The principle of ‘Survival of the fittest’ remains applicable in the global economy now characterized by ever changing business environment. Every modern company needs to strive for existence & growth under a competitive environment. One of the surest ways to achieve this is to offer the best quality of the product at a reasonable level, which suits well for the customer’s target needs. To instill a feeling of pleasure in the minds of consumers and provide quality products at a reasonable price a manufacturer should bring his shift of emphasis from ascertainment only cost to cost reduction to reduce production costs.
Thus, cost reduction is a major managerial mantra as once quoted by well-known strategy in its landmark book Competitive Strategy. There are several strategic cost management techniques available such as Supply Chain Management (SCM), Re-engineering process business (Re-Engineering value), Total productive maintenance to reduce costs. This supply chain management is a leading tool to reduce costs. In this background this paper aims to highlight the conceptual framework of SCM, Modus Operandi and its relevance to the business world in the new millennium.
Supply chain has become a very powerful technique because it increases responsiveness to change business conditions and enhance the competitiveness of the organization. In times of intense competition, and an increasingly global economy, to survive and grow, organizations must improve their market responses and become cost competitive. Supply of a networking framework is a method that breaks up a set of values creating activities from raw material suppliers basic components to the supply of end products of customers consumers.
The supply chain is a business process that links manufacturers, retailers, customers and suppliers in the form of networks, develops and delivers products as one virtual organization accumulated skills and resources. Supply chain management is the process of synchronizing the flow of physical goods and related information from the production line of low-level component suppliers to the final consumer, resulting in the provision of early notice of demand fluctuations and synchronization of business processes between all organizations of joint operations within this supply chain.
The definition of respectable references varies over the past decade. For example, providing the 2000 yearbook network depicted SCM, Network A process that facilitates business activities between trading partners, from purchases of raw goods and materials for manufacture to finished product delivery to end users. APICS The performance advantage, offered this definition in January 1999: The global network used to deliver products and services from raw materials to end customers through information flow, physical distribution and engineered cash.
This is a slight change from the 1997 definition, the logistics management offered, describes SCM as, the delivery of The increased customer and economic value through synchronized management of physical goods flow and related information from sourcing to consumption. The evolution of definition continues as the European Logistics Association, 1995 suggested the SCM is, The organization, planning, control and execution of the flow of goods from development and purchase through the production and distribution of end customers to meet the requirements of the market at a minimum cost and using the minimum capital.
One of the first to show an accurate picture of SCM, the International Journal of Logistics Management, in 1990, called it, An integrative philosophy to manage the total flow of distribution channels from suppliers to end users.
Some themes appear consistent among some definitions of SCM:
- widespread coverage from supply sources to end customers
- in addition to products and services, information, and financial flows are included
- purpose is to meet customer demand at the lowest possible cost
- integrative and global approaches needed to manage the process
Cost reduction & SCM
There are a number of cost reduction techniques available for management to reduce costs that range from Man Power reduction, strict supervision, compromise with quality, overtime work etc. But cost reduction is only quality cost of waste strategy. SCM cost reduction goals without affecting quality. SCM strategy is to reduce costs by eliminating all value-added values of goods flow activities from raw material suppliers to end consumers. The purpose of SCM is to improve the overall competitive advantage of the channel. The means to achieve this goal is through the creation of superior customer value offering competitor value and, thus, to improve customer satisfaction, either through increased efficiency (low cost) or effectiveness (value added at the same cost).
Decisions on supply chain management: 1
Decisions for supply chain management can be classified into two broad categories – strategic and operational. As the term implies, strategic decisions are made usually over a longer time horizon. It is closely tied to corporate strategy and network supply policy guidance from a design perspective. On the other hand, operational decisions are short-term, and focus on activities on a day-to-day basis. The effort in this type of decision is to effectively and efficiently manage the flow of products in the strategically planned supply chain.
The four major decision areas of supply chain management are:
(4) transportation (distribution)
And there are strategic and operational elements in each of these decision areas.
Decision location: geographical placement of production facilities, stocking points, and source points is a natural first step in creating the supply chain. The location of the facility involves a resource commitment to a long-term plan. Once the size, number, and location are determined, so is the possible way that the product flows through to the end customer. Although location decisions are primarily strategic, they also have implications at the operational level.
Production decisions: strategic decisions include what products to produce, and which plants to produce them in, allocation of suppliers to plants, Channel’s (DC) distribution plants, and DC to customer markets. This decision has a big impact on the company’s revenue, cost and customer service levels. This decision includes the construction of master production schedules, machine production scheduling, and maintenance equipment. Other considerations include balancing workload and quality control measures at production facilities.
