Supply Chain Management (SCM) is an area of business that some senior executives do not fully understand. In theory, the concepts makes sense, however, the implementation is where there is a comprehension gap. A general definition of SCM is made up of the essential administration to discover the complete cycle with regards to a certain product or service. There are several entities of SCM which includes various aspects, people, and technological respects to accomplish. Subject matter experts in the field of SCM recognizes the path mentioned above while understanding the possibility for failure or mediocrity. An ideal SCM integrates all aspects of logistics in a rapid manner attempting to achieve the objectives by using who, what, when, where, and why (the 5Ws) for accuracy and success.
The focus of this literature will cover the history, functions, modifications and future of SCM, while also considering the literature and preceding research that was conducted in each area. This paper will enhance the readers’ understanding of the SCM in general along with the process and concepts of the subject. It will also enable readers to apply aspects of SCM in their respective line of business. The literature for this review is relative, ranging from one to three years old. Organizations must understand that Supply Chain Management can increase the company’s EBITA (Earnings Before Interest Taxes Amortization) or decrease it if used properly. An additional benefit of an optimal SCM is optimizing time from production to customer, which can increase customer base when the industry notice speed of delivery to customers.
Overview of SCM
Definition of SCM
Mellat-Parast and Spillan (2014) defines supply chain management as the method of handling material and information moves from the beginning, through the organization, and to the end-user. This is a very important factor of organizational strategy. In the 1950s, the term logistics was perceived as a word that the military use. The areas of logistics was considered procurement, maintenance, facilities, personnel, and transportation of military assets (Ballou, 2006). During that time frame, there was no college courses offered and most organizations focused on individual subjects such as purchasing or distribution.
Today, the du Toit and Vlok (2014) defines supply chain management as planning, implementing, and controlling the efficient life-cycle and storing products, services, and related information from creation to consumption in an effort to meet customer demands. Conversely, there are many definitions of Supply Chain Management and all of them are debatable or not considered a true definition among professionals. For example, some researchers integrate the individual using the equipment in the chain while others consider it as the flow of goods and services in opposite directions History of SCM
According to Ballou (2006), Arch Shaw and Fred Clark was the two men first separated demand creation and physical supply pointing out differences in demand marketing. Howard Lewis laid the foundation for how companies thought about physical distribution by viewing it as a total cost and not just transportation cost (Ballou, 2006). The study and practice of physical distribution and logistics started coming to the forefront in the 1960s and 1970s when logistical cost was skyrocketing (Ballou, 2006). Michigan State University was the first school to offer courses on the subject and it included total cost approach, transportation, inventory control, warehousing, and facilities (Ballou, 2006).
Logistics cost among nations was mainly between fourteen and fifteen percent, but some countries’ cost was in the twenty percent range (Ballou, 2006). The author concluded the article saying the lessons learned from the past was the creation of physical distribution and logistics were envisioned, total cost concept was used to manage, physical distribution was accepted by marketing and production with little thought to production flow, and the lack of coordination between purchasing, production, and physical distribution and logistics (Ballou, 2006). Horizontal structure of SCM
As mentioned above, industry collaboration is essential for the strategic management of a company due to the expenses related with all phases of the firm not attentive to internal production. Lambert and Cooper (2000) stated that the horizontal structure of SCM comprised of multiple tiers in a long chain and vice versa in a small chain, adding that vertical structure of SCM which have number of individuals or parties in each tier (p. 71). Consequently, when organizations pursue assistance from outsourcing, shipping, financial assistance, or customer service, they should use techniques that permit the company the best lateral coordination on a horizontal axis. Liao and Kao (2011) discuss the strategic implications of firm selection with regards to these and similar capabilities for firms by the use of multiple criteria decision making or MCDM, through techniques for order preference by similarity to ideal solution or TOPSIS, and by multi-choice goal programming or MCGP (p. 10803). These methodologies intricate ways for firms to evaluate other businesses, analyze their potential for cooperation, and assess long term savings in dealings with the host firms SCM (Liao & Kao, p. 1083).
