Strategic Importance of Supply Chain Management in Todays Business Environment - Literature review Example

REPORT ON THE STRATEGIC IMPORTANCE OF SUPPLY CHAIN MANAGEMENT IN TODAY’S BUSINESS ENVIRONMENT By Name Course Instructor Institution City/State Date Report on the Strategic Importance of Supply Chain Management in Today’s Business Environment Introduction The supply chain concept has been studied widely in the literature and involves aligning the organisations that bring products/services into the market. Therefore, the supply chain can be defined as the lifecycle processes involving knowledge, physical, financial, and information flows with the objective of satisfying the customers’ needs using products/services from different interconnected suppliers. Basically, supply chain management (SCM) has turned out to be an important technique of improving the performance of the organisation and gaining competitive advantage given that competition is nowadays between supply chains and not organisations. These days, the concept of competitive advantage has become part and parcel of the business strategy. Competitive advantage can be defined as the ability of the organisation to create and maintain a strong position in the market over its rivals. Business organisations normally achieve competitive advantage when their actions in the market generate economic value and their products/services are rare, inimitable and cannot be substituted easily. To successfully compete in the modern-day challenging and fierce business environment, Njoku and Kalu (2015, p.90) posit that companies must concentrate on the components of supply chain management, which can result in improved profitability This paper seeks to discuss the strategic importance of Supply Chain Management in today’s business environment. The Concept of Supply Chain Management According to Li et al. (2006, p.108), the concept of supply chain management has been reviewed extensively by business managers, consultants, and academicians. Supply chain management is a tool used by many firms seeking to gain sustainable competitive advantage. A number of theories provide insights on certain perspectives or aspects of SCM, like resource-dependency theory, resource-based view, as well as social–political perspective. The concept of SCM as cited by Li et al. (2006, p.108) takes two different paths: logistics and transportation management as well as purchasing and supply management. The SCM’s main characteristics as mentioned by Pozo et al. (2014, p.9) include the relationship between the supply chain’s main actors with the focus on the end-users, information sharing, mutual benefits, and sharing of risks and profits. The ‘cause and effect’ of the supply chain normally result in a shared competitive advantage. Such facilitates the company to improve its competitiveness in relation to the competitors by increasing the profits, cutting costs and satisfying the customers. Given that the contemporary business competition is between partners in the supply chains, Sukati et al. (2012, p.7) mention that organisations have started adopting SCM practices with the anticipation of generating firm’s competitive advantage as well as supply chain responsiveness. The SCM practices involve integration, co-ordination as well as collaboration all through the supply chain and across the organisations. This connotes that supply chain management needs external and internal integration. As mentioned by Giménez and Ventura (2003, p.78) companies should attain a moderately high level of internal integration prior to executing the SCM. More importantly, SCM result in the improvement of productivity, reduction of cost, increased profit, and high customer satisfaction (Jain & Rathee, 2013, p.63). SCM Competitive Requirements In the supply chain, the key competitive requirements according to Gonzalez-Loureiro et al. (2015, p.172) are agility, responsiveness, flexibility as well as reliability. Such requirements are related to the needed capabilities and resources that a company should develop in order to compete successfully. In addition, the mindset of the managers and the workforce entrepreneurial orientation of in the supply chain may facilitate in the discovering of new business opportunities. As observed by Gonzalez-Loureiro et al. (2015), this can lead to core competencies between the suppliers and buyers, which are important in getting an improved performance. The supply chain performance does not rely just on one firm, but on several agents participating in delivering the right value. Gonzalez-Loureiro et al. (2015) linked the relational view of the firm with the dependence theory and established that the supply chain is a web of capabilities and resources; therefore, firms should always be able to control such resources. The benefits of Supply Chain Management to an Organisation Without a doubt, implementing supply chain is beneficial to an organisation; for instance, SCM implementation can result in reduced transaction costs and the overall costs. Implementing and controlling SCM can allow for information sharing, facilitate firms to retain a high market sensitivity level (Wei & Xiang, 2013, p.280). More importantly, the SCM objective is to generate an economic value for the whole supply chain network, which includes the customers. Therefore, effective SCM involves coordinating activities in the firm as well as between supply chain