Inventory decisions: This refers to the way in which inventory is managed. They can also be in the process between locations. Their main goal is to buffer against any uncertainty that may exist in the supply chain. Since holding inventory can cost anywhere between 20 to 40 percent of their value, their efficient management is essential in supply chain operations. It is strategic in the sense that top management sets goals.
Decision transportation: the decision mode aspect of this decision is more strategic. This is closely related to inventory decisions, since the best choice of mode is often found by trade-off costs using a particular mode of transport with indirect costs of inventory related to fashion. The level of customer service and geographic location play an important role in the decision. Because transportation is more than 30 percent of logistics costs, operating efficiently creates a good sense of the economy. Size of delivery (bulk consolidation delivery versus lot-to-lot), routing and scheduling equipment is the key to effective management of corporate transport strategies.
Why the supply chain?
The importance and needs of SCM will increase in the future. Customers will demand faster, timelier delivery of orders. Manufacturers will expect knowledge of the order of requirements to better plan operations and procurement processes. The same expectation applies to external entities. The need for improved coordination between customers, suppliers, and service providers dictates greater visibility and supply chain collaboration.
Dynamic business environment characterized by time-based competition, synchronization with other corporate functions, Customized services for specific markets and customers, enhanced consolidation of suppliers and service providers, continued privatization and deregulation, continued emphasis on outsourcing, development of performance efforts covering partners Supply chain, our increased cooperation between the supply chain partners, and electronic commerce to enable the entire network supply communication will increase the supply chain needs.
Evolution of Supply Chain Management:
1. Range of responsibilities
Previous: SCM components are traditionally considered functional silos and typically include outbound transport-stations (i.e., shipping customers) field warehousing and finished goods inventory management.
Now: Today’s SCM executives generally have a much broader range of responsibilities. that the majority of executives have response-sibility for transportation, ware-housing, inventory management, customer service, purchasing outsourcing, demand planning, production planning scheduling and international logistics.
2. Organization position:
Previous: Traditional SCM is seen as a center fee, adding little or no real value to the bottom line of results. Individuals responsible for SCM who are normally at the manager level report to the Director or Vice President responsible for operations, marketing or functional areas.
Now: SCM executives are now well positioned. Executives of marketing sales, manufacturing and other departments are now generally colleagues rather than reporting officials. In a recent survey it observed that companies in the United States, 52 percent of SCM executives report to Executive Vice President or COO CEO. In Asia, this percentage is slightly lower (48 percent) in Europe this percentage is only 31 percent.
3. Education and training
Previous: Historical, relatively few Universities offer SCM education. In these institutions, academics who teach SCM courses are usually placed in a larger department, for example, operations or marketing. Some schools offer continuing education and seminars at SCM, but this forum is generally focused on certain aspects of SCM, such as negotiation operators, inventory management techniques, warehousing and material handling systems and international trade
Now: Today, there are many, universities known – in the US and abroad offer degrees at all levels in the SCM field. The CLM list of days identified nearly 50 institutions with a SCM-related curriculum.
4. Contribution to company performance
Previous: Historically viewed as a cost center, SCM’s contribution at the level of the company is rated to be minimal. Because the reporting system focuses on managing operational level activities, the strategic value associated with SCM is difficult to calculate.
Now: The leading producer of SCM-edge reports costs between 4 to 5 percent of sales, compared to an industry average of 7 percent to 10 percent. SCM can successfully improve delivery performance by 25 percent, reducing inventory levels by as much as one-half and increasing overall productivity by at least 15 percent.
To conclude, in this dynamic market place, the equations are constantly changing very quickly with the leaders of the day being moved by fast and agile newcomers. Tight competition, demanding customers, shrinking product life cycles, rapid technological advances-all these factors are rapidly changing competitive dynamics in a global environment. This volatile business environment makes it harder than ever for marketers to compete effectively. The traditional approach is too slow to align with the growing global complexity. This development is putting pressure on the business community to look at every business component such as procurement, logistics, marketing etc.
Effectively connecting this process function puts the company in a strategic position. Each link in SCM can add up to a competitive edge. Time is when companies view their supply chain service as a tool to focus on their own core competencies, from utilizing vendors, lowering their costs, and becoming more responsive to customers. These goals will not disappear with the supply chain in the new millennium. But they will be replaced by their own Super-objective: compete based on how well the company manages their supply chain.