Supply Chain Management (SCM) - Essay Example

Supply Chain Management (SCM) Supply Chain Management is a mix of science and art that go into improving the way a business finds raw materials, usesthe raw materials to manufacture a product and delivers the finished product to its customers (Handfield & Nichols, 1998). It can also be viewed as the oversight of materials, finances and information as they flow through a process from the supplier-manufacturer-wholesaler-retailer-consumer system. Yet again SCM can be defined as an integration of major business procedures across the chain of supply with the purpose of value addition to the customers and shareholders of the business (Lambert, Stock, Ellram, & Stockdale, 1997). Developments in SCM In the studies of SCM, six main movements can be examined namely creation, globalization and integration (Lavassani et al., 2008a), SCM 2.0., and phases one and two of specialization. The idea of having a supply chain within management became of immense importance in the beginning of the 20th century, when assembly lines were created. However it was not until the 1980s that the phrase SCM was by a consultant in the U.S. industry coined. The characteristics of the creation era of SCM include the need for re-engineering, large-scale changes, downsizing and extensive attention accorded to the practice of management by the Japanese (Lavassani et al., 2008b). The Integration era of SCM studies was brought around by Electronic Data Interchange (EDI) systems developments which occurred from the 1960s-1990s due to the launching of the Enterprise Resource Planning systems (Lavassani et al., 2008b). Given the advancement in collaborative systems that is internet based, the Integration era has continued to develop. It is characterized not only by cost reduction using integration but by the increase in value addition as well. Globalization era is the third movement of SCM development. The attention accorded to global systems dealing with supplier relationships and the getting bigger of organizations’ supply chains across national boundaries into other continents is what characterizes this era. The supply chain of organizations, especially those organizations in the oil industry, started using global sources several decades ago. However it was not until the late 1980s that global sources were integrated into the core businesses of considerable numbers of organizations according to Lavassani et al. (2008b). The globalization of SCM in organizations with the aim of boosting their value addition, competitive advantage and cost reduction through global sourcing is what characterizes the globalization era. Phase one of the specialization era revolves around Outsourced Manufacturing and Distribution (OMD). Adoption of a specialization era and renewed focus on core competencies began in industries in the 1990s. Vertical integration was abandoned, non-core operations sold of and outsourcing of those functions done from other companies. These resulted in change in management requirements by the extension of the supply chain beyond the industries’ walls and distribution of management across specialized partnerships of supply chains. Each respective organization’s perspectives were also refocused by this transition. OEMs turned into brand owners needing profound visibility into their respective supply bases. The organizations had to control their entire supply chains from above as an alternative to within. The specialization model generates manufacturing and distribution networks made up of numerous, individual supply chains specific to suppliers, products and clients who work collectively from the design stage to the sale and servicing of the product (Lavassani et al., 2008b). A set of partners may vary depending on the given market, channel or regions. Phase two of the specialization era revolves around supply chain management as a service. In 1980s, specialization within the chain of supply begun with the setting up of warehouse management and transportation brokerages has grown beyond logistics and transportation into characteristics of supply planning, associations, executions and performance management (Ballou, 1998). Market forces always demand changes from customers, locations, logistics providers and suppliers (Copacino, 1997). This variability affects the supply chain infrastructure significantly from the foundation layers to more intricate requirements together with the configuration of processes and work flows essential for network management. Specialization in the supply chain enables industries advance their overall competencies in a similar way to the way outsourcing manufacturing distribution does. The term SCM 2.0.describes the changes occurring within the supply chain together with the evolution of methods, tools and processes that manage the supply chain in the era of the World Wide Web (Lavassani et al., 2008b). Web 2.0. is a trend that makes use of the World Wide Web that increases information sharing, collaboration and creativity among its users and helps to navigate the internet to find the information being sought. SCM 2.0. trails this notion into the operations of supply chains. It is the corridor to SCM results, a mixture of methodologies, processes delivery options and tools to help guide industries towards their results speedily as the speed and complexity of the chain of supply increase because of the effects of rapid price fluctuations, global competition, expanded specialization, surging oil prices and talent scarcity. Theories of SCM Currently no theoretical support exists to explain the boundaries and existence of SCM creating a gap in the texts available on SCM studies according to Ketchen and Hult (2006). However, a few authors like Lavassani, Ketchen and Hult have provided theoretical foundations for use in differing areas related to chain of supply by utilizing organizational theories. These theoretical foundations include Resource Based View, Knowledge Based View, Transaction Cost Analysis, Strategic Choice Theory, Institutional Theory, Agency Theory, Systems Theory and Network Perspective (Lavassani et al., 2008a). Components of SCM SCM is a topic that covers many disciplines and employs many qualitative and quantitative tools. In recent few years, a few textbooks on SCM have provided both detailed technical treatments and managerial overviews. Johnson and Pyke (1999) divided SCM into 12 categories namely location, transport and logistics, marketing and channel restructuring, inventory and forecasting, sourcing and supplier management and electronic and