Supply Chain Management

Article by Mark D. Lewis, ManagementInfoCenter.com

In their constant search for improvisation, companies in today’s cutthroat times invest in tools and systems that maximize output. Progress has been substantial due to a variety of technologies being tried for boosting efficiency and reducing costs. The atmosphere laced with competition has made it crucial for every business to constantly evolve with the times with a thrust on generating the highest levels in the value chain.

Supply chain management mainly involves handling the physical flow of the product and other information flows throughout, from purchase to production, distribution and finished product delivery to the customer.

The competition among manufacturing enterprises makes effective supply chain management a top priority as it affects the ability to change with the times with minimum time and cost effectively. The annual worldwide supply chain transactions being worth in the trillions, the potential difference in improving performance can be staggering.

Rapid evolution has occurred in supply chain management in the form, of tools, trends and initiatives with companies eager to derive increased value from customer and supplier relationships. Among recent trends that have had significant impact in inclusion of diversity suppliers in the supply chain, are (a) strategic sourcing, (b) progress in technology, e-sourcing and e-procurement, (c) strategic partnerships and alliances, and (d) outsourcing.

Industries vary in terms of implications of supply chain development. Where the offshore supplies industry is concerned, it applies to the development of greater closeness in relationships between customers and suppliers. A number of approaches are included.

Long-term relationships are developed with suppliers. Suppliers are involved in product technology on a larger scale and early on. Mutual contractual and competence trust is possible. Supplier associations, benchmarking and common supplier assessment schemes also find a place.

In several other industries, including aerospace, automotive and retail, huge savings have been made apart from increased efficiency through development of better supply relationships.

In supply chain management the complete range of control parameters, as well as a substantial amount of key concert indicators have to be dealt with. Factors like delivery performance, lead-time for order delivery and costs in supply chain management are also involved. For the supply chain management to succeed, an understanding is necessary of converting ambitious business targets into selected performance metrics. Then the supply chain manager is required to give priority to performance enhancement of the selected metrics.

A study recently found in the US that using supply chain management tools has a number of advantages for the company. Inventory is reduced by as much as 48%. The improvement in timely deliveries was estimated at 35%. Order cycle time reduced by 25% and in out of stock rates the reduction was nine times.

A speedier supply chain management along with fast response can come at a high cost. Firms usually have to choose between absorbing high transportation costs for small frequent shipments and keeping excess production capacity in its factories. However the increase in response can lead to a competitive edge, which would then justify extra expenditure.

It is very likely that supply chain management will need to improve performance when objectives are in conflict. Inventory has to be reduced without affecting improvement in service levels. In general high service levels are possible with high inventories. The manager’s task is to balance the two contradictory objectives. The cost of possible sales losses needs to be balanced with the cost of large inventory. Other similar conflicts occur when high service levels need to be maintained while cost of transportation has to be minimized.

Supply chain management presents tremendous opportunities for companies to boost competitiveness. Despite the significant progress made in the last two decades by a firm, there are plenty of opportunities available as the complete harnessing of the supply chain management is yet to be done in totality.