Since the term was first used in the year 1982 by Keith Oliver, an expert in personnel management, no clear definition has been established for this concept that has turned out to be one of the most effective ways of actualizing the presumption that the 21st century is a customer century (Taylor 1). The concept, which started gaining prominence in the 1990s, is one of the most important techniques in contemporary business practice. Though there is no clear definition, the term can be said to mean a system of controlling the movement of work in progress, raw materials, finished products and relevant information among the companies, the suppliers, distribution agencies and the consumers. From the definition, it is apparent that supply chain management concerns itself with the connection linking all parties involved in the process of moving and converting raw materials to final product. This paper seeks to explain the applications of supply chain management in all organizations- well established, middle and small enterprises.
A supply chain can be described as a network of organizations connected by more than one channel through which goods, services, resources and customer data flow (Geunes et al, 256: 2004). Supply chain management employs such concepts as inventory control and management and this involves stocks of raw materials, finished products as well as working progress. Under inventory management, it covers innovative aspects such as economic order quantity, economic batch quantity and the just-in-time model of production. Supply chain management is concerned with the movement of raw materials from primary suppliers into an organization where such materials are through the processes of production, converted into consumable final products. In the contemporary business world, supply chain management is the formal link between the suppliers of raw materials and the final consumer through re-sellers and distribution agencies.
The concept concerns itself with controlling the flow of materials into a company where it undergoes some internal processing into final products through the most cost effective methodologies. The concept is as well applied in cash flows between the networks of partners in the supply chain. The one key application of this concept is the establishment and development of supplier partnerships. Such partnerships entail agreements between an organization and the most efficient and effective suppliers. The major aim of such supplier partnerships is to reduce the cost of production through procuring quality products at reasonable costs and timely intervals (Geunes et al, 246: 2002). The supply chain in this case is made up of the suppliers, the partnering company and the final consumer.
The concept is also applied in optimizing strategic connections and decisions made by the top management concerning the number, sites and type of stores and warehouses, as well as points of distribution and resale facilities. Opening new branches and warehouses is a strategic position as it determines the long term performance of an organization. Strategic partnerships which are also established by the top management through the evaluation of supply chain management involves those parties that provide material, the distributors and communication channels with an aim of improving operations within the all organizations in the supply chain (Geunes Et Al, 45: 2004). Strategic managers apply the concept of supply chain management in planning easy integration of innovative products through the concept of product life cycle.
Supply chain management is applied by the top managers in overlooking and controlling improvements in the information technology operations of subsidiaries, both local and foreign. This is because foreign subsidiaries are part of the supply chain of an organization judging by the extent to which they engage in e-commerce with suppliers, consumers and the parent company. Supply chain management is a fundamental component of e-commerce. In the 1990s when supply chain management was taking root it was viewed as a rigid system that was not accommodative to change (Geunes et al, 211: 2002). The perceived rigidity and bureaucracies have been eliminated by the flexibility and effectiveness of online trading, also known as e-commerce.
The top management employs the supply chain management concept in matching the overall organization policies and strategies with the supply strategy. In so doing, the managers are also in a position to achieve effective long term resource planning. This has an impact on the long term performance of the organization, and as such, it influences the chances of success within the organization (Smeureanu et al, 12). It is therefore, a viable argument that supply chain management is both directly and indirectly tied to the organizational goal of shareholders’ wealth maximization. This is because supply chain management lowers the cost of production relative to the projected revenue. The implication is that, the organization will gain competitive advantage in the industry. As such, the share value of the company will increase and appear lucrative to the potential investors. As a result, the company expands and gains a bigger market share.
Another application of supply chain management comes at the tactical level of management and involves contracting issues. Sourcing contracts is a critical issue that requires analysis aimed at engaging in contracts that do not come with adverse effects and severe financial implications to the company. A company is able to source contracts and establishes partnerships with other organizations within the supply chain. This reduces the cost of contracting since such expenses as the ones involved in the bidding, screening and evaluation process are done away with (Smeureanu et al, 20).
Supply chain management is applied by the manufacturing function of an organization in making production decisions of an organization. Such decisions include what technologies to be used in production, quantities to produce and the level of stocks to be maintained after the current demand is met. In making such decisions, the production managers rely on information supplied by the communication channels linking all organizations in the supply chain (Smeureanu et al, 5). Production decisions are also concerned with the time between the order placement and the time of making the supply to the consumers. As such, the production decisions are also concerned with the parties for whom the goods are being produced.
Supply chain management is one of the key concepts applied in ensuring quick delivery of commodities and processing of urgent orders. Sticking to the principles of inventory control can hinder the capacity of a company to handle and process urgent orders since such orders are not processed in line with lead time. Processing urgent orders may involve re-ordering from other companies within the supply chain because the company may lack immediate capacity to process the order. As such, the collaborations between the company and other parties in the supply chain become a pivotal factor in processing urgent orders. One of the applications of supply chain management, therefore, can be said to be the establishment of alliances and collaborations among companies for mutual benefit.
