Future Trends in Global Supply Chain Management Strategy - Literature review Example

Future Trends in Global Supply Chain Management Strategy Name Tutor Unit Code Introduction The present day world is characterised by globalisation. The demand for individualised products and services is more than ever. There is growing need for fast and reliable delivery of products. Supply Chain Management (SCM) has substantially evolved along with the global businesses developments. Organisations are today seeking out collaborative relationships to help manage their supply chains. Contemporary SCM has got to put up with the quickly increasing and tightening product selections. There is also the increasing demand for high quality products and services. Customers are looking for more variety at constantly reducing prices (Ballou, 2007). The process of globalisation has stimulated increased international trade, thus increasing competition. Moreover, recent environmental rules and the push for sustainable SCM push the costs up. The rapidly changing business environment threatens the general organisational objective of profit maximisation and their sustainability in the long-term has become uncertain. Besides moving goods from producers to customers, there is currently an emergent appeal to move the goods back in a return chain (reverse logistics), especially on manufacturers relying heavily on original equipment manufacturers (OEM). In this setting, organisations are increasingly putting their hope in their supply chains to accomplish the objectives of profit making and sustainability (Habib & Jungthirapanich, 2008). SCM helps business organisations to compete favourably in the active international markets. SCM is intended to integrate activities across and within an organisation in order to provide value for the customer. Therefore, companies ought to settle on the finest SCM strategy and the finest tools to manage the system of partners so as to continuously become accustomed to the shifting business environment (Habib, 2010). Organisations are more and more involved in learning the aspects of effective and efficient SCM. They are concerned in knowing the competences that must be established and the tools and management practises that should be embraced to exploit current and future prospects (Kemppainen & Vepsäläinen, 2003). Hence, the purpose of this paper is to take stock of theoretical developments and look at the future trends in global SCM strategy. Even though, not one person can foretell the future, this paper endeavours to forecast how SCM will look in the coming times on grounds of the trends manifest over the past few years. The next section looks at the literature on the evolution of logistics and SCM and the future trends in global SCM strategy. Finally, the conclusion gives an overview of the current status, some limitations of the study and the future directions. Literature Analysis and Discussion “To better predict how the future of global SCM strategy may look like it is important to appreciate the past and observe the present” (Ballou, 2007). The concept of logistics as part of organisational strategy originated in the 1950s. Prior to that logistics was basically dormant. It was mainly heard of in military operations, where it had to do with procuring, maintaining, and transporting military materials, facilities, and personnel. In the 1950s organisations started to acknowledge the importance of logistics and started to recognise it as a distinct organisational function. It is at this time that organisations were trying to find a solution to increasing logistics costs. According to Heskett et al. (1973), the costs of logistics in the United States (US) encompassed around 15 per cent of the gross national product. The physical distribution costs were correspondingly high in other jurisdictions such as Japan, and United Kingdom. Hence, research on physical management and logistics was highly motivated in the 1960s to the 1970s (Heskett et al. 1973). Researchers were particularly focused on physical distribution and logistics. Physical distribution mainly involved outbound operations and was considered part of the marketing mix, whereas logistics referred to inbound movements (Heskett et al. 1964). The present day SCM is not far from these concepts as referred to then. Authors struggled to define these concepts and link them to production and purchasing (Ballou, 2007). They also could not agree to a common title with among the different terms that were used, such as physical distribution, business logistics, integrated logistics, distribution, materials management, value chains, and logistics. In the 1980s consultants in logistics came up with the idea of SCM. According to Oliver and Webber (1992), there was great emphasis to recognise SCM separately and integrate it into the top level strategic decision making. SCM came to be generally accepted in the 1990s owing to the global liberalisation and emergence of globalisation. Nonetheless up till now there is no singular definition to SCM. Some people view it as a new-fangled and bold concept while others say it is a gratification of the activity combination undertaking disguised in early definitions (Ballou, 2007). Figure 1: Evolutionary Time of SCM 1950s-Initiated logistic concept 1980s-Initiated the SCM concept 1970s-Matured logistic concept 1995-Initiated SCM in the Service Industry 1985-SCM in the Manufacturing Industry 2007-Educational SCM Source: Habib and Jungthirapanich (2008) The principal organisation in SCM, the Council of Supply Chain Management Professionals (CSCMP) defines SCM as; “SCM incorporates the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. Essentially, SCM incorporates supply and demand management within and across companies” (Ballou, 2007). According to Lummus & Robert (1999), “SCM entails each activity involved in delivering a product from raw materials to the customer together with sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, delivery to the customer, and the information systems required to monitor all of these activities. SCM brings together and incorporates all of these activities into a unified process. It associates all of the stakeholders in the chain as well as parties inside an organisation plus the external partners comprising suppliers, carriers, third party companies, and information systems providers.” The definitions clearly emphasise building relationships, collaboration, and