Supply Chain Management - Essay Example

Supply Chain Management – An Overview The supply chain can be described as the network, covering the various stages in the provision of products or services to customers. Effective management of the supply chain helps organizations meet customer requirements on time, with the desired quality specifications, in a cost-effective manner, through the coordination of different activities which transform raw materials into final products or services. Supply Chain Management can provide both tangible and intangible benefits to an organization. Tangible benefits include revenue growth, improved facility utilization, optimized inventory management, etc. Intangible benefits include improvement in quality, improvement in customer satisfaction, and enhanced customer and supplier techniques. Supply chain Management – Food industry According to a recent research that has been conducted by Accenture, it has been revealed that optimization of supply chain has become a key component for high performance levels (accenture). It can be noticed that, many retailers even today are not very successful in providing their customers with the right product always. This fact is true despite their huge amount of investments There are a growing number of challenges that are being faced by the food industry today. Some of them include operational complexity which has tremendously increased, changing government regulations, and consolidation of the food industry. Added to these are the special handling requirements for perished goods etc. In order to handle the above challenges, inventory has to be taken out of the supply chain and the service levels need to be improved drastically. The food industry needs to target the unique challenges and identify the opportunities available which help in improving the service levels and operational value and take advantage of them. Understanding and balancing the three key dimensions of supply chain management would help retailers optimize their supply chain function. The key dimensions are transportation, information and inventory. Inventory – Inventory includes raw materials, work-in-progress, and finished goods in the supply chain. Inventory exists in organizations due to a mismatch between demand and supply. Inventory is also maintained to increase the responsiveness of organizations to sudden increases in customer demand. Transportation – Organizations use transportation to move components and products between the different stages of the supply chain. Transportation decisions are made on the mode of transportation and route to use in the transfer of products from one point to another. Information – Sometimes, the value of information as a supply chain driver is undermined due to its abstract quality. However, in reality, it is one of the key drivers affecting the performance of the supply chain. As the supply chain is made up of various entities, proper coordination is the key to improving the efficiency of the supply chain system. The flow of information also affects the performance of other drivers. With proper information, organizations can predict the quantity to produce, when it is needed and where it is needed. This makes the supply chain more effective and responsive to market demand. It is also true that designing effective strategies also helps in optimizing the supply chain. As far as the retail or food industry is concerned, they need to design market oriented strategies for their success. Supply and demand need to be balanced in an effective manner in order to face today’s supply chain challenges. This is possible by deploying the maximum inventory. The organizations or food industry players need to have a complete visibility of the available inventory across the entire supply chain. This would help in improving the service levels and at the same time enables the players in the management of the order fulfillment cycle on a whole (Manhattan Associates Inc.). Segmenting Customers Based on Service Needs is one important aspect that needs to be considered with respect to effective supply chain management. Most organizations segment customers based on the industry, product or trade channel without differentiating their specific requirements. In order to serve customers properly, organizations should segment markets based on the specific customer needs. Dynamic Optimization of Logistics is another important activity that needs attention. Companies usually design their logistics system either to meet the average service requirements of all customers or to satisfy the toughest requirements of a single customer. In order to service the needs of customers and fulfill their expectations and to meet the organizations’ growth and profitability objectives, managers focus on improving the effectiveness of the supply chain. Traditionally, each department in an organization makes demand forecasts for the same set of products independently. But the assumptions and measures made by each department differ significantly from those of other departments. Therefore, their forecasts also vary widely. Enhancement of the ability to Meet Customer Requirements is also required for effective supply chain management. Making information available and making use of the information is also helpful. Internet is an application, which is redefining the way products are purchases, sold and distributed. It has given the customer access to information regarding every aspect of the product. Today, customer can evaluate and compare different products and then make a purchase decision. Organizations traditionally set their productions goals on the basis of demand forecasts. They also kept a cushion of extra inventories of finished products to offset forecast errors. They assumed that the lead-time to convert raw materials into finished goods was constant. They could also cut costs by reducing their set up time, and by using just-in-time techniques, etc. Companies can derive significant cost advantages if they maintain strong and long-term relationships with their suppliers. Organizations should demand the highest level of service from their suppliers, but they should not forget that their suppliers also play a significant role in reducing cost. On the basis of market positions and industry structure, manufacturers can decide how to approach suppliers - invite competitive biddings, enter into long-term contracts, make strategic alliance, outsource etc. Retailers need to introduce a Supply Chain-Wide Technology Strategy. There is a need to adopt enterprise-wide systems and replace inflexible and poorly integrated systems. Through electronic connectivity, organizations can improve the supply chain considerably. Apart from just introducing a strategy, the retailers in order to evaluate the working of the supply chain can devise a Complete Supply Chain Performance Measure. Instead of just having inward-looking performance measures, organizations should develop a comprehensive system to measure overall performance of the supply chain system. Challenges forcing the industry Various business and economic forces influence the effectiveness of a supply chain in the food and the IT industry some of which include the consumer demand, globalization, competition, information and communication, regulation and environmental concerns. The key focus of an organization is to find a balance between cost and quality, and customization and availability