members. As opined by Croxton et al. (2001, p.30), the initiatives of supply chain process reengineering and integration can improve the organisation’s effectiveness and efficiency. The firm’s profitability, as well as competitive advantage, can be improved through SCM by improving the overall satisfaction of the customers. The SCM has become more beneficial to business organisations because it delivers economic value and customer service through synchronised flow management of the associated information and physical goods from the suppliers to the end-users. The competitive advantage according to Porter develops profoundly from the customer value that has been created by the firm and intends to create a sustainable and profitable position against the forces, which define competition in the industry (Mentzer et al., 2001, p.15). Therefore, SCM implementation improves customer satisfaction and value, which consequently results in enhanced firm’s competitive advantage. According to Kherbach and Mocan (2016, p.409), companies with efficient SCM and logistics are inclined to improve their competitiveness as well as maximise their success. Key drivers Environmental Uncertainty: This refers to the environmental issues within the product chain such as unexpected changes in technology, supplier, customer, or competitors. Therefore, environmental uncertainty is considered to be a crucial driver in realising the strategic SCM plans. Environmental uncertainty can be divided into three factors: government support, environment, as well as overseas’ uncertainty aspects. Relationships with Suppliers and Customers: Firms are likely to collaborate with different suppliers differently; therefore, it is imperative that the business relationship with suppliers satisfies their needs of the company. Therefore, as suggested by Quesada et al. (2012, p.37) it is important to network the supplier in order to develop alliances and partnerships, which could be of beneficial to both partners. This can be achieved through symbolic, personal, and production networking, which could lead to strategic alliances; thus, facilitating risk sharing, information sharing, coordinating plans, achieving mutual benefits, and allowing for the supply chain improvement. Nowadays, customers are searching for better service, more choices, faster delivery and higher quality products/services. Therefore, the relationship with customers has become a key driver for modern-day companies. Material Sourcing: Firms, especially those in the manufacturing industry are always searching for cheap material; therefore, to improve their competitive advantage, some prefer importing the resources. Basically, importing products, components or raw materials improves the company reliance on suppliers and results in the identifications of some risks like the transportation delays, culture, and so forth. With regard to innovation, Customer Satisfaction and Customer Service: The perception of the customers is always different as that of the product manufacturer. Sometimes, customers value products that are affordable and delivered on time. Therefore, managing the relationship between the customers and the firm can result in improved customer satisfaction as well as operational performance. The objective of the firms in the supply chain is to offer customers the best service effectively and efficiently devoid of overlooking other information like the order status, availability and description of the product, as well as shipping dates (Quesada et al., 2012, p.41). The Woolworths Case Woolworths’ effective supply chain management according to Chew (2011, p.211) has resulted in cost saving and improved financial performance. As a result of effective SCM, customers at Woolworths can buy high-quality products at affordable prices, which have resulted in competitive advantage. Chew (2011, p.212) asserts that the Internet, electronic Data Interchange (EDI), as well as barcode technology, have enabled Woolworths to effectively share and manage its data/information with its supply chain partners. Furthermore, Woolworths’ distribution system has been re-engineered, and has enhanced its IT system in order to coordinate and optimise the linkages within its supply chain. The SCM redesign has led to enormous cost saving which has made Woolworths one of the leading retailers in Australia (Wahyuni, 2010, p.37). More recently, Woolworths has espoused a sustainability performance management solution for monitoring the compliance of the suppliers to the sustainability guidelines through the measurement of indicators and metrics with focus on waste management, water, and energy (Taylor, 2014). Conclusion In conclusion, this paper has discussed the strategic importance of SCM in the modern-day business environment. As mentioned in the report, increased market competition has forced firms to start acting strategically. Therefore, the supply chains have turned out to be a complex network of global webs with SCM trying to generate critical relationships both externally and internally. Supply chain management has become a main source of competitive advantage for many firms. The impact of SCM on business environment is both exponential and substantial. For instance, SCM improves customer services by ensuring punctual delivery of the right product quantity and assortment. References Chew, E.K., 2011. 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