Benefits and Challenges of implementing Supply Chain - Essay Example

Benefits and Challenges of implementing Supply Chain Introduction For any business to be successful in the contemporary business arena, it must maintain an effective supply chain. Supply chain refers to the people, activities, resources and systems within an organization that are involved in transferring a service or a product from the suppliers to the consumers. Additionally, supply chain refers to the activities adopted in transforming natural resources and raw materials into final products. This implies that an organization must take into consideration the impact of the supply chain activities on the stakeholders including the consumers, outside visitors and employees. It is imperative to note that in complex supply chains, products may be re-entered to the process in case the residual values are to be recycled. In order to create strong positive relationship with their customers, it is essential for firms to adopt social responsibilities that involve maintaining clean environment, producing safe products and controlling noise among others. As indicated by Greeff and Ghoshal (2004), organizations are responsible for auditing products and the suppliers’ needs. If the supply activities are not directly controlled, managers within the supply chain should ensure that visibility needs are improved. Another point to note is that suppliers should collaborate with local partners as a way of making the social responsibility in supply chains to be successful (Butell, 2008). The aim of this paper is to evaluate the benefits and challenges of implementing more environmentally and socially responsible practices internally as well as monitoring complex supply chains to ensure that all practices are environmentally and socially responsible. Enterprises’ sustainability Given the stiff competition in the local and global markets, there is need for firms to provide quality brands that meet the needs of the consumers. One of the methods of implementing enterprise sustainability concepts according to Diane (2011) is by developing a sustainable supply chain. For instance, in its effort to create strong connection with its stakeholders, Starbucks Corporation has adopted various strategies that touch on social responsibilities. The company mentors and support farmers in Costa Rica and Ethiopia among other countries in order to ensure unique coffee products that meet the needs of the consumers globally. Similarly, Starbucks assists farmers and other stakeholders to improve the quality of their yields and crops as a way of maintaining high quality product for the company (Berkshire Hathaway Inc. 2003). Two notable implications of securing supply chain sustainability are first to mitigate the risks involved in depleting products’ inventory and secondly to promote environmentally sustainable practices. According to Starbucks management report of 2008, the company has created a very strong positive relationship with the farmers, exporters and suppliers (Neef, 2004). As a result, the company has been able to achieve greater stability, consistent supply of its brands, and more opportunities to increase the amount of coffee bought from the farmers. As the demand for coffee improves globally, Starbucks has continued to use its relationship with members of the supply chain for its future expansion. Philanthropic activities and positive image for the companies While local companies using local raw materials may not be negatively affected by the activities of supply chain partners, Sheffi (2001), argues that organizations sourcing from developed and developing countries must be aware of the fragility of their supply chain members as well as the social context that surrounds these members. It is vital to note that while they are motivated by economic considerations, supply chain sustainability activities also adopt the characteristics of philanthropic activities (Mentzer, 2001). For example, Starbucks assist the coffee farmers in various countries with health facilities and education for their children. For its part, Costco Company embarks on preserving cultural artifacts in Mexico. Another company that has adopted the philanthropic activities as a way of addressing social gaps is L’Occitane. The company engages in providing support on literacy training, provision of health care facilities and providing childcare as well as health facilities for the women who transports shea butter to the production facilities. As the result of these activities by the above mentioned companies, they have not only benefited from strong awareness in the global market, but also they have created a positive image on the eyes of the public. Risk management One of the most important elements within the enterprise sustainability is risk management. Enterprise risks refer to the risks that are related to business reputation or brand reputation due to the ecological, social and economic implications. It is worth noting that any damage by the members of the supply chain which can emerge for example in the form of fraud like in the case of Enron and production of defective brands like Mattel toys which contained lead among others may create a very poor image for the entire supply chain (Sheffi, 20010. While it is possible to detect and address economic risks, social risks are hardly predicted based on the fact that generational transitions have resulted to development of social drivers which are different across the cultures. For instance, in around 2006 customers improved their preference for SUV models an aspect that made GM profits to drastically increase to a very high level. However, when the price of the gas increased by $ 4 per gallon, the demand for the model reduced an aspect that negatively affected the activities of GM. This implies that organizations must ensure protection of its resources and activities across the supply chain (Sharpira, 1986). When firms make effort to address their risks by transferring to the customers, and continuously to do so in any decision making process, they negatively affect their own sustainability since this process reduce the customers’ economic stability. Companies that aim