Supply Chain Management Role in the Company's Progress - Essay Example

Running Head: SUPPLY CHAIN MANAGEMENT Supply Chain Management of the of the Supply Chain Management The supply chain management is becoming an increasingly important concept for marketing during the 21st century. It has become one of the key components of the local and international businesses. The framework of activities between the business organizations forms a significant foundation stone for the establishment of a superior and distinctive performance of supply chain. It is believed by the executives of various leading organizations that if the business processes and primary internal activities are managed and linked properly, then the profitability and competitiveness of the organizations is likely to enhance exponentially. Companies aiming at acquiring successful supply chain management need to alter from the management of functions in isolation to integration of the activities into major processes of supply chain management. However, many organizations have, unfortunately, not been able to integrate the activities and both, the downstream and upstream supply chain positions, continue to interact as disconnected entities that receive infrequent flow of information during a period of time. The current paper will discuss the role and concept of the supply chain management with reference to business-to-business marketing. The major issues in managing the supply chain will be discussed and illustrated with the help of supply chain concept in two different industries. Supply Chain Management The concept of supply chain management refers to the technique of linking the operations of manufacturer with its primary intermediaries, strategic suppliers and customers. Supply chain management (SCM) is related to the management of the goods and services. It comprises of the storage and movement of work-in-process inventory, raw materials, and finished goods to transfer them from production point to consumption point. It functions through the interconnected channels, networks and node businesses that participate in providing the services and products that the final customers require (Harland, 1996). APICS Dictionary has defined the concept of supply chain management as the planning, designing, executing, monitoring and controlling the activities of supply chain keeping in view the goal of value creation, worldwide logistics leverage, competitive infrastructure building, measurement of performance on global level and synchronization of demand with supply. According to Lummus and Vokurka, (1999), Mentzer et al., (2001), and New (1997), the supply chain management is defined as an incorporation of numerous business processes which include procurement, demand forecasting and planning, distribution, assembly and manufacturing, customer-focused process management and management of resources (pp. 11-17). Handfield and Nichols (1999) define the supply chain as the transfer of goods beginning from the point of origin i.e. raw material to the finished product, along with the entire chain of activities which are undertaken to attain the objectives in a successful manner (pp. 121-140). Saunders (1997) extends this definition through the addition of the flow of currency with the transfer of goods. Finances are ultimately the key drivers of the medium of exchange as well as chain of purchases. Ellram and Cooper (1993) further summarize the definition by referring to SCM as the integration of the philosophy of managing the aggregate provision of goods through channels of distribution. The goods are transported from supplier to the final customer (Rich and Hines 1997, pp. 212). The following figure depicts the supply chain diagram: Figure: Supply Chain Management Thus, the approach of SCM seeks to incorporate the operations and relationships of first-tier, immediate suppliers, with suppliers that exist several-tiers back for the purpose of assisting the second- third- and fourth-tier suppliers in fulfilling the needs of delivery, quality, and exchange of information in timely manner. The organizations that adopt the integration of supply chain management operations also tend to seek ideas for major suppliers and engage them in the process of new product development directly. By linking the capabilities of suppliers with product development and managing the costs of supply chain, the corporate performance is advanced by the purchasing function in numerous companies (Gurin, 2000). The SCM process connects the inventories and supplies with actual requirements. It permits the organizations to plan and stock in accordance with the actual levels of supply by partnering with major accounts and customers. Manufacturers find SCM to be an effective and efficient strategy for their key operations. Organizations can connect marketing and sales, and production and distribution processes and join together to build a partnership for a more timely and unified business approach to customers and markets. Through the establishment of supply-based connections, organizations establish bridges to build partnerships with customers, suppliers, and carriers in order to improve customer services, reduce the cost of operations, and expand markets in an effective manner (Anderson & Narus. 2004. pp. 141- 144). Thus, the process of SCM draws heavily from the capacities of logistics, operations management, information technology, and procurement along with striving for a well-integrated approach. Goals and Functions The particular goals of the SCM process include the following: Reduction of order-to-delivery cycle time, Coordination of processes for reducing waste, Development of a flexible response all through the process of supply chain, and Reduction in cost per unit. There are three key means through which waste is reduced in the supply chain process. They include the improvement in quality, minimization of duplication, and attaining a uniform level among system and operations. Duplication is likely to be minimized through the maintenance of activities at critical and specific points within the supply chain processes. In this way, inventory management can be undertaken in a proper manner. The management of supply chain is a cross-functional approach. It entails the functions of managing the transfer of raw materials within the Company. It includes various aspects regarding the conversion of raw materials into finished goods, along with the transporting of finished products from the organization to the final consumer. Since the present day companies are struggling to concentrate more on gaining flexibility and basic competencies, they tend