importance of supply chain management essay

importance of supply chain management essay

The Importance of Supply Chain Management: An In-Depth Analysis

1. Introduction to Supply Chain Management

Supply chain management is a process used by entities across the globe to ensure their supply chains are efficient and customer-focused. Supply chain management is accomplished through a two-day process including strategic priorities, forecast planning, profile development, an integrated planning guide, and continuous replenishment services. The availability of a product largely depends on its location and the corresponding demand for it. While supply chain management has been around for some time, it is just now establishing a very important position in the future tasks of businesses.

A recipe, especially a timeless one with many ingredients, can be difficult to keep in balance. The same is true when managing a supply chain. In supply chain management, it is important to recognize the sheer number of elements and the inter-relationships between those elements. A supply chain starts with idea generation and ends when the final customer buys the finished product. The stages in between include defining market, product line requirements, and rewards and risks given to supply chain members. This chapter will discuss five important parts of supply chain management mentioned within the problem statement: matching supply with demand, information, forecasting, inventory management, and product matching.

2. Key Components and Functions of Supply Chain Management

The question of interest is: Whether the various components of the supply chain work in isolation from each other or do they operate in a coordinated fashion?

– Raw material procurement – All companies start as buyers for the raw material – irrespective of the business they are in. Some companies continue to be buyers all through. – Production and manufacturing – the function where human or mechanical effort (or both) are applied and a product comes into existence. – Storage and maintenance – Of raw materials, work-in-progress and finished goods. This is sometimes called logistics. – Order processing – associated with receipt and execution of order. – Transportation and distribution – very closely associated with order processing and demand forecasting. – Return goods and field support – Customers may want to return used products, damaged goods, surplus goods, etc. and they may require repair, service support, etc. through different channels for traditional goods and information goods shall constitute the growing trend in the electronic world.

Components of the supply chain: One can schematically represent each of the functions in the supply chain by the set of companies involved in it. Activities connected in a particular function may belong to the same enterprise or may involve different businesses. The most common components of the supply chain are:

Since raw material procurement is the first link in the supply chain, that is its point of beginning too. The last link is delivery of finished goods. However, to make this movement through the number of links easier and more economical, the companies should have coordination between them. This is true not only at the operational or transaction-processing level but also at a strategic level. We talk of supply chain management. To understand what is SCM or ‘SC’ as Prof. Hau Lee refers to it, however, we should take a brief look at its key components and function.

3. Benefits and Advantages of Effective Supply Chain Management

Supply chain management does not replace transactional technology; it simply allows a greater range of issues to be addressed by the procurement function. Actual transactional processes in purchasing remain relatively unchanged. The primary advantage is its ability to distinguish logistical data and information from the specific, individual applications. Inventory ownership is no longer of concern since the system operates in an expected throughput mode. However, the supplier may also be motivated to review their own stance in the purchasing relationship, and not invest in base-level capabilities. The result is a win-win relationship in which expectations and capabilities are matched in symbiotic harmony. The supplier of the outsourced transactional function is purchased on the performance – not rules and regulations – from the supplier, freeing opportunities to discuss conversion costs, overruns, past-due risks and payment terms. The supplier is meanwhile disburdened of the need to anticipate lanes of maximum and minimum throughput.

The benefits or advantages of an effective supply chain management system are delineated in physical and informational components. The physical components are the inter-organizational relations founded by the chain. The informational components are the data processing, information agreement, and electronic sharing and involvement between the members. The possibility of the inter-organizational relations within the chain needs the different partnerships in the system. The logistics system may be operated as a strictly transaction-oriented operation with cycling inventory and cycle time reduced to merely the time necessary to perform the transactions. In an effective strategic supply chain, inventory ownership is no longer the prime concern of the owner or even the holder of inventory. The distinction between distribution management, materials management, purchasing, production, sales, and all the process and operational areas that are involved in the logistics chain are all merged into a single holistic function.

4. Challenges and Solutions in Supply Chain Management

For cost reduction, inventory and order management are the major challenges for a company. With escalating energy and other costs, businesses need to seek economies of scale applicable to their order management expertise. Complex contracts, or inadequate review and enforcement of them, can lead to costliness, primarily as advertised. With so many parties communicating throughout a project, lack of clarity or a lack of oversight can lead to budget overruns. Maintaining proper inventory levels is necessary for a business, as having inventory sitting on a shelf carries its own costs. Managing productivity is key for keeping costs down. Often, however, a company considers final costs as the transactional amounts in the cost benefit analysis. They often disregard many small costs that add up throughout the course of the project. Similarly, supply cost reduction and management improvements may also be addressed in the long term via supplier relations. Yet in some cases, specific cost reduction or changes that are not expected to have an impact on future relationships may be. The objectives of this SBC research are focused on a general identification of additional costs that a company’s management must consider when addressing pending supply matters.

5. Emerging Trends and Technologies in Supply Chain Management

With more and more companies assessing the best way to further their supply chain planning activities, process-based modeling and simulation technology is making it easier for a wide range of organizations to improve their supply chains. These technologies can be combined with strategic supply chain design (SCD) techniques, so that companies can not only visualize designs for future supply chains, but also test their performance potential under differing market scenarios. The use of simulation can not only speed up the “time to value” of an SCD project but also improve the quality of the solutions found.

The release of RFID technology has caused a significant amount of discussion in both the business and technical fields. While RFID technology has been available for more than 50 years, it can be argued that its benefits are only now being recognized. RFID is basically used at a case or pallet level, tracking movement at a very high level. Research on potential applications at the item level requiring new solutions for data storage, privacy protection, and the lack of standardization of software and hardware is ongoing. Companies are evaluating what RFID will mean to their supply chain, and potential benefits are massive, from better tracking to greater efficiencies within distribution centers, to preventing theft, tampering, and counterfeiting of products.