It is based on a set of strata delineating the competing firm’s abilities to meet the need of the host firm, a selection criteria checklist is proposed to the firm’s leadership with the intent of allowing them to select the best partner(s) (Liao & Kao, 2011, p. 10804). Logically, the host organization is incapable or will not find a single firm that has the capabilities of handling every facet of their supply chain, however, the implementation of evidence-based management will assist them in making sound decisions that enhances their SCM. Liao and Kao argue that through the use of fuzzy numbers, weights are assigned to each firm or compilation of firms to allow for the best decision (2011, p. 10805).
As the firm’s leadership identifies strategic business goals, it assigns priority or weight to each goal and through analysis using the MCGP, the most beneficial firm set is identified (Liao & Kao, pp. 10807,10808). The authors conduct a case study of a watch manufacturer’s board of district managers as they convene and assign priority to different material suppliers, based on set criteria and supplier weight (Liao & Kao, p. 10809). Using the data gleaned from MCGP and MCDM methodologies’ analysis of the tangible and intangible aspects of cooperation, the decision is made to enter into business with one or more of the suppliers, based on the firm’s potential for savings and subsequent profit maximization, demonstrating the horizontal structure of SCM for the benefit of the watch company (Liao & Kao, pp. 10810-10811). SCM Functions
The horizontal environment of conglomerates and collaborations is ideal for service-dominate (S-D) SCM to focus on the outline of the decision-makers (Randle et al., 2014). Randle et al. (2014) continues by saying success of an organization requires flexibility and adaptability based on new knowledge. A method to accomplish this feat is the implementation of Performance-based logistics which is based on system performance, not products. Companies care about how their product is being manufactured by the supplier which is why quality is so vital.
Capacities of Management in SCM
Capacities of SCM included management which is discussed below. They include: inventory and warehousing, distribution, channel and partnerships, procurement and financial, supplier collaboration, transportation, and customer service managements (Xu, 2011), (Dittman, 2010). These functions working in unison allow for the optimal mix for savings for the customer firm. As outlined in graphical pyramid by Anderson, Britt, and Favre, the aspects of the supply chain, with specific influence garnered by technology resides with the strategic leadership analysis at the top, planning and decision making in the middle, and the operational and procurement at the level closest to the manufacturers and customers (1997). These capacities are listed below in no specific order as aspects of each competency reside at all three levels on the pyramid. Inventory and warehousing management
Described by Lusch as a service, inventory management is a process that checks for the minimal amount of inventory necessary to maintain equilibrium between the supply and customer demand (Vrijhoef & Koskela, 2000, p. 134). Using methods like the first-in first-out (FIFO) and last-in last-out (LIFO), firms can manage their inventories. According to Vrijhoef and Koskela, traditional management dictates that firm storage locations are responsible for their own inventories, whereas with SCM, inventories are supervised on a firm level to ensure there are not surplus inventories at one location and a deficit at another (p. 136). Examples of inventory management. Grocery and convenient stores are excellent examples of operations that utilize the first-in-first-out (FIFO) method.
Businesses in this industry must be aware of product spoilage dates on perishable items. The stores rotate products for the customers to ensure the product that will expire the quickest will be purchased by the consumer (Goodrich, 2013). Products such as greases, metals, and chemicals can be accounted for using the last-in-first-out (LIFO) method because the commodities will not expire (Goodrich, 2013). For example, if the company uses the LIFO method and purchased a product for $40 and sold it for $60 dollars, the profit is $20. Conversely, if there was an increase in price now the company is paying $45 for the product, they could sell the newer items at the same price of the old ones and write off the lost in profits as $5 verses $10 (Goodrich). Distribution management
The term distribution has extended over the past forty years from outbound products to all interactions with customers in both directions along with the handling, storage, and transportation management (Flint and Gammelgaard, 2012). Distribution managers are responsible for coordinating upstream and downstream of the supply chain. Flint and Gammelgaard, (2012) describes how the distribution has expanded and need to be decreased due to the amount of pollution. He continues saying that warehouses throughout the world add to this problem (Flint and Gammelgaard, 2012). They propose that organizations use their research to review their distribution traffic and attempt to reduce it (Flint and Gammelgaard, 2012). Examples of distribution management.
