The Strategic Importance of Supply Chain Management (SCM)
Logistics supply chain management is one of the most current and challenging concept in today’s business world. Due to increasing global need of business; transportation, procurement, manufacturing, dispensing activities increased tremendously. Now a day, major companies are focusing on SCM to reduce cost and regularly trying to develop new inventive strategy to meet consumer need to unprotected to competitive advantage.
2 Definition of Supply Chain Management:
In short, supply chain management method, right product at the right place at the right time at the right measure and at the right quantity. For example, in a supermarket, if the consumer found in a product shelves, there is tag for the product but no product in shelves; what you think? Yes, that is because of poor management of SCM. More precisely, SCM is the management of inbound and outbound logistics course of action to integrate from procurement, suppliers, manufacturers, warehouse, distributors, transportation, and store in order to meet consumer demands.
3 Why Supply Chain Management is Important?
As global competitions are increasing customer have different choices & needs to satisfy demands. For example, if there are need for umbrella in rainy season and if you asked supplier to deliver 20,000 umbrellas in summer and expected to receive at the beginning of rainy season; what do think would probably happened?
According to this scenario, say for example, supplier response lately after two weeks, slowly starting procurement and then starting production and supply the goods at the end of rainy season. As a consequence, in this case the buyer will confront tremendous losses.
Let’s just think how can, we change our scenario with an effective strategy: consider the order of umbrella was given at the end of spring to deliver at the end of summer. Supplier response precisely, starting from procurement to dispensing utmost efficiently and transported by freight within one week before ending summer. The delivery was on time and arrive within 30th days in summer. The buyer is happy to receive items on time and that allows the buyer to spread products by dispensing channel and, with the right forecasted of need, buyer captures the market at the right time and making money.
In past manufacturers were known as the drivers of the supply chain as they were scrambling to meet customer demands at rapid speed but now customer is called the driving shots in a long term competitive advantage. To meet the customer need consequently, companies are shifting to customer oriented strategy (a bright example would be ‘Dell computer’). Hence, to unprotected to competitive advantage in the market, it’s necessary to deliver the product at the peak time.
4 meaningful Drivers of Logistics Supply Chain Management:
From the examination different journal article, textbook, web research we found the meaningful drivers are differ in according to different perspective, such as Globalisation, Sustainability, Cost-awareness, Customers, Suppliers, Technology and Transportation.
The external forces (i.e. political, economical, socio-cultural, technological, legal and environmental), local competition, continuous policy and regulations changes, pressure from international brands and all affects to meet the consumer need in market. consequently, companies are facing huge challenges to meet the requirements globally. by the product barriers are deleted, no products are now considering domestic products but due to globalization forces companies tend to change policy and strategy regularly. Besides, with the benefits from globalization now, foreign investor are promoted to invest in several countries which forces local companies to enhance quality of existing products which create huge challenges in procurement, manufacturing, transportation and dispensing activities for the companies.
for example, a company can develop a product in the US, manufacture in China and sell in worldwide, i.e. Apple. This makes a complicate and challenging activities for company. consequently, in order to continue global need Apple makes strategic choice to build global manufacturing and engineering infrastructure in California, Ireland and Singapore to capture market in US, Europe and Asia. This global strategy from Apple allows the company to take advantages of capturing large market. This strategy, allows Apple to become number ONE inventive company in the world.
Creating sustainable chain has a major concern for companies. continued variable pressure from regulations, geographic in character, social-economic impact, international policies and principles in general is complicate for managing SCM.
For example, green ecosystem (i.e. carbon emission); local government are always imposing regulations which affect on the manufacturer. for example, production and manufacturing in developed countries like in Europe is huge challenge as because of strict rules and policies of environmental issues compare to underdevelop countries like in Asia. For example, in automobile industry producing vehicles is challenging because of environmental issues in different countries.
There are four major decision areas in cost awareness:
4.3.1 a) Location: functional possible location with availability resources including all facilities is the dominant step of towards of creating strategic network. However, due to geographical distance and cost, companies often couldn’t able to cope up with customer expectation.
4.3.2 b) Production: Cost fluctuation from production levels are basic issue for strategic decision, such as what product to produce, which plant to allocate and what supplies to get for production.
4.3.3 c) Inventory: Inventory cost varies at different level starting from raw materials to finished goods. Cost is also associated in buffer stock, safety stock or already days of inventory in hands in addition as price increases during the periods of inflation affects.
4.3.4 d) Transportation: 30 percent of logistics cost associate with transportation that makes the companies to think about dispensing channels about air, ship and road. Air shipment is fast, reliable but expensive while sea shipment is chap but time consuming.
Customers are the most unpredictable variables to determine need. Frequent changes of need, new expectation, changing approach of existing product, influential behaviour attitude towards products are all determine to develop a customer-product innovation strategy. For example, Apples starts it business on the bases of computers but after understanding need of consumer, they launched iPhone, iPad, iPod as method of innovations strategy which satisfy customer but not merely makes the customer delight but introducing facilities like ITunes, music, software application little by little capture the market the whole market.
The example here provides a meaningful learning tool ‘how the company understand its customer to unprotected to competitive advantage’ which makes us to think what strategy they are following. In Apple strategy most of the iPhone and iPad items (i.e. parts) are outsourcing. More precisely speaking, very few elements are produced by Apple, hardware is supplied by contract manufacturer and software is supplied by millions of software developer to build various applications for the devices which minimize the cost.
