Supply Chain Management and Business Approach: An Overview Cynthia Joseph August 15, 2010 Table of Contents Introduction…………………………………………………………………………………. 6 The Role of SCM……………………………………………………………………………. 6 SCM Business Value Framework……………………………………………………………8 Developing Supply Chain Strategy………………………………………………….. 9 Managing the Uncertainty…………………………………………………………. 10 Technology’s Role in SCM………………………………………………………………… 11 Why Implement Supply Chain Management……………………………………….. 11 Integration of Supply Chain: E-Business……………………………………………………. 12 Challenges and Emerging Issues…………………………………………………… 3 Benefits…………………………………………………………………………….. 14 Financial Impact……………………………………………………………………15 Conclusion…………………………………………………………………………………. 16 References……………………………………………………………………………17 List of Tables Table 1 Functional Versus Innovative Products: Differences in Demand……………………9 Table 2 Supply Chain Integration Dimensions………………………………………………14 List of Figures Figure 1 Process of Top-Level Activities and End-to-End…………………………………8 Figure 2 2009 Gartner/SCDigest Supply Chain Study……………………………………. 12 Figure 3 Arrangement for e-business relations between buyers and sellers……………….. 3 Figure 4 The AMR Supply Chain Top 25 2010……………………………………………16 Abstract Supply Chain Management (SCM) is an important tool for creating a competitive business advantage, while enabling businesses to build relationships with its customers and suppliers. The purpose of this paper is to look into SCM, its importance and role, the business strategy that looks to line up supply with demand and managing the uncertainty within the SCM. The role technology plays and the integration of supply chain: e-business, the challenges, and benefits and the financial impact.

Introduction Supply Chain Management (SCM) has emerged as one of the most important business tools available in today’s market. As many organizations are facing the pressure to reduce costs and improve efficiency (Klappich, 2010), industries such as suppliers, manufacturers, retailers and e-business and a lot more businesses have come to realize that in order to be competitive and have an edge over its competitors would mean transforming their operations and be more innovative in producing and marketing their products while maintaining customer satisfaction.

The Role of Supply Chain Management (SCM) Fundamentally, the purpose of SCM is to assist companies get the proper products to the appropriate location at the correct time, in good quantity and at a suitable cost (O’Brien & Marakas, 2008, p305). As a business strategy, SCM look for ways to align supply with demand (White, 2009). Efficiently, SCM goal is to manage this process by forecasting demand; controlling inventory; enhancing the network of business relationships as well as receiving feedbacks on the status of each link in the supply chain (O’Brien & Marakas, 2008, p. 05). Creating a driven supply chain network that allow “network partners to enhance profitability and establishing a proactive, evolving, continually improving model that can be applied in many markets (Poirier, 1999, p. 53). With the global market climate changing every day, businesses need to focus on the processes that will assist them yield growth. The processes outlined below (Wailgum, 2008) are very crucial for supply chain strategic planning.

Components of SCM: Strategic Plan– In this section, businesses are able to construct a strategic plan in managing all the resources that go into meeting the customer’s demand for quality product and services. In other for the SCM planning stage to be effective, a set of metrics need to be developed that will allow for monitoring of the supply chain that will lead to efficiency, delivery of high product quality and customer values.

Source- This section allows businesses to find suppliers that will deliver the necessary goods needed to produce their product. Next, the management will then create their pricing, payment and delivery process with the suppliers hereby creating metrics that will monitor and ways for improving relationships. Make- This is the area where the scheduling of activities for testing, production, packaging and delivery are done. Managers are able to measure quality levels, production outputs and staff productivity.

Deliver- This is the logistic portion of SCM where customer’s order receipts are coordinated, invoicing system is set up, carriers to deliver products to the customers are selected and network of warehouses are developed. Return- This portion of the SCM can be very challenging for most businesses because this is the area where an effective system needed to be created for returned defective product and taking customer’s complaints on delivery products The following figure taken from Gartner. om website depicts the process of the Top-Level Activities and End-to-End Figure 1 Process of Top-Level Activities and End-to-End [pic] Source: (Payne, 2010, Gartner. com) SCM Business Value Framework Before developing an effective supply chain system and making sure that the right approach is taken requires a company to determine what type of products will fulfil customers demand – which products are predictable in demand and which are unpredictable.