information mediated environments. Other categories are new product introduction and product design, service and after sales maintenance, green issues and reverse logistics, outsourcing and strategic alliances, metrics and incentives, and global issues (Johnson and Pyke, 1999). Location relates to both quantitative and qualitative aspects of the decisions on facility location including geographical information systems, facility location, taxes and duties, government incentives just to mention but a few. Transportation and logistics includes all issues concerning the flow of goods through a chain of supply including warehousing, transportation and material handling. Also, it includes most of the present trends in transportation management like dynamic fleet management and vehicle routing. This category has in recent years drawn much attention due to globalization. Inventory and forecasting comprises the traditional forecasting models (Ballou, 1998). Inventory costs are easily identified when tackling supply chain hitches. Simple stochastic inventories can identify the cost saving potential from, say, sharing the information with partners of the supply chain. However when coordination of multiple locations is required, more complex models are used. Marketing and channel restructuring involves basic thinking on the structure of supply chains and engages the interface with marketing that results from dealing with downstream customers. Whilst the category on inventory covers these relationships’ quantitative side, market and channel restructuring addresses negotiations, relationship management and the legal dimension. Sourcing and supplier management focuses upstream to suppliers while marketing focuses downstream in the supply chain. Make or buy decisions, global sourcing and supplier relationships management are part of the items that fall within this category (Johnson and Pyke, 1999). The research on this category mostly utilizes game theory in understanding supplier relationships, performance metrics and contracts. Electronic and information mediated environments category covers long standing applications of IT in reduction of inventories and rapid expansion of e-commerce. This category examines system science’s role and information within a chain of supply. New product introduction and product design addresses issues for modularity, delayed differentiation, mass customization and other issues related to the introduction of new products. Service and after sales maintenance category addresses the critical though mostly assumed problem of provision of service and maintenance parts. Most leading brands build their reputations on their provision of this area leading to increases in sales. Green issues and reverse logistics examine environmental issues, and the reverse issues concerning product returns which have arisen due to consumer pressure and environmental friendly legislation (Johnson and Pyke, 1999). Product recovery involves handling of the used and discarded products. Outsourcing and strategic alliance addresses the chain of supply’s impact of logistical and outsourcing services. Third party logistics providers have rapidly grown in number meaning a large, growing group of services and technologists to be studied. Metrics and incentives looks at measurement and other economic and organizational issues (Johnson and Pyke, 1999). It involves measurement within the chain of supply and the benchmarks of the industry. Last but certainly not the least category is that of global issues. This category scrutinizes how the above explained categories function in multiple countries. It goes past specific country issues to include issues to do with cross-border sourcing and distribution. Problems experienced by SCM Some of the main problems that must be addressed by SCM are distribution network configuration, distribution strategies, trade offs within logistical activities, information, Inventory management and cash flow (Johnson and Pyke, 1999). Distribution network configuration involve number, network missions and location of suppliers, distribution centers, production facilities, customers, cross docks and warehouses. Distribution strategy deals with questions about operating control, cross docking, delivery scheme, closed loop shipping and any other modes of transport. Trade offs involving logistical activities involve coordination of the above mentioned activities so as to achieve the lowest possible logistical costs Trade offs may inflate the cost should one of the activities be optimized. Information involves integration of processes passing through the chain of supplies so as to share valuable information which may include forecasts, demand signals, inventories and transportation. Inventory management deals with quantity and inventory location which may include work in progress, raw materials and finished goods. Cash flow on its end is the arrangement of terms of payment and methodologies for funds exchange across entities in the supply chain. Conclusion Supply chain management is an important process in all businesses as all organizations have supply chains for product distribution to their respective customers. It is important to understand and to run the SCM efficiently so as to reduce inventory costs. References Ballou R. H. (1998) Business Logistics Management: Planning, Organizing, and Controlling the Supply Chain (4th ed.), Prentice Hall, New York. Copacino W. C. (1997) Supply chain management: The basics and beyond. Falls Creek, VA: St. Lucie Press. Fine C. H. (1998) Clock Speed: Winning Industry Control in the Age of Temporary Advantage, Perseus Books, Massachusetts. Handfield, R. B., & Nichols, E. Z. (1998), Introduction to supply chain management, Prentice Hall, New York. Johnson M. E. and Pyke D. F. (1999) Supply Chain management, The Tuck School of Business, Hanover. Ketchen Jr., G., & Hult, T.M. (2006) Bridging organization theory and supply chain management: The case of best value supply chains, Journal of Operations Management, 25(2) 573-580. Lambert, D. M., Stock, J. R., Ellram, L. M., & Stockdale, J. (1997). Fundamentals of logistics management, McGraw Hill, New York. Lavassani, M. K., Movahedi B., Kumar V. (2008a) Transition to B2B e-Marketplace enabled Supply Chain: Readiness Assessment and Success Factors, Information Resources Management (Conf-IRM), Niagara, Canada. Lavassani, M. K., Movahedi B., Kumar V. (2008b) Historical developments in theories of supply chain management: The case of b2b e-marketplaces, Administrative Science Association of Canada (ASAC) Halifax, Canada. Read More