without compromising on any one of them. Customers’ expectations with regard to quality, speed of service, choice, and price have increased significantly. Organizations are realizing the importance of benefiting from the competitive advantages of other economies. For instance, American and European companies have realized the cost benefits of outsourcing operations to Asian or Latin America. In these econo9mies they are bale find skilled labors for fraction of price they have to otherwise pay in developed countries. Supply chain globalization is also the result of companies planning to take advantage of untapped foreign market. Competition in every business has increased significantly over the last decade. It has increased due to advancements in technology, increased globalization, easy access to information, creative business designs, etc. These factors have dislodged many market leaders. Earlier, market share was a good measure of profitability, but now organizations are redefining their competitive space. Supply Chain Management in the IT industry In the IT industries, the Supply chain’s core focus is to integrate its suppliers and its customers. The IT industry can integrate the Supply Chain system by making use of the high-end technology. ESCM – Electronic Supply Chain Management is the new trend that is going on in the IT industry (Chopra). The major advantages of the above mentioned ESCM is that it yields in timely order-processing, improved inventory tracking management, improved accuracy in order fulfillment and support for JIT, etc. By integrating different supply chain levels, the IT organizations today can realize huge cost reductions. The ESCM function in the organization results in an ‘extended organization’ that encapsulates the activities of the suppliers. As a result, inventory levels are replenished as and when required. In today’s business arena, suppliers are electronically connected and get real time information about the inventory level. The industries can reduce the procurement costs significantly by providing its suppliers instant access to information. Since the supplier can access the information regarding inventory and procurement automatically, the purchasing department can reduce its involvement in minor transactions. Their focus can now be on higher value activities like vendor selection, sourcing, and managing relationships with vendors/suppliers. The improvements in information flow and communications systems are key forces providing support for supply chain decisions. The IT organizations which are highly technologically equipped can take advantage of this. Supply Chain Management in the IT industry, rather in any industry as a matter of fact, will be effective only if the level of integration is clearly understood and evaluated. IT organizations today make use of the JIT system as it is perceived to be more effective for organizations like the IT firms. The concept of JIT states ‘nothing is produced until it is required.’ The JIT concept helps firms maintain uniform loads at workstations. Also the suppliers involved need to be highly cooperative. These systems aim at achieving a high level of conformance of the services with their specifications and reducing rework. The system encourages workers or employees of the firm to act on their work to ensure the quality of work; thus, quality control operates at the source itself. Whenever, a quality problem is identified, the production process or the work-in-progress is stopped and it is continued only after the problem is solved. JIT requires a strong human resource management component for its successful implementation. Today’s IT industries are at not loss for human resources. The companies impart the required skills to their workforce by training them in the JIT philosophy, assigning those appropriate responsibilities, coordination their goal-directed efforts and motivating them. The JIT system aims at the continuous improvement of the firm’s operations and minimization of under-utilization of human capital. The open and improvement-driven work cultures of today’s IT organizations are assumed to ignore the discipline at work place. Existing procedures should be continued until a better way is suggested, tested and approved. Suggestions made by workers for improving processes are first collected and evaluated by the management of the firm. Quality is given a high priority in organizations following the JIT system. The quality of a product is its ability to serve and satisfy the needs of its customer (Schonberger). In order to offer high-quality services, the marketing workforce is deployed to understand the needs and requirement of the customer. This information is useful in designing the features of products in such a way that they fulfill customer needs. Hewlett Packard is an example of an organization which has effectively implemented JIT system in the organization. Implementation of the JIT system requires the total transformation of the method of designing products and services, assigning responsibilities to workers and organizing work. In order to effectively implement the JIT system and thereby gain advantage in the areas of Supply Chain, firms should achieve and maintain high performance levels in all their operational areas. Organizations should maintain consistently high quality in their services and processes. The major driving forces of any innovative supply chain are the focus of the business and the synergy from an integrated functional approach which the business generates over a period of time. In such a case, it is the responsibility of the line managers leading the supply chain to explore innovative strategies and opportunities and make use of all the available opportunities (Ernst). Outsourcing in Supply Chain Management also is a recent phenomenon that most of the firms today are adopting. It means outsourcing of services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage and everything else it will outsource. This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory control is increasingly subcontracted to specialists or logistics partners. Hence, strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level. Global sourcing is now a competitive requirement of doing business. This perceived survival imperative has created an extended supply chain, as to distance and time, which has a menu of supplier and logistics demands. Directing the offshore supply chain, as to costs, performance, inventory, visibility, collaboration, integration and agility is an imperative for corporate success (Limitedmanagement.com). Bibliography (ICMR), ICFAI Center for Management Research. Operations Management. Hyderabad: ICFAI Center for Management Research (ICMR), 2003. accenture. Supply Chain Optimization Services for the Retail Industry. 2008. 2 December 2008 . Chopra, Sunil. SCM - Strategy, Planning and Controls for Manufacturing & Services. McGraw Hill, 1992. Dilworth, James B. Operations Management: Design & Planning. McGraw Hill, 1992. Ernst, Ricardo. Global Operations & Logistics. USA: John Wiley & Sons, 1998. Limitedmanagement.com. "OUTSOURCING OFFSHORE SUPPLY CHAIN MANAGEMENT ." Limitedmanagement.com. 31 01 2008 . Manhattan Associates Inc. "Supply Chain Solutions to the Food Industry." 2006. Manhattan Associates Inc. 2 December 2008 . Schonberger, Richard J. Operations Management - Customer Focused Principles. 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