One application of the supply chain management that is adopted by small and medium enterprises within the chain is bench-marking. This process involves the adoption of best practices borrowed from market leaders and other well established firms. Bench-marking can be carried out without any challenges, since the target and the beneficiary companies are in a well established relationship under the supply chain alliance. Bench-marking, helps the small firms adopt only those practices that are bound to improve their performance (Smeureanu et al, 12). Planning other management concepts such as kaizen calls for a well established alliance involving both the best developed companies and the innovative developing organizations.
Applications of this model at the operational level of management include planning everyday production and distribution of commodities. The operational level is the lowest level of management and deals with the shop flow operatives. Operational managers are concerned with the supervision of activities in the factory plant of the organization. This implies that they have to incorporate knowledge from the supply chain management. Another operational application of the idea is ensuring continuous production. For a company to ensure uninterrupted production and supply of its commodities, it needs to comprehend the requirements of the customer, as well as the terms and conditions on which the suppliers operate (Smeureanu et al, 9). The cost of obtaining materials form the suppliers, as well as the time of delivery are crucial operational decisions made by the cost accounting department of the organization.
At the operational level, it is also used in planning and designing storage and transportation of commodities. This way, they ensure continuous production and are in a better position to plan production activities for all facilities. Transportation and warehousing are most effective in firms that engage in supply chain management. In as far as stock control is concerned in a supply chain; transportation and warehousing are effectively manageable. Demand planning can be effectively achieved in a supply chain store. Planning the consumption of primary materials and conveyance of work in progress and finished products becomes effective in a firm whose factory function embraces the model of supply chain management.
For multinational corporations the model of supply chain management is at the core of plans aimed at achieving a wider global market. Applying this concept as a way of going global comes with a number of benefits to the business (Smeureanu et al, 12). For instance, globalization is associated with a wider market share and diversity of clientele. Similarly, supply chain management is associated with enhanced cross-border trading that is not affected by taxation measures. This is because firms sourcing from others within the chain are treated as subsidiaries of one another or as corporations in a formal business alliance.
At the operational level still, the concept is applied in avoiding and mitigating chances of unforeseen disturbances. For instance, an unexpected rise in demand for the product of one organization within the chain can easily be handled through the organization sourcing from other partners in the chain. The idea is also applied in ensuring reduction in management and administration overheads such as evaluating bids for contracts and supply tenders. The model is also useful in doing away with unnecessary inventory within the organization. It also helps in the prevention of incidences that may lead to accumulation of such inventory Geunes 60: 2004.
Supply chain management is one effective way of reducing the number of parties that handle materials or commodities before they reach the final consumer. This is important because where commodities and materials are handled by a number of parties, there are chances of various risks actualizing, for instance, pilferage and spoilage in transit that may compromise quality (Taylor 17). Similarly, the idea can help the organization enjoy cost cutting procedures adopted by other partners in the chain. In the same way, production of final commodities that may be raw materials to other companies is sped up.
Organizations also apply the principles of this concept in the procurement function. Supply chain management partners are exempt from the bureaucratic, lengthy and time consuming procedures of the procurement process. This can be attributed to the trust that develops among the partners as they work together in ensuring continual or uninterrupted production. Through the idea of supply chain management, customer service is enhanced, since it does not take the bureaucracies of placing an order for them to be supplied with the finished goods (Taylor 1). This way, customer service is enhanced giving the organization preferential position in the market from the customer’s point of view. This is a big step towards business success because business experts have termed the 21st century as being the century of the customer.
Supply chain management is the single most important model applied by multinational and export companies in the shipment of goods from one country to another or from the head office to a subsidiary, as well as from a subsidiary to the final consumer (Taylor 1). The partnership that is established between the firms in the chain is of mutual benefit and is a rich source of business ideas because the methods adopted by one firm can never be identical to the methods used by another. For instance, methods of managing warehouses and stock management models vary from one firm to another. It is easy to identify the most effective stock handling method through business bench-marking.
The benefits of supplier partnerships are among the key benefits of supply chain management since the two concepts are an integral part of each other. Supplier partnerships help firms in achieving timely delivery at cost effective rates compared to a situation where a company or an organization sources materials through the tendering process (Taylor 1). Supply chain management therefore, is applied by the firms in the chain in effecting time management and cost reduction. The model is customer centered as opposed to the traditional models that were governed by the rigid and complex formalities of supply. Focus on the customer helps the firm carry out market research and obtain effective and immediate feedback which helps the firm plan their activities in line with the market requirements.
In conclusion, therefore, it is worth noting that supply chain management can be applied by the firm in various departments and different levels of management in achieving stock control efficiency as well as effective production, warehousing and distribution of goods with a customer centered focus. This way, the firm is better placed as a supplier manufacturer or re-seller. The model is prominent in achieving globalization and mutually beneficial partnerships and alliances between manufacturers, re-sellers and suppliers. Through the use of common service centers supply chain management reduces the administration and operational overheads incurred by each firm. This is crucial to achieving the long-term organizational goal of shareholders wealth maximization. The model of the idea is highly recommended for all businesses especially those dealing in or planning to engage in cross border trading.
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