Supply Chain Management as a Major Source of Competitive Advantage - Essay Example

INTRODUCTION Supply chain management is a major source of competitive advantage (Horch, 2013: Wolf, 2010). This is because most firms rely upon it to cut down costs, increase revenue and attain higher profitability. This paper examines the main challenges of supply chain management and how they affect management of organisations. The paper will therefore examine two key areas of supply chain management and how they affect organisations in the contemporary era. To this end, the issues of the balancing of diversity with the quest for lower costs and the issue of corporate social responsibility are analysed. To provide a thorough and comprehensive analysis, the paper will evaluate the essence of supply chain management and how it affects firm performance. From this conceptual analysis, the essence of the issues under review will be brought to light and discussed with greater depth and clarity. CONCEPTUAL FRAMEWORK: THE ESSENCE OF SCM Basically, a firm takes inputs from the external environment, processes them and sells it to consumers. The process of transferring the inputs into the firm and getting the outputs to consumers outside the firm is at the centre of supply chain management. Supply chain encompasses all organisations and activities associated with the flow and transmission of goods from raw materials through to the end users as well as associated information and monetary flow (Handfield and Nicholson, 2008: p8). Another definition states that the supply chain is “a set of three or more companies directly linked by one or more of the upstream or downstream flows of products, services, finances and information from a source to a customer” (Mentzer, 2001: p7). This implies that supply chain management has to do with how the connections and linkages between a firm, its suppliers and consumers is conducted, arranged and utilised. Ross views supply chain management as a set of tasks that are carried out by an organisation in order to attain results (2012). He states that the supply chain is a set of collective tasks centred around the optimisation of transportation/logistic, processing and distribution channels that a firm employs and utilises (Ross, 2012). It involves functions like warehousing, transportation and other objectives associated with the markets. It utilises time and involves the transfer of possessions. The concept of supply chain management is presented by Horch (2013) as the process of procurement, materials logistics and distribution. This involve the institutionalisation of aspects of logistics and the distribution of these logistics through processes related with upstreams and down stream flows of the supply chain. The essence of supply chain management is to create a specific management scope and system that centres around inventory controls and the movement of stocks and raw materials in an effective and efficient way (Wolf, 2010). Supply chain management involves elements of costing and information sharing. It includes various aspects of inventory management and controls to ensure that the firm's resources are utilised for the best possible results. Therefore a firm will generally utilise various tools and techniques in order to ensure that they attain the best possible results. And this include various elements and aspects that helps the firm to deal with issues and matters in the most efficient and effective ways. Two of these issues are the diversity/cost cutting trade-off and the corporate social responsibility dilemma. DIVERSITY/COST CUTTING TRADE-OFF Supply chain diversity involves having many suppliers (Young, 2001). In other words, a firm will have many suppliers in order to fulfil its needs. This is seen as a source of competitive advantage and most firms publicise this on their websites and they show that they have a diverse supplier base (Young, 2001). The most popular format for this is to state that they have minority vendors and suppliers whilst others give lengthy details of their diversity programmes and include supply chain diversity matters (Young, 2001). This shows that diversifying suppliers means that a firm is seen as a good one. Many large supermarket chains state that they diversify their suppliers as a means of showing that they are supporting the growth of small businesses. Thus, in issues where they are tagged as major corporate entities exploiting the markets, they can state that they have a diversified supplier base. A diversified supplier base provides the opportunity for firms to get many suppliers and this has two main advantages. First of all, a firm with a diverse supplier base has a lot of sources and options therefore they can bargain and seek to improve their options and cut down costs (Gattorna, 2012). This is because in a situation where a firm has many suppliers, that firm will have more opportunities and options and they can dictate how much they will want to pay for certain products. This will keep the market regulated and the supplier can be dominant and continue to dictate trends and patterns in the industry (Slack et al, 2010). Secondly, a firm can appear to be a good organisation with strong community relations because that firm is able to show and prove that it is providing employment for many people in the community (Gattorna, 2012). However, with the fact that it is easier to source from different parts of the globe, most companies tend to source for their raw materials from different suppliers in different parts of the world. This process reduces the opportunity for firms to demonstrate their social responsibility through the use of diverse suppliers. On the other hand, this paradox of having diverse suppliers is opposed by the fact that when a firm sources from one supplier it gets economies of scale (Hanson and Neale, 2006). This is because aggregation of costs with one supplier means the costs of ordering and the cost of comparing prices are eliminated. There is also the chance for a firm to bargain and ask for cost cuts because they can get economies of scale. Thus, a supermarket or grocery shop that sources from one dominant supplier will not need to check prices all the time. They will not have to shop from different parts of the country to get opinions in order to make choices. Rather, they will shop from one point and with that, they can ask for cuts and continue to get privileges as the suppliers will not want to lose them. This paradox creates major issues in the designing and processing of supply chain management system. This is because where a firm has many suppliers, it will need a strong intranet and electronic system through which it can continuously communicate with suppliers. This will enable them to compare prices and also ensure timely delivery of goods and products. This is the only way they can cut down on their costs of operations and meet their production needs. On the other hand, where a firm has only one supplier, they need a more reliable system of communicating with their supplier and a reliable system of receiving products since there is only one supplier and there are probably fewer standby or contingent suppliers. Hence, the firm will need to focus on reliability in building their supply chain system. The main strategy for dealing with these major supply chain issues with diversity is the utilisation of critical analysis and proper strategic planning. Since the supply chain management issues are central and significant in the success or failure of firms, there is the need for the creation