Importance Of Effective Supply Chain Management

Published Date: 02 Nov 2017

The ‘supply chain’ involves all activities related with the flow and transformation of goods from the stage of raw materials to the end user (along with the associated information flow) consumption.( Logistics – Basic Concepts & Characteristics)

A network of several different parties collaborating, and strengthening supply chain relationships to deliver one goal, customer value. In essence, supply chain management coincides demand management and supply across and within organisations. Entailing all logistics management functions including manufacturing operations, driving the formulation of processes and activities throughout marketing and aspects of, selling, product design, financing, and IT. Essentially, it includes coordinating and working with its many channel partners, which could consist of suppliers, intermediaries, third-party service providers, and most importantly customers.( Basic Concepts of Supply Chain Management)

The notion of "Logistics" began hundreds of years before Christ and was first used by Greek generals such as (Leon the Wise and Alexander the Great). Marked to date, the process and activities of which they used for the army’s procurement in areas such as on food, water, clothing, ammunition, etc. (Logistics – Basic Concepts & Characteristics)

Logistics at a fundamental point of view, deals with the efficiency of transporting and storing products and services in an attempt to create value through place and time transformation. Logistics, therefore, in total consists of managing facilities, transportation, inventories, materials, fulfilling orders, communications, third-party providers, and dealing with information within an organisation in a method which increases customer value. While subsequently considering a function that ensures added value, and primary focus on cost management, logistics has transformed into a form of competitive advantage. (What is Logistics)

Supply chain initiative began from the textile industry around the 1980s with the quick response program, which ensured that suppliers and retailers collaborated to respond to and deliver customer value more quickly. It was noted that the total delivery time lasted about 66 weeks, and 40 out of the 66 weeks, goods were either in warehouses or in transit. Due to the long period of delivery, the outcome was a major loss in the industry, because of heavy financing in the inventory and not having the right products in the right place at the right time. (Rhonda R. Lummus, Robert J. Vokurka, 1999). . The issue of creating value for customers comes down to a companys competitive advantage in areas such as capacity utilisation, inventory reduction, and closer integration with suppliers at a planning level."( Christopher Martin) Since then there has been major improvements in timing and period of how long inventory is stored.

Electronic data interchange (EDI) was adopted between companies through systems such as point of sale scanning systems (POS) interlinking company systems, enabling them to transfer their sales information instantly to their distributors and manufacturers. This was a pivotal point for supply chain development, as this drastically increased productivity in speed of delivering customer value (the product). Also optimising a firm’s inventory profitability using Point Of Sale (POS) information and sales history. (Rhonda R. Lummus, Robert J. Vokurka, 1999)

The area of attempting to make a supply chain more competitive reroutes one back to the specific area of logistics. Logistics is extremely important as societys view constantly change. Nowadays, it is the companies with the largest market share that have superior logistics.

E.G. (Wal- mart) the mission statement is "we save people money, so they can live better"(Wal-Mart.com).. this is implemented through their strategy. They have applied and placed as a priority the 5 essentials used in successful placement of a supply chain which are : production, inventory, location, transportation and information.(Basic Concepts Of Supply) Walmart have identified that products are not just demanded, but demanded at the best price. By collaborating with their distributors and suppliers they are able to meet demands through POS, connected sales system and newer technology. Walmart goods are shipped (cross docked) and transported efficiently to the walmart stores. Due to the tight supply chain they have reduced ineffieciencies. Walmarts distribution centres are located in easily accessible areas and makes it easier for them to receive products at the right time. Walmart exemplify good transport, inventory and distribution management. (Walmart SCM)

"Wal-Mart’s supply chain management strategy has provided the company with several sustainable competitive advantages". (Walmart SCM)

In 1992 a study was carried out by a group of grocery industry leaders, the study showed that in order to increase performance in the supply chain, the flow of information must be quick and accurate. Knowing this, the effiecient consumer response (ECR) working group, a joint industry task force, was formed. The development of ECR allowed companies to forecast future demand more quickly than the system used at the time. Due to the implementation of this system an overall reduction in supply inventory of 37 percent, also reducing overall costsin the industry ranging from 24 – 30 billion dollars. adopting ECR successfully is based on a firms competency to consistently maintain manufacturing flexibility, enabling them to balance supply with demand. (Rhonda R. Lummus, Robert J. Vokurka, 1999). The creation of these systems has transformed the supply chain to what it is today, and have been the spark of the development process.

In the development of the supply chain management, decision making is extremely vital and how they are made affect the outcome. In relation to decision making, Take Wal-Mart for an example they made their first decision which dealt with their strategy and design, and had to make the decision on where they would locate their warehouses, manufacturing facilities and even supply courses. All these are part of the strategic and design decisions. They are usually geared towards a more long term period, which is why when these decisions are made uncertainty (exchange rates and market growth/failure) in the marketplace is taken into account. They also must configure their efforts in a manner whereby they focus on which markets demand which products and from which location they will be supplied. Decisions made during this phase usually have a time frame of quarter to a year. Here at the planning stage, forecasts for the following year are made. The weekly/daily operational decisions deals with customer orders, and ensuring that customers are taken care of accordingly. These type of decisions are aimed at reducing uncertainty and boosting performance because the organisation has a large amount of control over the operational stages, as they are day to day tasks that can be handled internally.(Decision Phases in a Supply)

Although each supply chain has a different set of demands, supply chains as a whole have the same objective. Effective supply chain management is necessary in an organisation today as it targets a significant percentage in several areas. With effective SCM customer service is improved due to the fact that products are produced in the right quantity at the right time when demanded.Indigenous firms / relatively smaller firms can be a part of a global supply chain, hence increasing their productivity. It enables organisations in providing more accurate sales forecasts, inbound and outbound transportation/sales ordering process becomes cheaper and more effective as the supply chain is more organised. Sectors such as production and inventory are well managed, all due to an efficient supply chain. The integration of supply chain information also becomes more accessible as the chain is strongly established and connected. (arrow.dit.ie)

This essay magnifies the importance of the development in supply chain management through the creation of Quick Response and efficient consumer response. Exemplifying the benefits of having an efficient supply chain and a quick and effectual flow of goods and services in order to match supply with demand. The attribute of having a competitive advantage in cost advantage, based on supply chain relationships, which is a key requirement in the process. This discussion gives the reader an insight into the effects of systematic supply and illustrates the changes of Logistics and supply chain management to date. More organisations begin to prioritise supply chain and put more emphasis into creating value for customers through this. The firms who place the most focus on this aspect are the most successful organisations, and is becoming increasingly evident in today’s society.