Distribution managers’ lie in the center of the supply chain. The amount of control they have over the SCM within an organization is astronomical and vital. In order for Just-In-Time (JIT) to work properly, distribution, purchasing and supplier must work closely to ensure the new product arrives and the old product leaves (Ingram, 2014). The military has product managers that controls the distribution of equipment to units across the force. They also responsible for specific types of equipment and tracking the locations of that equipment. Channel and partnership management
The coordination between channel partners, suppliers, branding, advertising, and customers must ensure the inventory flow is excellent for optimization (Anderson, Day, & Rangan, 2012). Contingent on customization demand, smaller quantities may be shifted to a small demographic and demand for rapid order fulfillment. Anderson and colleagues advises that firms nor customers are interested in mass production as they did in the past (2012). Companies are using methodologies like Six Sigma to streamline processes to receive and deliver products. (Anderson, Day, & Rangan, 2012). Some companies have taken advantage of technology that has provided them with input from consumers to integrate ideas and supply specific products.
Globalization and cultural paradigms can be attributed to this fact. Therefore the familiarization of supplier management, customer service, and financial management must be considered due to the compress of channels. (Anderson, Day, & Rangan). Examples of channel management. Wal-Mart and Proctor and Gamble are connected through electronic data interchange or EDI for warehouses and stores across America. Wal-Mart channel managers analyze the data and transmit the order to P&G (Handfield, 2002). Technology makes channel managers’ jobs easier, however, the EDI example examines how horizontal structure applies to SCM. Purchasing and financial management
The purchasing and accounting department is actively involved in the SCM process. As mentioned earlier in this paper, technology helps with the SCM and the Wal-Mart EDI is a great example, however, the process effectiveness is reduced when other functions are intertwind like customer service, supply, and transportation. Payment managers handles the procurement of raw materials and services through the supply chain, whereas financial managers are responsible for balancing the books of a firm with respects to gains or losses in the chain (Anderson, et al., 1997, p.6). Electronic interfaces allow payment managers real-time access to their data, so that in later transactions a historical record is available for new negotiations with channel managers. It becomes increasingly important for payment and financial managers to stay integrated with both channel and distribution managers as the latter two are the ones spending the firm’s capital (Anderson, et al., p.6).
The inclusion of technology into supply chain systems has actually allowed firms to reduce the number of payment managers. Channel and distribution managers are increasingly called upon to perform these duties as financial managers specifically, according to Blanchard, these are categorized as a “primary noncore task” (2007, p. 199). Financial managers outline the costs of the supply chain and apply techniques like activity-based costing to identify where deficiencies lie (Anderson, et.al, 1997, p.7). It should be noted that financial managers sometimes lose focus on the intangible aspects of SCM as they are concerned with numbers. An example of this is evident in what Blanchard describes as a situation where financial managers assume that storage is free, since it doesn’t show up on a balance sheet (p. 135). The implicit costs, however require managers to calculate what could have been stored there if the space was not taken up with unsold inventory. Supplier collaboration management
It is vital for a supplier manager to works diligently with distribution and channel managers. The supplier manager is responsible for informing them concerning manufacturing supplier will be ideal for the organization. Supplier managers must possess operational knowledge of the company and cannot outsource to other companies. Prajogo et al. (2012) asserts that suppliers must be vetted by the supplier managers based on performance, reliability, and quality performance in order for receive business from the host firm. According to Strategic Procurement (2015), supplier managers are responsible for building and sustaining relationships with the organizations through collaboration. Examples of supplier management. In the Oil Country and Tubular Goods, oil companies depend on supplier managers because the production of crude oil, natural gas, and minerals are reliant upon scientist and political factors. Also, the collaboration between the two companies must be open at all times. Maintaining visibility of the supplier’s inventory information is vital to the companies requiring the products (Management Association, Information Resources, 2012, p. 606). Transportation management