of a system of analysing supply chain choices as a part of a strategic business unit in the firm's corporate strategy. Therefore, firms find ways of calculating costs of the supply chain before they choose whether to go by a diversified supplier system or a single dominant supplier model (Shah, 2009). To this end, the firm will need to prepare an analysis and postulation of costs and major trade-offs before they make a choice of which model to use. In this process, the core focus and strategy of a firm, whether they seek to cut down on costs or they seek to show a positive image to the external parties will play a leading role in the choices they make as an organisation (Shermerhorn, 2010: Greasley, 2006). CORPORATE SOCIAL RESPONSIBILITY AND SUPPLY CHAIN MANAGEMENT Corporate social responsibility is about sensitivity to social impacts of a firm's activities and other stakeholder concerns (Golinska and Camano, 2010). Due to this, firms have to employ various forms of ethical behaviour due to the fact that they need to be sensitive to what they do to the wider society as a result of their operations and activities. Hence, firms have to come up with ways and means of dealing with issues and matters in order to attain their overall CSR objectives and strategies. The objective of supply chain management is to help the firm to cut down on costs and improve productivity in order to enhance return on investments for a firm's shareholders (Idowu and Filho, 2011). After all, a firm will not be in existence if shareholders did not pool their resources to set it up. Thus, there is the need to use all possibilities to satisfy investors. Theoretically , this assertion is right and appropriate. However, in reality, there is the need for a firm to be sensitive to other stakeholders. Evans defines the term “stakeholder” as entities who affect or are affected by a company (2008). Thus, corporate social responsibility focuses on helping a firm to satisfy the needs of stakeholders as it operates. To this end, a firm will have to be sensitive to stakeholder needs in operating their supply chain management system. This is because stakeholder sustainability is the only way through which a firm can make money and continue to thrive into the foreseeable future. There have been many firms that are out of business because they refused to recognize the needs of stakeholders. Due to that, the firm could not make profits into the long-run. Therefore, inasmuch as a firm seeks to make optimum profits, the firm in the short run, the firm also needs to think of continuing to make profits into the long-run. And this can be done by being sensitive to stakeholder needs and expectations. Supply chain issues overlap numerous matters relating to stakeholder needs and concerns. This involve areas that include the products, processes and transportation and its impacts on the external environment (Golinska and Camano, 2010). The sourcing and choice of raw materials must be done in a socially responsible manner and fashion. Therefore, there is the need for a firm to be sensitive to where and how they get their raw materials. The content of the raw material and its environmental impacts must be assessed and analysed. This must be done in relation to the impact on the consumers and the processes that will be used. This will contribute to how external parties including the media view the products that the firm sells. This is because if the products show that they are responsible in their source and production, consumers will respect them and they will want to continue buying from them. This is because the principle of consumer sovereignty provides the chance and the opportunity for consumers to choose and define which products will thrive and which ones will not. Thus, a firm will need to be sensitive to the raw materials and products they turn onto the markets. This affects their decisions in how to run the supply chain system and the choice of materials to use and suppliers to work with. The environmental footprints of firms is also vital and important in defining supply chain management systems and structures. This is because the transportation systems and options of a firm plays a critical and crucial role in the design and implementation of supply chain systems and processes. CSR is important and vital in decision-making in supply chain management systems and processes because they have an impact on the image of a firm and they are part of the top-tier of management's processes (Murkat, 2011). Due to this, CSR is important and must be part of the supply chain decision-making processes. This is because they are part of a larger corporate strategy framework which sets the tone for the firm to operate and carry out its activities. These processes and systems must be respected and although they may inflate the supply chain processes and systems of the firm, they will be important and vital in contributing to the long-term survival processes and systems of the firm. CONCLUSION Supply chain management comes up with the dilemma of choosing between having diverse suppliers and single suppliers. Each one comes with its benefits. Having diverse suppliers puts a firm in charge and the firm can dictate terms to these suppliers as it controls the markets. This will also provide a positive profile for the organisation. However, if a firm has only one supplier, it is likely to have economies of scale which will provide opportunities for reduced costs and cut down the firm's overall agency costs. Thus, a firm must plan it supply chain management system with the core strategy it has in mind. Corporate social responsibility is about stakeholder sensitivity. It involves looking at more than just the firm's shareholders and satisfying them alone. It is about identifying needs of stakeholders in order to get a long-term and sustained means of attaining profits. This means is a responsibility that is held by the top level managers and directors and these parties set the tone and the framework for corporate social responsibility. Thus, a firm's supply chain management process and system will involve the identification of a system that will integrate the firm's overall CSR system and practices and utilise them to attain results. This may get the supply chain systems to be a little more expensive, but this system is the only way a firm can satisfy its stakeholders and guarantee a continuous existence. REFERENCES Evans, R. (2008) Stakeholder Management Cambridge, MA: Yale University Press. Gattorna, J. (2012) Strategic Supply Chain Management Surrey: Gower Publishing. Greasley, A. (2006) 2nd edition. Operations Management, Wiley (chapter 2), - available on Blackboard. Handfield, R. B. and Nichols, E. L. (2008) Supply Chain Management New York: Prentice Hall. Hanson, T. P. and Heale, J. (2006) The Practice of Supply Chain Management London: Springer Horch, N. (2013) Management Controls of Global Supply Chains London: BOD Press. Mentzer, J. T. (2001) Supply Chain Management London: SAGE Publications. Ross. F. D. (2012) Competing through Supply Chain Management London: Springer. Schermerhorn, J. R. (2010) Introduction to Management London: Wiley Shah, J. (2009) Supply Chain Management: Text and Cases Delhi: Pearson Education Slack, N., Chambers, S. and Johnston, R. (2010) Operations Management New York: Prentice Hall. Wolf, J. (2010) The Nature of Supply Chain Management London: Springer. Young, D. (2001) “Categorizing the Supplier Content of Public Websites” Managing Information Technology in a Global Economy New York: IGI Publishing. Read More