The Strategic Importance of Supply Chain Management (SCM)

The Strategic Importance of Supply Chain Management (SCM)

1. Introduction:

Logistics supply chain management is one the most contemporary and challenging concept in today's business world. Due to the increasing global demand of business; transportation, procurement, manufacturing, distribution activities also increased tremendously. Now a day, major companies focusing on SCM to reduce cost and constantly trying to develop new innovative strategy to meet consumer demand to achieve competitive advantage.

2. Definition of Supply Chain Management:

In short, the right product at the right place at the right time at the right measure and at the right quantity is call supply chain management. For example, in a supermarket, if the consumer found in 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 process 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 demand. For example, if there are demand for umbrella in rainy season so if you asked supplier to deliver 20,000 umbrellas in summer and expect to receive at the beginning of rainy season; what do think, would probably happen?

The supplier response lately after two weeks, slowly starting procurement then starting production and supply the goods at the end of rainy season. In this case the buyer will face tremendous losses.

Let's just think how can, we change the 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 distribution utmost efficiently and transported through freight within one week before ending summer. The delivery on time and arrive at 30th days in summer. The buyer happy to receive item on time and that allows the buyer to distribute products through distribution channel and, with the right forecasted of demand, 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 pace but now customer is called the driving shots in a long term competitive advantage. To meet the customer demand accordingly, companies are shifting to customer oriented strategy (a bright example would be 'Dell computer'). Hence, to achieve competitive advantage in the market, it's necessary to deliver the product at the peak time.

4. Key Drivers of Logistics Supply Chain Management:

From the analysis different journal article, textbook, web research we found the key drivers are differ in according to different perspective, such as Globalisation, Sustainability, Cost-awareness, Customers, Suppliers, Technology and Transportation.

4.1 Globalization:

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 demand in market. Thus, companies are facing huge challenges to meet the requirements globally. Through the product barriers are eliminated, 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 encouraged to invest in several countries which forces local companies to improve quality of existing products which create huge challenges in procurement, manufacturing, transportation and distribution activities for the companies.

For instance, a company can develop a product in the US, manufacture in China and sell in worldwide, i.e. Apple. This makes a complex and challenging activities for company. Thus, in order to maintain global demand 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 innovative company in the world.

4.2 Sustainability:

Creating sustainable chain has a major concern for companies. Constant variable pressure from regulations, geographic in nature, social-economic impact, international policies and principles in general is complex for managing SCM.

For example, green environment (i.e. carbon emission); local government are always imposing regulations which affect on the manufacturer. For instance, 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.

4.3 Cost-Awareness:

There are four major decision areas in cost awareness:

4.3.1 a) Location: Convenient feasible location with availability resources including all facilities is the primary step of towards of creating strategic network. But 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 level is a critical 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 even days of inventory in hands as well 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 distribution channels about air, ship and road. Air shipment is fast, reliable but expensive while sea shipment is chap but time consuming.

4.4 Customers:

Customers are the most unpredictable variables to determine demand. Frequent changes of demand, 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 demand of consumer, they launched iPhone, iPad, iPod as means of innovations strategy which satisfy customer but not merely makes the customer delight but introducing facilities like ITunes, music, software application gradually capture the market the whole market.

The example here provides a key learning tool 'how the company understand its customer to achieve 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 components are created 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.

4.5 Suppliers:

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 support this model, 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 means there is almost no inventory of parts or products in the factory and this happen only because of healthy relationship with suppliers.

4.6 Technology:

With the benefit 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 process has a greater impact on customers and now a day customers are constantly 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.

4.7 Transportation:

Transport system is the most important economic activity among the components 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. Thus, to enable 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 suitable transportation network, delivery of the product to the market not ensured supply chain activities will be at risk.

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