at remaining competitive must avoid such transferring of risk behavior since even if they seem like good risk management initiatives; they involve passing the risk to parties who are vital in long term sustainability of the firms. Improved production process Once a company adopts environmental sustainability as one of the strategic initiatives and a high level of commitment is portrayed by all the members of the supply chain including top and middle level managers, the organization can go on with implementation of policies that result to collaboration with the suppliers. As the organization continues with the environmental sustainability, it becomes the objectives of the firm and is applied in all the departments including the production facilities. By establishing environmentally friendly products, services and processes, in addition to collaboration with suppliers, firms are able to avoid sub-optimization in the manufacturing stage. Challenges of implementing practices internally Despite the importance of supply chain in the distribution of products are creation of positive image of an organization, a number of challenges face the practices internally. For example, According to Sharpira (1986), managers’ attitude towards risks is poor. Most firms note the significance of risk assessment programs and goes ahead to use various methods including informal qualitative plans and formal quantitative models to mitigate supply chain risks. However, Sharpira (1986) argues that most organizations invest little resources and time to reduce the risks in supply chain. As a result, the production processes are negatively affected thus affecting the distribution process, loss of resources and incurring of high costs. Another challenge that faces organization is that there exist few data points and there is lack of good estimates of the likelihood of the occurrence of certain disruptions. As a result, firms face problems in computing cost/benefit as well as return on investment analysis. This makes it difficult to justify risk reduction initiatives that the managers within the supply chain. For most firms especially with poor communication and information systems to capture data, there is a challenge in implementing environmental programs as the result of poor collaboration with customers (Greeff and Ghoshal, 2004). Members of the supply chain or such firms must realize that green information systems acts as the backbone for environmental management efforts that enjoy strong support from all the members of the supply chain. Lack of environmental collaboration with suppliers due to lack of green information systems for emerging companies is a notable challenge that further deteriorates the activities of the supply chain. This implies that there is need for organizations to allocate more funds towards modern information systems which are green in nature and to adopt stronger collaboration with the suppliers. Monitoring complex supply chains Complex supply chain emerges as the result of globalization. Given the fact that firms have now turned to going global in their efforts to face off their rival in the international markets, more stakeholders are involved in the production, distribution, production of raw materials, designing and decision making processes. The supply chain of big companies such as Coca-Cola Ford Explorer, Google and Enron can be complex due to various aspects. These include numerousness, opacity, variety, dynamic effects and interconnections. This implies that for such firms to maintain an effective supply chain, they must maintain close monitoring of the supply chain activities and partners. The section below discusses the benefits and challenges of monitoring complex supply chains. Benefits As more companies emulate internal environmental strategies within the supply chain, close monitoring will result into reduction of costs. It is worth to note that if the number of suppliers is high and close monitoring is not done, cases of fraud or loss of resources is high. This implies that the companies may experience reduced profits and therefore the need to hire experienced supply chain managers. Another benefit of having a close look of the supply chain is that it results into increased efficiency. As the result of the optimal coordination among the members of the supply chain, Kenneth (2012) argues that the chain processes are able to provide impact that is effective and will have positive results for the entire organization. Customers, especially the one using brands from large companies or the one purchasing in bulk, are interested in transparency while dealing with the firms. This means that supply manages should apply close monitoring of what the supply partners are doing in since it is the only way of increasing customer satisfaction since it will create high level of transparency as well as avoidance of defects. If such monitoring was done by Google team, it could experience the political damage that entailed revealing of dissident information that touched on Chinese government. Similarly, by close monitoring, Enron top managers could notice the cases of fraud that emerged in its operations. Another benefit for monitoring is that it leads to competitive advantage since there is a systematic recording and controlling of the complex relationships that exists among the members of the supply chain. In this way, firms will be in a better position to monitor the quality of raw materials and products that emerges from each stage of the supply chain, and if a problem is noted, quality managers can deal with it on a timely manner. Challenges As companies enter global market, they face competition from the already established firms. This implies that they will need to establish more outlets where their brands can be sold to the consumers. Additionally, the firms will have to attract more suppliers and employees. As a result, such firms face the problem of numerousness which calls for extensive monitoring requiring sophisticated and connected tolls to predict disruptions and monitor risks. As a result, companies which are unable to invest in the new technologies face a problem of losing quite a number of resources thus being outdone