choice and visibility to customers. Also, it augurs well for the sales both for Tesco as well as for Kellogg’s. In the recent years, Supply Chain Management has assumed an increasingly important role. This is so due the increasing globalization and industrial competition. From the perspective of stakeholders of a supply chain that is supplier, retailer, manufacturer and customer, the competitive environment makes it imperative for the businesses to appreciate and incorporate the role of delivering distinct value to customers through effective supply chain management (Pundir 2008). The Supply chain when viewed from a strategic and competitive perspective yields a concept of the value that can be derived from it. The value derived helps the firm compete in an effective manner. The competence is achieved through cost leadership and/or differentiation in product offering. A firm may achieve what is termed as competitive advantage through either following a low cost leadership or a differentiation strategy (Heumer 2002). However, the firm as whole is not the ideal way to look for the source of the competitive advantage for a given firm. A firm may be divided into many functional units to examine the various kinds of competitive advantages a firm might derive. Competitive advantage is a source of value for a firm in the sense it offers value to various stakeholders and components of the supply chain. The differentiation or cost advantage may stem from many diverse or disparate activities that may bring better cost position with respect to the competition (Barnes 2000). These activities or measures might be incidental to the firm or might be planned to achieve the competitive advantage. For example, Kellogg’s has partnered with a specialist logistics companies to manage its transportation activities. For instance, TGD one of its logistics partner stores and transports all its cereal pallets. This enables Kellogg’s to focus on core activity of production of cereals, thus giving competitive strength in terms of a better product. Therefore while Supply chain management is concerned just with a smooth flow of materials from suppliers to manufacturers to Customers including the intermediaries, value chain is about managing the same flow to attain advantage vis-a-vis the competition (The Times 2012). It is important to note at this juncture that while Supply Chain management has more crucial implications for manufacturing firms, it is nevertheless applicable to service firms as well. The basic difference between a service and a manufacturing firm in terms of logistics is the inseparability of the service from the customer and its lack of being inventoried or stored. However, the concept of supply chain is still applicable as flow of services as well as material and labour do form a part of the process of finally delivering a service to a customer. A supply chain may be seen differently from the perspectives of the different firms involved in the chain. Also, the chain may be part of network of chains. These different perspectives give different views of Supply chains and consequently different categorizations of Supply chains. Supply chains may be categorized as Primary or secondary supply chains based on the type of product or service supplied and to whom. Primary supply chains are the ones that make up the sequence of activities, involving flow of material and information towards bringing the final product to the customer. Secondary supply chains are concerned with providing the support material and services to the primary supply chains and are part of the overall supply chain network, however, do not involve the end customer directly. In this regard it becomes imperative to consider another aspect of supply chains and that is the sequence of activities that take place in a Supply chain (CSCMP 2012). This enables us to categorize Supply chain activities into upstream or downstream activities. In a supply chain network, the individual supply chains may be categorized as Upstream or downstream supply chains based on their sequence in the overall network for a producing a final good or service for the end customer. Kellogg’s distribution system for example can be seen as a downstream supply chain. The Primary supply chain of Kellogg’s includes the procurement raw materials from various suppliers and production of the various breakfast cereals and its distribution to the customers through the various distribution channels. The Secondary Supply chains for Kellogg’s are the ones supplying it with support capabilities like IT hardware and software, transportation and warehousing facilities and distribution support. At this juncture, the concept of integration in a supply chain becomes relevant. The principle of supply chain management is taken to a still higher level by what supply chain integration can achieve for better market penetration and reach. Integration can be achieved either horizontally or vertically. A firm is said to achieve Horizontal integration in a supply chain when it expands business at the same point or stage of production within same or a different industry. A horizontal integration can be achieved through a internal expansion, merger with another firm at same stage of production or acquisition or taking a major ownership of a another firm, which can help it achieve greater supply chain gains. However, horizontal integration creates monopolies in the market (Cai and Obara 2008). The customers are bound to purchase at higher prices due to lack of options. In the long run however this proves counter productive for the firm itself (Addie 2012). Vertical Integration is referred to as the acquisition of businesses within the same industry and within the same supply chain at different upstream or downstream stages of the supply chain. Vertical integration is done to reduce costs and achieve efficiency in operations (Kofi 2012). However, the gains from vertical integration might be inhibited due to various factors. It is usually an uphill task to coordinate the operations at different levels and disturbs the operational flow. The vertical merger takes up a high chunk of firm’s resources and thus makes it less flexible from the point of view of research and development and new initiatives. The changes become difficult to make due to the increased complexity in the organization because of the merger (Kofi, 2012). Conclusion: This study concludes that businesses must make supply chain decisions based on their unique position in the supply chain and the position of the chain in the overall network. The decisions for enhancing value through strengthening the value chain constituted by the supply chains should be based on a through environmental scan. The strengths and compatibility of the chain partners needs to be given a thorough look before taking decision regarding vertical and horizontal integration. References Addie, A.J. (2012) Definition of Horizontal Integration in a Supply Chain. Demand Media. Accessed on April 8, 2012 Barnes, D. (2000) Understanding Business: Processes. Routledge. CSCMP (2012).CSCMP: Supply Chain Management Definitions. Accessed on April 12, 2012< http://cscmp.org/aboutcscmp/definitions.asp> Cai H. and Obara I. (2008) Firm Reputation and Horizontal Integration. Accessed on April15, 2012< http://www.econ.ucla.edu/people/papers/Cai/Cai314.pdf> Enporion (2009). Whitepaper: Analysis of Successful Supply chain organization Models. Accessed on April 14, 2012 Heumer, L. (2002) Value Creation Strategies in Supply Networks: The Case of Logistics Service Providers. Accessed on April 2, 2012 Kofi B. (2012). “What Is the Vertical Integration of Supply Chain Management?” eHow. Accessed on April 5, 2012 Wiley (2012) Basic Concepts of Supply Chain Management. Accessed on April10 2012 Pundir, A.K., (2008) Increasing importance of Supply Chain Management. Accessed on April 5, 2012 The Times 100 business case studies (2012). Supply chain from manufacturing to shelf A Kellogg's case study. Accessed on April 12, 2012 Read More