The effectiveness of the supply chain management and the efficiency of the processes relating to the chain activities are the determinants of the success of the companies in terms of profitability and growth.
Supply Chain Management vs. Business Excellence
Supply chain management is the coordination of activities of entities involved in supply of raw materials, production of goods and services, and distribution of products to customers (Ardalan, 2009). A successful supply chain management process requires several elements, which have to be considered during the establishment of the supply chain management policies. The activities within the supply chain organization need to be planned in the perspective of time horizon, classified as long, mid and short term plans (Bernon et al, 2009). Besides, the supply chain strategic network should be primarily designed according to the market and customer trends while considering global supply chain costs and service level (Gormley, 2009). According to Faisal (2007), the location of supply chain entities, repartition of duties and the material and information flows between these entities are to be within the scope of the customer oriented supply chain structure of the company. While establishing the structure of the supply chain management process, some priorities such as customer services, logistics effectiveness, delivery time, supply chain costing, production flexibility and so on should be taken into consideration, as well (Shapiro, 2001). This flexibility requires a process based approach eliminating generally conflicting functional targets. Consequently, the companies managing all of the entities of the supply chain in an equilibrated and efficient manner can maintain a competitive position in the market.
The goals of a successful supply chain management are to support the efficiency and profitability, and thereby the competitive advantage of the company. Via a successful supply chain management, the lead times are shortened. Therefore, integrated supply channels are established such as country, customer and product based in order to bring quick and reactive solutions to the customers’ expectations (Tomas et al, 2007). With the shorter lead times, the logistics costs are lowered, as well. Moreover, being planned and collaborated during the logistics processes result in the reduction of production schedule changes; which means less inventory levels (Amarot and Barbosa, 2007). In the end, the customers are provided with the deliveries completely and on time. As a result, satisfied customers bring about more demands and profitability increases supported by the reduction of costs (Antony et al, 2003). That is to say, an efficient and successful supply chain management process adds to the profitability and competitiveness of the company step by step.
Supply Chain Management Performance Measures
In order to determine the efficiency of supply chain management and make improvements, some indicators are used to evaluate the processes such as demand planning, distribution planning, production planning, inventory management and supply chain costs.
The increasing competition conditions of the international markets bring the necessity to be more flexible in all of the company’s processes. This flexibility requires a process based approach eliminating generally conflicting functional targets. The companies managing all of the entities of the supply chain in an equilibrated and efficient manner can maintain a competitive position in the market.
The supply chain entities coordination is supposed to minimize the imprecision and reduce the uncertainty related inventory (Tomas et al, 2007). The Supply Chain Organization is working on inventory, distribution projects in order to optimize the inventory for the defined customer service levels according to their requirements, establish replenishment plans between supply chain entities, establish an efficient order-production-inventory management and decrease time from order to delivery.
With the new design of the supply chain, decreasing the production plan changes is also supposed to allow improvements in material’s inventory and supply planning in terms of costs and quality, decreasing the production costs by improving the production lot optimization, implementation of flexible production methods and slipping the product differentiation at the downstream stages (closer to the final stage) of the production process and decreasing the finished goods inventory.
The competitive position should be maintained also by decreasing the logistics costs, not only by improvements in terms of the performance and speed of the supply chain but also by controlling and decreasing the global supply chain costs using efficient planning processes. For this purpose, it should be planned to determine, measure and report the cost items according to the parameters (markets, products, factories, distribution centers,...) and define and develop the profit centers; plan improvements for high-cost channels (Gormley, 2009).
With the new arrangements, the lead times should also be shortened. The delivery time is a distinguishing parameter to maintain a competitive position in international markets. For this purpose, it should be planned to establish integrated supply channels (country, customer, product based) in order to bring quick and reactive solutions to the customers’ expectations.
Supply Chain Management vs. Business Strategy
The innovation in supply chain management is needed during transportation and distribution management. Products should be delivered from both production plants and regional distribution centers to the dealers located various regions (Amarot and Barbosa, 2007). Many criteria such as sales targets, transportation costs, service level, special customer expectations, delivery lots should be evaluated in order to determine best location for distribution centers and to understand the best distribution method.
For international markets, deliveries should be made from nearby distribution centers for the customers that make small lot and/or frequent purchases. For domestic markets, deliveries should be made from production plant directly to dealer or from production plant to regional distribution centers than to dealers. This decision should be made according to the regional sales volumes, expected service level, transportation costs and delivery frequencies.
Domestic deliveries should be organized as direct deliveries (from production plant to dealer) and transit deliveries (from production plant to regional distribution center to dealer) (Shapiro, 2001). The integration of sea transportation, road transportation and railway transportation methods should be used rather than focusing on only one in the distribution organization (Gormley, 2009). A major amount of deliveries should be made as full-truck, full-container or full-wagon loads for cost advantages. The usage of environment friendly transportation ways such as sea and railway should be increased due to the new trend.
Deliveries from production plants to the warehouses of international dealers are the direct deliveries (Antony et al, 2003).. All of three transportation methods should be used in direct deliveries (sea, road, railway transportation). Being close to the dealers provides us ability to respond demands faster. Delivery organization should be made as deliveries with or without date of appointment. Many other alternatives such as cargo transportation, grouping should be used in order to increase the service level.
Conclusion
For the above mentioned factors, some innovative actions are needed to be done starting from the activities within the supply chain organization, which should be planned in the perspective of time horizon, classified as long, mid and short term plans. The supply chain strategic network should be primarily designed according to the market and customer trends while considering global supply chain costs and service level. Location of supply chain entities, repartition of duties and the material and information flows between these entities should be within the scope of the customer oriented supply chain structure.
Considering the existing supply chain network and strategic targets in the companies, outsourcing can be made in order to perform the new arrangements and ensure the flexibility of the downstream flows. Several analyses are to be conducted to decide between make or buy. Some parameters as rate of return, regional risks, continuity of the capacity need are considered for the new investment decisions. Both rental and rental with service providing options are evaluated. The need to be more flexible, to respond to the regional storage capacity requirements, to the instantaneous needs, to minimize risks and bottlenecks leads the companies to take advantage of new opportunities and make innovations in their processes.
In conclusion, the globalization of the industries requires the companies to determine strategic movements in order to gain strategic advantage and sustain profitability. Since the products and services, which are manufactured in any region, are able to be taken to another; the companies are to utilize the opportunities of spreading worldwide. That is to say, the suppliers, manufacturing components, distributors, customers and retailers of a company have to be driven in such an efficient way that the company could gain the competitive advantage of becoming the best qualified and the most profitable. In order to do so and sustain the success, companies have to establish effective and efficient supply chain management operations.
References
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Shapiro, J.F. (2001). Modeling and IT perspectives on supply chain integration, Information Systems Frontiers, 3(4), pp.455-64
Tomas, G., Hult, M, Ketchen, D.J and Arrfelt, M. (2007). Strategic supply chain management: Improving performance through a culture of competitiveness and knowledge development, Strategic Management Journal, 28(10), pp.1035-1052
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