Supply chain functions usually have a transportation section and managers over those departments are responsible for delivery. They are responsible for ensuring up to the minute tracking on all products are available upon request. Eletronic Data Interchange (EDI) technology can allow the customers to track their own orders on the supplier’s website (Management Association, Information Resources, 2012). When the company is attempting to find ways to cut cost, transportation sections are the first areas they examine (Petterson, 2013). The transportation section is one of the most vital portions of the supply chain because they are pushing and pulling the supply chain. Reducing cost must be a collaborative effect on the parts of the distribution, channel, and supplier managers by capitalizing on each shipment. Examples of transportation management. FedEx possess one of the largest fleet of vehicles in the world with 673 aircraft and 50,000 motorized vehicles (FedEx, 2015). The company manage their transportation cost by strategically locating their hubs that total 750 and 38,500 drop box locations around the world (FedEx, 2015). FedEx’s package 11 million pounds of freight daily which requires maintenance, fuel, and people to accomplish (FedEx, 2015). Customer service management
Maull et al. (2012) attest that customer service is mainly seen through the eyes of the supplier organization. Conversely, the customer dictates the flow of the supply chain and ultimately it can be favorable or unfavorable for them. A customer perspective will allow organizations and scholar to research the issues of the customers and provide proper solutions Maull et al. (2012). Training supply managers to view customer service from the customers’ perspective will contribute to a satisfactory relationship between the organization and customers. The manager can apply this think by allowing customers to offer their suggestions for better service, customer surveys, and by presenting operational transparency.
Operational transparency will provide the customer the opportunity to visit the manufacturing facility and help them understand the process. Analyzing from a different perspective, they offer a solution that save money for both companies. Examples of customer service management. Customer service or labor can be outsourced occasionally to other firms such as telecommunication companies or temp agencies (Sampson 2012). An excellent example of Business-to-customer (B2C) is customers filling their own drinks at fast food restaurants (Sampson 2012). Simpson continues by encouraging suppliers to allow customers to control their own satisfaction by implementing methods for them to research information for their products from them (Sampson 2012).
Future of Supply Chain Management
As stated earlier in this paper, SCM has numerous functions within a company’s operations. The subsequent discussion will inform how SCM will be observed in years to come and methods organizations can exploit those changes to set their firms up for success. The areas that will be discussed includes new methodologies employing and clarifying SCM, trends within SCM such as green supply chain management (GSCM) and ISO 14001. SCM 2.0
The authors show relevance in SCM 2.0 in application to organizational theory and this display represents the bulk of their work. Complexity theory, ecological modernization, information theory, institutional theory, the resource-based view, resource dependence theory, social network theory, stakeholder theory, and transaction cost economics are among the listed methodologies where Kumar and colleagues state SCM 2.0 can be employed to return profit to firms (Kumar, Saxena, & Agrawal, 2012). Green Supply Chain Management
Implementation, Issues, and Performance of GSCM. Luthra et al. (2014) defines GSCM as a form of the supply chain process that focuses on environmental friendly means of transportation, reducing waste, while promoting a pollution-free environment. Luthra et al. (2014) discuss the development of GSCM with respects to the researchers relevant to eco-friendly and societal sustainability in the areas of operation management and the supply chain. Their research reveals that there is an increasing number of studies on iconological issues both on a national and international level. They point out that implementation of GSCM are usually constrained in many organizations due to a lack of a legitimate reason for the initial cost (Luthra et al., 2014). The authors show relevance in SCM and GSCM in the number of techniques, factor analysis, and regression analysis.