to lessen their distribution channels and ownership of resources and raw materials. They are increasingly outsourcing these functions to other organizations that possess the capabilities of performing such activities in a more cost effective and better manner. This results in the reduction of managerial control and monitoring of everyday logistic operations and enhances the number of organizations that participate in the process of customer demand fulfillment. More partners in supply chain and lesser control result in the establishment of the supply chain management concept. This achieves the purpose of improving collaboration and trust among the partners of supply chain, thus leading to an improvement in the rapidity of inventory movement and inventory visibility. Significance The concept of supply chain management plays a vital role in inventory management and progress of organizations. The transformations in the business environment of the current era have contributed significantly in the development and growth of the supply chain management networks. The companies need to depend increasingly upon the effective management of networks or supply chains, in order to enter into the competition with networked economy and global market. According to the new management paradigms introduced by Peter Drucker (1998), the concept of SCM and business relationships goes beyond the boundaries of traditional enterprise and focus on organizing the complete business processes across the value chain of numerous organizations. As an ultimate of proliferation and globalization of the international organizations, strategic alliances, joint ventures, and business enterprises, major factors of success are recognized, which complement the earlier processes of lean manufacturing, "just-in-time", and practices of agile manufacturing. Besides this, technological changes in general and the remarkable decline in the costs of communication in particular have resulted in the alterations in harmonization of the supply chain network members (Coase, 1998). According to various researchers, the supply network frameworks have been found as a better and newer form of organisation, for which terms like "Extended Enterprise", "and "Keiretsu" are used. SCM in Business-to-business Marketing The Business-to-business, usually known as B2B, refers to the commercial exchanges and transactions that occur between businesses. These include the exchanges between a retailer and a wholesaler, or a wholesaler and manufacturer. In contrast to this concept, there is business-to-consumer, or B2C, and the others, business-to-government, also called B2G. The general B2B volume of transactions tends to be higher in comparison to that of B2C transactions. It is primarily due to the fact that, a traditional supply-chain network involves numerous B2B transactions that include the raw materials of the products while, the B2C transaction that takes place is only one which is particularly the selling of final product to the end users. The online commerce of B2B is anticipated to be practiced by all the organizations involving in the B2B commerce. The characteristics of primary importance in B2B marketing include: Relationship building Commercial negotiations intensively performed candid technical interactions Strong support and provision of after-sale services. Types Basically, there exist two types of B2B companies. They are as follows: Vertical Companies The vertical organizations perform within a vertical industry and traditionally make money through undertaking the function of advertisement on the sector-specific sites or from the processing and transaction fee charged for hosting of e-commerce. Horizontal Companies Horizontal companies are entirely different types of organizations and function across various differing verticals at different levels. Through the provision of different types of information, they empower their salesforce and earn through the sale of software and such other services that are related to technology. Significance The B2B marketing holds numerous positive attributes. It helps business in reducing the cost of purchases. Through providing an opportunity of remodeling the manner of purchasing raw material, the B2B process lets the organizations cut experience cost cuts. It eliminates the need to locate the goods and service required and performs the essential paper works. Then, the B2B procedures also enhance efficiencies of market, with the use of internet and advanced technologies, the companies obtain price quotations from suppliers and vendors of their choice and place orders. The enhanced levels of market intelligence are another attraction offered by the B2B marketing processes. With respect to the finding of good prices, the process also allows the producers gain deeper insight into the levels of demand prevailing in the market. Thus, the organizations are in a better position to make decisions with regards to the production opportunities (Ferrell, Ingram & LaForge, 2000. pp. 555 –564). Moreover, there occurs a decline in the levels of inventory. Through the utilization of B2b technologies, the organziayions are able to make use of their raw materials and inventories in a better manner. The just-in-time management techniques also permit the organizations to free the working capital that might otherwise have been tied up in stockpiles and invest it somewhere else. The Main Issues in Supply Chain Management– With Reference To Two Examples In order to illustrate the main issues in the supply chain management, the study will consider the home appliances and jeweler as two industries. The industry offering home appliances is characterized by the utilization of plastics and metals for making different components, product casings, the functions required for the operation of components and the physical premises for assembling the parts of jewellery through the operations from raw material to the end user. While, the supply chain of the jewellery industry supply is characterized by the metals; these include silver, gold, platinum, precious stones, such as ruby, diamond, sapphires etc. The operation or mechanism of the industry includes the craftsmanship that is needed for the purpose of creating and shaping the jewels prior to transporting them to the jeweler, retailer, or the final consumer. Flow of Goods It has been highlighted by the research undertaken by Closs and Cooper (2002) that the management of flow of materials, information and finances is of great significance in the supply chain network of any industry. They also play a vital part in the supply chain of both jewellery and home