coordination amongst channel members. Ballou (2007) indicates that SCM can be seen as three-dimensional: (1) Inter-functional coordination; (2) Activity and process administration; and (3) Inter-organisational coordination. Inter-functional coordination denotes building relationships and collaborating with other operative areas in the same firm, such as finance and marketing. Activity and process administration mainly deals with logistics, which entails handling activities such as inventories, order processing transportation, and warehousing. Inter-organisational coordination deals with synchronising and collaborating product flows amongst channel members (companies not operated or owned by the immediate firm). Therefore, the present day SCM involves handling product flows across various enterprises. Also, contemporary SCM involves managing various processes. Ballou (2007) defines these process as “a set of actions applied to achieve a defined objective, such as filling orders.” Habib (2010) states that the duty for the different constituents in the chain is not split and moved to functional areas such as purchasing, manufacturing, distribution, and sales. He argues that SCM requires and ultimately depends upon the firm’s strategic decision-making. Moreover, “Supply” is a common objective of virtually every single function in the chain and has certain strategic meaning owing to its bearing on total profits, costs and market share. The pace of globalisation is still increasing as countries integrate with free trade and liberalisation being a top agenda. This together with outsourcing all back a sustained and rising interest in SCM. According to a McKinsey & Company report, “…by the year 2020, 80% of the goods in the world will be manufactured in a country different from where they are consumed compared with 20% now.” The handling, movement and usage of goods is expected to shift significantly. This calls for much better SCM processes, with an emphasis on efficiency and effectiveness. There will be a shift in strategy (Ballou, 2007). Sustainability is likely to have a great impact on the future global SCM strategy. There is growing pressure for companies and their supply chain partners to observe environmental rules and mitigate the environmental impact of their actions, services and products. Governments, non-governmental organisations, and consumers are seriously pushing for Corporate Social Responsibility (CSR) together with environmental sustainability. The push focuses on the possibility for manufacturers to initiate product reclamation at the end of its life cycle (McKinnon, 2010). Producers are expected to work together with their supply chain associates to devise environmental procedures and innovative approaches to environmental tasks. This trend has already been espoused by a few companies such as IBM and General Electric. For example, IBM commenced its Social and Environmental Management System (SEMS) program in 2010 involving its 28,000 first-tier suppliers. The aim of the SEMS program is to oblige associates to set up and sustain a corporate responsibility and environmental management system, with objectives and measures of their performance counter to specified environmental goals (Emmett & Sood, 2010). Environmental sustainability is aimed at decreasing the use of materials. Other processes including recycling, reusing, and recovering are also likely to contribute to that goal. This trend is vital for logistics. It presupposes that the movement of commodities be restricted to the exactingly required types, quantities, and distances. Also it is necessary that the environmental effect of logistics and logistic centres be assessed and contained as much as possible. Another key trend emerging is the need for reverse logistics. The European Working Group on Reverse Logistics (EWGRL) (2004), defines reverse Logistics as “the process of planning, implementing, and controlling flows of raw materials, in-process inventory, and finished goods, from a manufacturing, distribution or use point to a point of recovery or point of proper disposal” (O'Reilly, 2005). Reverse logistics is a multifaceted process that rebels the forward-thinking sense. This is because moving backward through the supply chain is more demanding and difficult, which is (1) not any company’s main concern and (2) products are moving counter to the usual flow. Reverse logistics has, in the past, always been seen as a cost and has been a belittled part of SCM. However, it is at this moment attracting much more thoughtfulness because apparently it has a direct effect on profit margins, CSR, and companies’ environmental image. Lots of business entities are bit by bit starting to embrace this "reverse reality," as they pay more care on managing revenues. Reverse logistics is likely to grow into a more inordinate part of SCM and a prospective income generating stream for companies that do it right (Singh, 2007). Literature suggests that e-commerce is disposed to greatly improve SCM efficiency in future (Tiwari & Singh, 2011). Business-to-business (B2B) and business-to-consumer (B2C) e-commerce technologies will contribute to the re-organisation and management of supply chains. Seemingly, multi-stage supply chains will provide various openings for e-commerce implements to progress data flow, boost customer value, and reorganise business processes (Melnyk, 2009). E-commerce is a promising channel for small companies to enter into the international markets at a level ground with big companies. It has the prospect of widening the geographical scope of a rural entity starved of the cost of setting up a physical presence in several places. Through e-commerce, the brick-and-mortar trade will be supplanted by realistic centres where clienteles try products and acquaint themselves with them. The present day retail-chain stores possibly will before long be transformed into lean presentation spaces of top quality physical goods. Warehouses logistic centres are likely to focus more on packing and supplying goods to buyers, based on their online orders (Markus, 2000). Risks, however small they may be, can have erratic effects on the future global SCM strategy. Multinational corporations (MNCs) must be ready to face events that can cause weighty disturbances. Political insecurity, foreign regulations, social strife, and economic instability call for flexible management of costs, assets, and networks, receptive