The authors also believe Green Purchasing and Green Raw Material Procurement, Green Design, Green Transportation, and Green Manufacturing have grown more consideration of researchers than Green Process Planning, and Green Product Development but it will require more research (Luthra et al., 2014). Bose and Pal discuss how GSCM within firms’ innovations affect stock prices considering the analysis of companies that released green initiative statements (Bose & Pal, 2012). International Organization for Standards (ISO) 14001. ISO 14001 was implemented to inspect the environmental impact a manufacturing process or product has on the environment. The standard functions on the principles of plan, do, check, act, and make continuous improvement (ISO 14000 – Environmental management, 2014). Using this standard will benefit a company by reducing waste disposal, energy consumption, cost-savings for logistics, and an excellent reputation among the community due to the efforts they put into social responsibility practiced in the manufacturing process (ISO 14000 – Environmental management).
Arimura, Darnall, and Katayama discuss how ISO 14001 assists firms in establishing environmentally friendly supply chains and how the system optimizes chains while reducing costs (Arimura, Darnall, & Katayama, 2011). They state that according to their research, increased organizational employment of ISO14001 is prompted by the increased acceptability of a firm adopting the system, as opposed to the coercive power demonstrated by a ruling body; taxes on pollution, for example, also stating that at the publication date of their article, over 982,800 facilities had adopted the program globally (Arimura, Darnall, & Katayama, p. 172). According to the authors, firms that endorse ISO 14001 are likely to implement GSCM and require their suppliers to do the same (Arimura, Darnall, & Katayama, 2011, p. 173). These finding are confirmed in a report by the European Union Network for the Implementation and Enforcement of Environmental Law or EUN IMPEL (de Carlos & Carter, 2014, p. 2).
Arimura and colleague’s discussion continues as they demonstrate how firms using ISO 14001 are 40% more likely to look at how suppliers produce materials and how those same firms have a 50% proclivity to influence those suppliers (Arimura, Darnall, & Katayama, p. 175). They specifically site how stakeholder’s opinion of the firm can be influenced by the implementation of ISO 14001 as well as the potential for GSCM to take hold as the standard for supply chains playing into the continuous improvement tenant of the methodology, while reinforcing the reciprocal relationship between GSCM and ISO 14001 (Arimura, Darnall, & Katayama, pp. 177-178,180). Issues and Weaknesses in SCM
Historic problems in SCM. Professionals in the field of SCM should be aware of challenges that may occur during the implementation phase. Two of the main challenges SCM is faced with today is the rise of fuel cost and the pressure from customers and the government to implement “green” practices (Prajogo and Sohal, 2013). Other challenges that lie within SCM is purchasing and supply management in the areas of organizational structure, policies, education, and training requirements (Prajogo and Sohal, 2013). The final challenge is considered long supply chains (Prajogo and Sohal, 2013). Technologies can be implemented to assist with combating these capability gaps.
Modern problems in SCM. Groznik and Trkman (2012) identified the following issues within SCM: multi-jurisdictions, multi-tariffs, and multi-commodities. The authors identified multi-jurisdictions as organizations’ supply chains spreading across different states and countries with geographical boundaries Groznik and Trkman (2012). Multi-tariffs are related to continuously changing prices and companies offering multiple commodities Groznik and Trkman (2012). The last problem Groznik and Trkman outline is multi-commodities which means suppliers will be deliver multiple products to a customer Groznik and Trkman (2012). The authors believe the key to these issues is Information Technology (IT) and Information Systems (IS) to link the supply chain (Groznik and Trkman 2012). The authors conclude by saying that the information processing can reduce the prices. Conclusion, Evaluation, and Critique
Strengths of SCM
From the beginning to the end, supply practices possess various possible benefits for the company that has the insight to implement modifications and to encourage the consequent stability required to endure operations in SCM. Numerous models of this change is outside the capabilities or capacity of some organizations. Some companies are fortunate to have money, time, and innovative thinking to organize a strong SCM system that will increase the firm’s chances to generate more profit. According to Perez (2013), the continuous-flow, efficient, and fast models being geared toward efficiency and the custom-configured, agile, and flexible models aimed at responsiveness are several SCM models that can assist with such success. The author continues by suggesting that leaders in a startup company must ask the leadership if the firm generates more profit due to effectiveness or responsiveness? Efficiency. In organizations were efficiency is vital can benchmark their process with a non-competing company.