appliances industry. There is an essential need for the supply of materials and resources across the network or chain so that the manufacturing of final product may be ensured. However, the supply of information and finances is also important in order to enable the production and supply of correct amount of materials (Mena, Humphries & Wilding, 2009, pp.762-784). According to Bowersox et al. (2002), such exchanges are known as the enterprise extension and are primary components of the process of supply chain management (pp. 20-47). They are crucial constituents that enable an organization to play the role of not merely a good supplier but also a better customer. This ultimately makes the concept of enterprise extension a significant component of SCM. Relationship Management Building and managing the relationships is one of the primary aspects of the supply chain management. The importance of relationship management in the SCM has been discussed by Handfield and Nichols (1999), and this discussion is in relevance to both, the jewellery and home appliances industries. It may be assumed that it is more vital to be implemented in the supply chain management of jewellery industry for the reason that jewelers are required to be convinced and certain regarding their vendors of jewels, metals and other raw material and resources of jewellery manufacturing. It is necessary that the jewels are obtained from vendors who are trusted so that the value and legitimacy both are guaranteed. Though the component suppliers in the home appliances industry are also crucial, they managers may also easily locate alternative suppliers, while for jewellery industry; there is no easy or trustworthy supply of jewel vendors. The theory given by Bowersox and Closs (1996) also embeds with it the fact that building of relationships enhances competitiveness and leads to reduced risks. The supply chain in jewellery industry, in particular, allocates more importance to enhancement of competitive advantage and reduction of risks in supplying in order to ensure the production of best quality jewellery. In addition to this, this fact connects to the theory of Closs and Cooper (2002) which indicates the significance of management of the information, materials and finance flow. Pricing Issues Pricing plays an important part in the supply chain of all the industries. According to Voeth and Herbst (2006), the prices are connected to the management of relationships and that the price offers and discounts usually lead to the initiation of stable relationships. This relates to the supply chain management of home appliances industry in particular, due to the fact that the materials utilized are of lost cow. This follows the theory given by Voeth and Herbst (2006) which acknowledges that, with the help of contracts, costs might be increased through the passage of relationship period. On the other hand, in the supply chain of jewellery, it is tougher to integrate the concept of pricing in the form of strategy. The jewellery industry utilizes high priced raw materials, however, they too are greatly affected by the variations and fluctuations; thus. The suppliers and buyers usually limit them to the market price of materials thus, being able to manage their profit margins only. Connection between Structure and Relationships The home appliances industry finds the wide business relationships to be of significance in the supply chain management. This is because such kind of relationship restricts the buyers and vendors and binds them in the vested interested so that they avoid the heavy switching costs. There is a similarity between the partnering in close business relationships and collaborations, and this is the critically related concept with the supply chain networking in jewellery industry for they are established on the basis of reciprocation. Since the supply chain of jewellery heavily depends upon the high quality suppliers, they ultimately offer quality contacts and materials. According to Voeth and Herbst (2006) there exist two types of relationships. They also mention that the relationships in the supply chain networks are likely to be vague, and the primary initiators of ambiguity tend to be those partners who are reluctant in making any sort of investments in the relationship building process. Obsolescence Not only relationships, but products also end. This is usually referred to as the planned or unnatural form of obsolescence. With respect to the supply chain network in the jewellery industry, Waldman (1993) suggests that the concept of planned obsolescence is one of the ways for the generation of revenues and increased sales through letting the products obsolete in a socially acceptable manner (Cooper, 2004. pp. 421 –449). Just like fashion, the jewellery industry also counters style changes and shifts in customers preferences, so the creation of such products which the customers consider obsolete leads to the transformed or changed customs and norms in the supply chain. In home appliances industry too, there are developments in styles of the appliances, and another types of planned obsolescence is likely to be implicated which pertains to the obsolescence of technology itself. Conclusion Supply chain management plays a vital role in the progress and profitability of an organization. However, different types of firms also counter various challenges in the SCM implementation depending upon the nature of their products and operations. There are various issues that affect the supply chain management of jewellery and home appliances industry’s supply chains. The prevailing challenge is the issues of building relationships for the reason that it is apparently responsible for being the major source to the emergence of various other issues which are solved if this is managed properly. Thus, solving the SCM issues in every industry permit the firms to position themselves on a proper footing and attaining competitive advantage. References "Supply chain management (SCM)". APICS Dictionary. Web. Retrieved on April 1, 2014 Anderson & Narus. 2004. Business Market Management: Understanding, Creating and Delivering Value. Pearson Education 2nd Ed. pp. 141- 144 Bowersox, D.J. & Closs, D.J. 1996. Logistical Management: The Integrated Supply Chain Process. 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Pearson Education 2nd Ed. pp. 22-49 Voeth, M. & Herbst, U. 2006. Supply-chain pricing — A new perspective on pricing in industrial markets. Industrial Marketing Management. 35. pp. 83 –90 Waldman, M.1993. A New Perspective on Planned Obsolescence. The Quarterly Journal of Economics, 108(1). pp. 273-283 Read More