business networks, and adaptable capacities (McKinnon, 2010). The current world is faced by massive terrorist threats that do not seem to end. This has caused great anxiety not only in business but also in the general public and in political spheres. MNCs are starting to move their production equipment near to the customers and source for materials and labour locally. Moreover, cyber-insecurity is more glaring, common, and destructive. Cyber-attacks can upset the entire supply chain, from real-time logistics applications, GPS and tracking systems as well as air and traffic controls. They therefore pose huge disturbances in SCM. In the coming times, companies and their supply chain partners will pay more attention to privacy, data protection, and web security (Gripsrud, 2006). The current inaccuracies in inventory records will be handled through Radio Frequency Identification (RFID) technology. RFID falls under the category of Automatic Identification and Data Capture (AIDC) technology. It uses electric/magnetic fields at radio frequencies to identify, authenticate, locate, or acquire and transmit automatic data (Coltman et al., 2008). RFID makes easy tracking and tracing products at every point through the supply chain in a more precise way and in real-time, thereby reducing processing time and labour. RFID can store more amounts of data. It facilitates sharing of this information easily, with no interruptions and upon-request, even across organisational confines. In future, companies with RFID systems will improve product visibility, reduce stock errors, moderate out-of-stock stuffs, lower warehousing expenses, and reduce pilferage (Tajima, 2007). The companies will also be able to update their inventory and logistics records on a regular basis. Needless to say, RFID will have a noteworthy impact on virtually all aspects under SCM function (Cigolini, 2004). RFID is still in its initial extensive adoption, but counties such as Japan and Hong Kong have started to use it. Companies including GAP, Gillette, Walmart, CVS and Reno Gmbh have plans in place to start using RFID chips to track their products. Conclusion Through observing the current product flow, it can be clearly concluded that there is more excitement and focus associated with SCM. SCM enables integrated management of product flow processes between channels and across functions. Logistics is now being regarded as a subcategory of SCM with its scope being confined to functions within the firm, mainly to do with activity administration. SCM now captures the wider scope of inter-organisational and inter-functional management. It also includes purchasing and production and therefore accounts for a bigger chunk of the cost of goods sold, around 70 to 80 per cent according to Ballou (2007). However, Ballou (2007) argues that as SCM is being integrated into the organisational functions, it disposed to become wider and may lose its focus and identity. Also the way it is being practised between the firm and top suppliers is not as it should be, given the wide theoretical scope given to it. Still it is likely to receive wide reception. This study was mainly focused on a theoretical review of books, articles and journals from different authors and past studies. Therefore, it relies on other works that tends to water it down to a simple review of literature. This limits the study given that it lacks a critical and empirical narrative that would further the content contained in past works. Global SCM strategy for the future will mainly be driven by cooperation and collaboration. The main areas likely to have a great impact are sustainability and environmental impacts as companies and their supply chain associates will collaborate and innovate to improve on CSR. Out of this, reverse logistics is expected to be a driver of future sources of revenue depending on how companies manage it. Also e-commerce is expected to replace today’s brick-and-mortar trade replacing it with online orders through B2B and B2C tools. Risks will continue to be a central part of the future global SCM strategy given the rising terrorism activities and cyber-attacks. Finally, the current inaccuracies in inventory records, tracing and tracking are expected to be wiped away through the use of a more efficient RFID technology. References Ballou, R.H. 2007. The evolution and future of logistics and supply chain management, European Business Review, 19, 4, 332-348. Cigolini, R. Cozzi M. and Perona, M. 2004. A new framework for supply chain management, International Journal of Operations & Production Management, 24, 1, 7-41 Coltman, T. Gadh, R. and Michael, K. 2008, RFID and Supply Chain Management: Introduction to the Special Issue, Journal of Theoretical and Applied Electronic Commerce Research, 3, 1, 3-5. Emmett, S. and Sood, V. 2010. Green supply chains. An action manifesto. Chichester: John Wiley Gripsrud, G. 2006. Supply chain management-back to the future? International Journal of Physical Distribution & Logistics Management, 36, 8, 643-659 Habib, M. and Jungthirapanich, C. 2008. An integrated framework for research and education supply chain for the universities, Proceedings of the 4th IEEE International Conference on Management of Innovation and Technology, IEEE Computer Society, Piscataway, USA, ISBN: 978-1-4244-2329-3, pp. 1027-1032. Habib, M. 2010. Supply Chain Management: Theory and its Future Perspectives, International Journal of Business, Management and Social Sciences, 1, 1. Heskett, J. L. Glaskowsky, N. A.and Ivie, R. M. 1973. Business Logistics, 2nd ed. New York: The Ronald Press, 14-21. Heskett, J. L. Glaskowsky, N. A.and Ivie, R. M. 1964. Business Logistics: Management of Physical Supply and Distribution, New York: The Ronald Press. Kemppainen, K. and Vepsäläinen, A.P.J. 2003. Trends in industrial supply chains and networks, International Journal of Physical Distribution & Logistics Management, 33, 8, 701-719. Ketchen, D.J.J. and Giunipero, L.C. 2004. The intersection of strategic management and supply chain management, Industrial Marketing Management, 33, 1, 51-57. Lummus, R. and Robert, J.V. 1999. Defining supply chain management: a historical perspective and practical guidelines, Industrial Management & Data Systems, 99, 1, 11-17 Markus, L. 2000. 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E-Commerce: Prospect or Threat for Environment, International Journal of Environmental Science and Development, 2, 3. Read More