The organization can learn new solutions for their technology such as Electronic Data Interchange (EDI), Enterprise Resource Planning (ERP), Vendor Managed Inventory (VMI), and radio frequency identification or RFID in which all track different aspects of the process like products, delivery quantities, and production. Attaran (2012) outline ten detailed features that companies who recommend RFID technology in their supply chains, firms must implement efficiency changes as they occur or suffer by losing profits for the company (p. 152). The author also believes that RFID is expensive, however, this is a sound way to track supply chain efficiencies. This technology is versatile and can fit in all areas of the organization allow management on all levels to recognize capability gaps for their process (Attaran, 2012, pp. 159-160). He conclude his research by warning readers that RFID tracking is not the only solution for different or dynamic supply chains, and research should be conducted before employing this expensive system (Attaran, p. 161).
Responsive. Retail companies function on an efficiency-based paradigm which generates constant customer demand, but can be inconsistent occasionally. Organizations in the retail business require SCM systems to be dynamic with customer demand and variations of customer (Perez, 2013). The author also believes the SCM can produce profits on products that have short life expectancy and an agile management team can antedate the changes in the industry on the forefront (Perez, 2013). For this matter, the automotive industry is an ideal place to examine. Organizations implement flexible practices, internal and external to deal with uncertainty and turbulence in the industry (Sharma and Bhat, 2014). Responsiveness to customers’ needs can be accomplished with lean thinking, vendor managed inventory, quick response (QR), reverse logistics, and collaborative planning forecasting and replenishment (CPFR) (Anupam, 2015).
The development of visibility, control, reducing lead-time, accurate forecasting, streamlining customer requirements, and inventory management is being achieved by automakers like never before (Babu, 2012). Indian automobile market is relatively small in comparison with the world market with $6.73 billion compared to $737 billion (Babu, 2012). Babu continues by saying that the Indian market has experienced a growth of about 20-25% between 2010 and 2012 proving that responsiveness within an SCM can put a company or industry over the top (2012). Wieland and Handfield (2013) believes that socially responsive firms react immediately because it has the ability to affect the company’s profit margins.
The author continues saying that endorsing codes of ethics with various programs like ethics for profit will keep stakeholders happy while avoiding press disasters for larger retail corporations for purchasing products made of endangered animals, slave, and child labor practices are just a few examples (Wieland and Handfield, 2013). While it is conceivable to endorse parallel supply chains that have diverse emphases in efficiency and responsiveness (Perez, 2013). This can be comprehended in organizations that use GSCM, in that they can operate outside the box between efficiency and responsiveness, eventually choosing one area to concentrate their focus. Conclusion
This paper viewed the history, functions, and future of supply chain management with the purpose of acquainting the reader with the supply chain strategies for future research or application in their own disciplines. The functions of SCM were offered providing examples from history and modern times to demonstrate how the supply chain translate to the business world. New aspects of SCM such as GSCM and ISO 14001 were presented according to the newest information as they epitomize the possibilities for firms that aspire to remain relevant and profitable in their respected industry. Prospective problems and weaknesses was provided to show the potential threats encountered by numerous SCM practitioners today and in the future. Finally, considering the research, it is the opinion of the author that the essence of SCM lies within an organization’s ability to perform at or above standards will hinge upon their individual company goals and design. Recommendations for further research
This study has only uncovered a few of the topics of SCM and more in-depth research can reveal profounder reflection in to the characteristics of this field. Corporate social responsibility and ethics in organizations with complex supply chains requires further research. Companies must complete a self-examination in hopes of taking advantage of situations to generate more revenue in the event other companies cannot. Throughout the research, SCM did not mention whether the human factor was important, however, they are the most important portion of the system.
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