Supply Chain Standards - Essay Example

Streamlining interaction throughout the elements of the supply chain, increasing transaction speed, and reducing inventory as well as delays, all with the intent of reducing costs (Thibodeau 6). The concept of standardization applies to multiple industries, and the cost savings can be significant; estimates by governmental leaders and industry analysts project that the auto manufacturing industry alone could save as much as $1 Billion annually (6). With a focus on cost savings, there are several ways in which standardization assists a company or industry in improving its SCM processes to achieve the desired end. These include the enhancement of SCM planning, the enabling of SCM transparency, as well as the increase of cooperation and efficiency between the components.

In terms of planning, the process of standardizing practices across the entirety of the supply chain requires management to consider each element in the system and how those elements interact. To standardize a process means that each component is reviewed to streamline the interactions so that the ultimate process works better; a concept that applies to virtually any supply chain. For example, in the healthcare industry, one author notes that considering all the criteria which directly link to “product selection, product use, product disposal, and environmental and community health impacts” should be incorporated into the SCM so that a “holistic perspective” is maintained (Eagan, Kaiser, and Shaner 207). It makes sense that a non-compartmentalized view of the supply chain would contribute to efficiency in planning, resulting in cost savings. Accordingly, the first improvement standardization brings to SCM is that of forcing management to understand the entire process so that it all works together in an organized fashion.

Another improvement gained through standardization is found in the principle of transparency. Published and recognized standards allow each component within the chain to understand the processes of the other elements and work in cooperation with them. As discussed in other research, the linear model of production and distribution in a retail environment has given way to the more efficient hub-and-spoke method of inventory management. This process permits greater control of systems delivery while reducing inventory levels and the associated costs of excess inventory storage, security, transportation, and management. When process standardization is added to this mix, the hub system is enhanced by the exchange of information so that the hub can manage the flow of information from all of the trading partners. As Agrawal and Minsok point out, transaction standards work in harmony through common platforms, allowing the hubs to manage information across the entirety of the system; which enables the hubs to increase the speed, accuracy, and quantity of information (23). It is not difficult to comprehend that a standardized flow of information that is centrally managed will only increase the efficiency of the entire supply chain. Consider the impact on a large retailer like Wal-Mart; the ability to standardize procurement into the hub and distribution from the hub through a transparent supply chain would make a considerable impact on inventory reduction, supply chain costs, and the profitability of the company.
Finally, considering the nature of vendor-to-distributor supply chains, standardization enhances what should already be a cooperative relationship. As Brooks notes, the cooperation between customer and vendor facilitates commercial transactions and eliminates inefficiencies on both sides. Rather than maintaining an “adversarial relationship,” SCM “emphasizes shared goals, responsibilities and cooperation for mutual benefit...” (27). Almost every industry has realized that cooperation between the components of the supply chain results in cost and distribution advantages for all parties. Standardization is simply an enhancement of that philosophy by codifying cooperation. Once the components within the chain recognize the value of common standards and implement the methods which allow enhanced cooperation, the efficiency gained directly correlates to expense reduction. This is why the federal government is considering funding research and development of the process. From that macro-perspective, the national economic benefits gained from industry supply chain standardization are dramatic. If the automobile manufacturing industry can realize savings on the scale of billions of dollars, the accumulated savings across all national industries would make American businesses more competitive in the global environment.

Supply chain standardization is a good idea. As supply chain managers establish and implement standardization, they are forced to look at the entirety of the supply chain and understand the relationships between the parts and the whole. This approach allows the adoption of standards that facilitate transparency of the process, which enables all components within the system to understand how to relate more efficiently and contribute to overall efficiency. The increase of cooperation between the elements provided by the setting of standards further removes barriers to interoperability and directly translates to proficient management.