Supplier’s motivation is important for quality, cost and delivery expectations of producing product with value as they have greater influential aspect of supplying item. For example, Dell’s direct strategy requires processing orders direct from customer. Dell’s pull strategy to build computers o customer’s specifications and deliver within time. To sustain this form, Dell asked suppliers to keep inventories within 15 minutes of the manufacturing locations. Virtually all products are made to order. Every two hours, the factory planning system sends out a computerized message to suppliers detailing what parts the plant needs. That method there is almost no inventory of parts or products in the factory and this happen only because of healthy relationship with suppliers.
With the assistance of technology, customer are now becoming more technological oriented focusing on online trading, online shipping, online payment, online information, online virtual chatting, and so on. This technological course of action has a greater impact on customers and now a day customers are regularly willing to get more information, answers, about their choice, preferences. Dell’s could be an ideal example, how technology impact on business and increase revenue. The success of Dell’s direct sells strategy depends mostly on continuous development of technological aspect as the customer willing to become more connected, assist them to develop cost effective quality product strategy.
Transport system is the most important economic activity among the elements of business logistics systems. Around one third to two thirds of the expenses of enterprises logistics costs are spent on transportation. Beside good transportation is challenging issue to deliver product at right time. consequently, to permit flow of goods from one destination to another and to ensure on time delivery; companies needs to understand the right strategy of supply chain. However, unorganized transportation system, labour force, policies, laws and regulations, uncategorized rooting system is a big hindrance for supply chain solution. If there is appropriate transportation network, delivery of the product to the market not ensured supply chain activities will be at risk.
5. Companies Prospective of Strategic Importance of Logistics Supply Chain Management:
IBM faces challenges on future supply chain are on cost containment, supply chain visibility, supply chain risk management, customer requirements and globalization. Here cost containment relate to shifting cost of operation rapidly, supply chain visibility includes information and collaboration with external partners where supply chain risk management describe as forecasting customer demands and higher costs, customer requirements influence to identifying customer demands, approach, attitudes towards of product and globalization relates to global issue like geographical distance, cultural barriers, transportation system, feasibility of resources, rules and regulations and so on. consequently, to tackle those issues IBM developed strategy on future supply chain based on “instrumentation”, “interconnectedness” and “intelligence”.
Developing RFID (i.e. radio frequency identification) tag, meter, GPS system, tracking reduce the inventory cost and increased visibility. That allows to observe actual fact occurred in supply chain activities. Besides, forecasting of need becomes much easier as tracking production level and sales level estimated by technology. Again, production, dispensing and transportation are controlled and observed with smart devices to eliminate waste and increasing efficiency. So, with the force of technology IBM creates a sustainable global supply solution by focusing more on customer.
Interconnect with global network i.e. suppliers, manufacturer facilities collaboration with external partners and bodies reduce global issues. Besides, shared decision making with and determine regulatory consists of from local, regional and international permit to proportion the risk.
Effective complex modelling and simulation capabilities allow designing sustainability form, network transportation system, and dispensing strategy for IBM. consequently, smarter supply chains allow intelligent modelling to the meaningful pushed force.
Woolworths is an Australian’s largest retailer faces multiple turbulences to find an effective solution of supply chain at the beginning. It faces challenges on sustainability (environmental issues), customer focus, suppliers, transportation system and technology. However, after removing those barriers, it builds strong supply chain strategy not only to meet customer requirements but also expanding business in Australia and New Zealand and to unprotected to competitive advantage over the market.
The success stories build up with collaborating and strong networking relationship with suppliers, adopting policies, rules and regulations, technology and new innovation (i.e. fresh foods).
The strategy for sustainability point they come up with ‘fresh foods’ and carbon emission. For example, “announcing 40 percent reduction in carbon emissions on project growth levels by 2015, managed 13 percent reduction. This is an calculate saving of about 500,000 tonnes of carbon dioxide again 25 percent minimum reduction in carbon emissions per square meter for new stores Woolworths has now on average reduces in 25.08 percent carbon emissions per square meter” (Our planet, n.d). Besides, introducing new products in the market like Woolworths Pet Insurance, android application applies sustainability in market.
From supplier driving force, Woolworth’s meaningful strategy is to build strong and committed relationship with suppliers that involves in communication, continuous feedback to ensure quality product for customer.
In customer point of view strategy, they are more customers oriented to provide most enjoyable, quality shopping experience to fulfil the need at the right time at the right place. For this, they focus on centralized dispensing form for all inbound and outbound logistics.
In technological point of view, company adopted new technology with keeping speed of technological advancement. For example: EFTPOS system.
5.3 Procter & Gamble
Proctor & Gamble faces challenges on global alliances, constructive network dispensing channel, healthy transportation system, inbound and outbound logistics sustain. For this, they build a supply chain strategy, first to understand target customer according to their satisfaction and loyalty level and then optimizing supply chain (i.e. ensuring product availability at all time). Side by side, focusing on technology like RFID which increases product visibility for better supply chain management. Besides, continue strong relationship with retailers like Wall-mart and implementing online web sustain allow the customer to be connected with customer its build premium foundation for sustainable ecosystem.
consequently, globalization, sustainability, cost-awareness, technology, customer, suppliers, transportation are all related to supply chain activities. Now, opportunities of barriers has been reduced which encourage foreign investors to invest, implement and operation. Side by side, in terms of sustainability; collaborating, adopting policies, rules & regulations, technology, transportation allow to build constructive communicative strong relationship with external partners which could be an ideal solution for sustain in global market. Most importantly, focus on customer is vital to enhance growth and for this choosing right strategy for supply chain is basic to ensure right product at the right time at the right order with right measurement.