in the global market. Another notable challenge is creation of interconnections. While the entire organization aims at increasing the overall profit, the suppliers based on their number may start competing among themselves. As a result, companies with complex supply chain may face difficulties in maintaining a close look of the way all the distributors are suppliers are performing their activities (Rao, 2008). Related aspect of interconnections touches on job lead time and the utilization rates which have direct impact on the revenue generated by the company. Given the increased number of stations locally and globally, managers may find strange interactions between them which may not even be indicated by the workflow path. Increasing complexity While it is vital to maintain close monitoring of supply chain in big companies, the case of increased complexity has still emerged. Firms that are global have started outsourcing most of their business areas to suppliers worldwide. As a result, the simple assembly line that companies have been using changes into a complex manufacturing process. This means that manufacturers are responsible for managing quite a number of product lines which are made up of parts emerging from different suppliers. In some cases, other suppliers may be hired to sub-assemble these parts. The expansive geographic location that companies enter implies that they must comply with the local government regulations. For firms in aerospace products and life science, it may be a challenging issue to deal with such regulations in addition to monitoring their suppliers. Lack of data Butell (2008) depicts that when organizations go global, it does not matter whether the information available is right or wrong but operational decisions must be made. However, due to lack of collaboration systems and improper communication, increase in risks is now directly related with lack of data. Given their global level, companies are exposed to risks such as economic instability, floods and calamities such as earth quakes. For example, the 2011 Thailand floods, companies resulted into rerouting of work to other suppliers who did not experience the floods. This resulted to loss of real time data and information on how many companies were affected. More need for greater quality, cheaper and faster activities Whenever new markets emerge, rivals come out. By competing in the international market, you are only limited by the sky. This implies that any firm can compete making the demand to be high especially in the scenario where an order is available. With the situation occurring regularly, a big challenge among the manufacturers has emerged. For the manufacturers, they are at dilemma whether the lowest cost bidder has the ability to deliver their products and sub-assemblies parts on time and according to the specified designs. In addition, they are not sure whether the suppliers are in a position to perform multiple designs according to the requirements of the consumers. While some suppliers are experienced to provide a quality products and parts, others do not deliver their products within the specified timeframe. Thus, there is a challenge in managing the suppliers an aspect that results into poor communication with their customers. Conclusion Based on the above discussion, it is clear that supply chain has become an important part of business locally and globally. With the call by the international community for companies to protect the environment in production facilities and while transporting their brands, there has emerged challenged in managing supply chains. However, there have emerged various benefits for companies during the implementation of more environmentally and socially responsible practices internally. The sustainability of enterprises for example due to corporate social responsibilities (CSR) has made many firms to increase their profits. Some of the notable companies that have used CSR programs create strong positive relationship with the stakeholders includes Starbucks and Coca –Cola among others. Additionally, other companies have embarked on investing in philanthropic activities and as a result they have benefited from positive image from the public eyes and the governments (Mortimer, 2004). These firms include Costco and L’Occitane. As the organizations face economic, social, political and cultural risks, their supply chain are exposed to poor performance. This implies that by there is need for managing risks that may jeopardize the operations of the companies. Lack of risk management especially on the aspects of brand quality and finance has exposed some companies such as Mattel toys, Enron and General Motors to negative image that has negatively affected their activities. High level of commitment is another positive impact of enacting more environmentally and socially responsible supply chain practices. Despite the above benefits, there have emerged challenges that need to be dealt with in an effective manner. For example, some managers do not value the important of data leading to lack of comparison and poor evaluation of the supply chain (Buffet, 1982). Additionally, there is lack of adequate data to detect disruptions. In the area of monitoring complex supply chains, firms experience some benefits. For example, they are able to detect frauds and suppliers who produce sub-standards brands. However, as the result of globalization, companies face challenges that have impact on the operations. These include increasing complexity, lack of data, more need for greater quality, cheaper and faster activities. It is relevant for local and international companies to monitor their supply chain especially in the contemporary business atmosphere are competitive and when firms aim at outdoing other in the market. References Berkshire Hathaway Inc. (2003, July 3). Shareholder-Designated Contributions Program Terminated. Retrieved March 22, 2009, from http://www.berkshirehathaway.com/news/2003news.html Buffet, W. (1982, February 26). Chairman's Letter 1981. Retrieved January 22, 2009, from http://www.berkshirehathaway.com/letters/1981.html Butell, A. (2008, September 25). 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