Concept of Supply Chain Management - Article Example

Supply Chain Management Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 28th May, 2015. Supply Chain Management The concept of supply chain management (SCM) has morphed from the intricate task of managing the different activities in the supply chain. It involves different tasks of design, execution, control and monitoring of the supply chain. These tasks are supposed to create value or building a competitive network for the smooth flow of goods and services. As a result, several tasks are involved in the process within the field of SCM such as operations management, logistics and procurement. Several techniques and theories have been deployed in the process of developing supply chain management strategies such as systems theory (ST) (Baroody, 2011, p. 62). Systems theory analyzes various aspects of SCM such as the organization of various components such as human capital, information, raw materials and financial resources. Although, the process and models adopted in the process of managing supply chains is complex, there are common factors along these models such as information technology, collaboration and performance. These three factors mainly drive supply chain across different models such as Lean, Kaizen or Just-in-Time (JIT) in the process of managing supply chains (Shah, 2009). Supply chain management should rely upon performance distinction since customers are supposed to be satisfied at the lowest cost possible. All processes within the supply chain should be undertaken to ensure lowering of costs while proper collaboration of supply chain partners will enable organizations to achieve increased profitability, sustainability and value for its customers. Information technology has transformed the practice of supply chain management since it has automated ordering and ensured cutting edge systems such as ERP systems have high processing power. There are several models and theories within SCM such as Systems Theory which brings together all the various components of a complex supply chain such as capital, information in the formation of a subsystem of a large SCM system (Poirier, 2009). Other theories include Game Theory, Principle-Agent Theory and the Strategic Choice Theory. This report will analyze the role of a wholesales in the supply chain through a simulation as outlined; Samuels Root Beer Simulation The simulation being undertaken in this process revolves around inventory control by a manager in charge of inventory. The process of ordering, stock controls and warehousing are undertaken in the simulation whereby all orders are placed by the wholesaler and distributed all through to the customer through the retailer. As a retailer, all orders are placed to the wholesaler from which the Samuels Beer Company supplies the beer. The company sells an average of 50,000 per week and therefore, orders have be to placed weekly since the simulation runs on a weekly basis. The process being modeled by the simulation is order and information flow in the process of undertaking the simulation (Baroody, 2011, p. 65). The main purpose of the simulation is to ensure that demand is met with little cost in terms of inventory and backlog costs. In the process of undertaking the simulation, it is imperative to understand various terminologies utilized in the exercise as outlined; a) Order: amount of stock or beer that needs to be actually filled at each round b) Current costs: This is the total cumulative cost for each actual round i.e. the cost of supplying the beer or fulfilling the order. c) Backlog: The amount of order not met at the current position of the simulation. Consequently, when the demand is not met by the current ordering system then the backlog increases while it’s not possible to have inventory existing alongside a backlog. The model utilized in this simulation follows an echelon structure which is common to traditional supply chain structures and strategies. Each process follows another; in the simulation case, the wholesaler places an order which was received from the retailer for onward transfer to the customer. The model has operating processes which are ordering, supplying and inventory management. This Samuel’s Root Beer simulation allows the wholesaler to vary the order size based on demand. For instance in the process of undertaking the order placement, orders were placed in same quantities but the change in demand contributes to the build-up of inventory or stock-outs due to inflexible demand forecasting (Leeman, 2010). The simulation is undertaken within the wholesale level and this ensures that the changes in demand are driven by the retailer. Due to the changes in demand from the retailer side despite the constant ordering at the wholesaler’s end standing at 50,000 crates per week. The process of moving the beer from the manufacturer through the customer takes a period of two weeks. Due to the fluctuating demand from the customer, the retailer’s order levels keep changing resulting in a fluctuating phenomenon referred to as the ‘bullwhip effect ‘witnessed by changing graph levels for the company. The Bullwhip effect witnessed within this simulation has been contributed by erratic demand from the retail end and this is mostly manifested as time goes by or as we move upstream in the ordering system (Disney and Lambrecht, 2008). This phenomenon is mainly attributed to various factors as outlined; a) High stock levels as a result of poor customer demand b) Poor demand forecasting c) Price fluctuations d) Poor utilization and customer levels The bullwhip effect can be easily managed through a collaborative analysis model which analyzes ordering, backlog and supply chain management with strategies such as; a) Reduction of supply and ordering lead times b) Diminution of order or supply variability through use of Heijunka and one-piece flow. c) Proper co-ordination and collaboration between supply chain partners. The process of undertaking and managing retail orders should ensure that several factors are considered such as ensuring that sustainable stock levels are maintained to avoid overstocking or stacking which increases the cost of warehousing. Although wholesale orders were maintained, the process of managing demand at the retail side was a bit challenging. The performance of the retailer will depend on the inventory, back log and demand. The simulation offered us the opportunity of acting as the wholesaler and therefore, it was difficult to anticipate retailer demand to ensure that demand is adjusted (Disney and Lambrecht, 2008). In the process of undertaking the simulation, several mistakes were made leading to higher backlog order and costs. For instance, at the start of week 6, a total of 100,000 crates of beer were needed by the retailer but I created an order of 50,000. As a result, there were order mismatches leading to higher than expected order backlog costs. However, the process of undertaking orders and filling the same requires order forecasting based on past customers orders. Due to the order information for the last two weeks, I noticed that customer orders stood at around 50,000 and placing the same amount of order creates a bigger backlog due to the delivery period and inconsistent retailer demand. These mistakes can be rectified by varying the order levels after a period of two weeks. For instance, in case there is a back log of 150,000 units and an anticipated demand of around 50,000 to 100,000 units, a new order of 200,000 units would be appropriate in filling the gap and thus reducing inventory and backlog costs. References Baroody, A., 2011. Supply Chain Management Fundamentals. Journal of International Business 55(4), pp. 61-67. Disney, S. and Lambrecht M., 2008. On Replenishment Rules, Forecasting, and the Bullwhip Effect in Supply Chains. New York, NY: Now Publishers Inc. Jespersen, B. and ‎ Skjott-Larsen, T., 2012. Supply Chain Management: In Theory and Practice. Washington, DC: Delmar. Leeman, J., 2010. Supply Chain Management: Fast, Flexible Supply Chains in Manufacturing and Retailing. Boston, MA: BoD – Books on Demand. Poirier, C., 2009. Advanced Supply Chain Management: How to Build a Sustained Competitive Advantage. London: Berrett-Koehler Publishers. Shah, J., 2009. Supply Chain Management: Text and Cases. Chicago, IL: John Wiley and Sons. Read More