The company has to decide whether to go with functional products – which are considered to be stable, predictable in demand and have long life cycle, or with innovative products – which are unpredictable in demand and short life cycles (Qi, 2006, p. 95). One of the issues with functional products is even though it is stable in nature and does satisfy customer’s needs it can invite competition and in turn often lead to low profit margin (Fisher, 2000, p. 131).

Unlike innovative products, a company can see high profit margin but because the products are new in the market, their demands are unpredictable so companies are sometimes forced to keep making innovative products due to imitators out there that keep trying to erode the competitive edge (Fisher, 2000, p. 131). The following table shows comparison between functional products versus innovative products. Table 1:Functional Versus Innovative Products: Differences in Demand Aspects of Demand |Functional (Predictable Demand) |Innovative (Unpredictable Demand) | |Product life cycle |More than 2 years |3 months to 1 year | |Contribution margin* |5% to 20% |20% to 60% | |Product variety |Low (10 to 20 variants per category |High (often millions of variants per category)| |Average margin of error in the forecast at the|10% |40% to 100% | |time production is committed | | | |Average stockout rate |1% to 2% |10% to 40% | |Average forced end-of-season markdown as |0% |10% to 25% | |percentage of full price | | | |Lead time require for made-to-order products |6 months to 1 year |1 day to 2 weeks | *The contribution margin equals price minus variable cost divided by price and is expressed as a percentage (source: Fisher, 2006, p136) Choosing the right products will require the top management need to ave an understanding of its business cycle, value chain configuration and the company’s strategy that will fulfil both the supply chain and technology aspect of the supply chain. Developing Supply Chain Strategy Once a company decided on which product to supply, the next step would be to develop an effective supply chain strategy that will best fit the business goals and objectives while meeting customer’s needs and demands. Several questions need to be put forward that will be answered in the supply chain strategic planning. The following questions according to Foster (2010, p. 123) is very important when answerings thoses questions: Logistics – When to ship?

What method of shippment to use? How do we improve shipping practices? ; Supplierss – which suppliers should be selected? What are the steps for selecting the suppliers? How should we build our suppliers base? How are we connected to the supplier? Will sourcing globally benefit the business? ; Inventory Management – How do we best store inventory? What will be the duration time? Should perishable stock be included? Are we upholding our high level standard services? ; Information Flows – What type of enterprise resource planning systems should be in place? What kind of data is needed to run the supply chain effectively? ; Products – How many products are in stock?

Which products are important in terms of variety? What are the product life cycle? ; Service – How is service define along supply chain? What are the customers’ needs? Can the supply chain be segmented? Who are the customers? Understanding the market responsiveness is an important aspect because it allow businesses to keep track of the market trend, such as “are the right products selling, in the right markets, at the right margin, competitively” (White, 2009). Managing the Uncertainty Although, most businesses might have an overall planning process in managing supply chain, by not having a long-term goal to continuously managing the process can greatly affect the success of the company.

The key is how the supply chain is configured which in turn can have a great impact on the ability of the business to mitigate risks, manage costs and customer service – for example the inventory stocking policies which can be developed in a way to mitigate demand or supplier risk (Payne, 2009). Other issues to consider is the lead times for delivery, manufacturing yields can have significant impact on the supply chain (Simchi-Levi, 2004). Developing a supply chain metrics will help the business to track supply chain performance, problem areas are identified and also allow the business to compare its performance with other businesses in the same market. Technology’s Role in SCM

As companies are looking for ways to increase productivity and succeed in the global economy, and with the evolution of the Internet, it is giving way for companies to collaborate with each other by focusing on bettering communication with suppliers, manufacturers and customers. The hope for Supply Chain in the future is to not only create efficiency and profitable businesses but also contribute more in the global marketplace (Johnson, 2010). Adopting the technology approach, businesses can reap the benefits of supply chain integration – reduced costs, increase flexibility, faster response times – more rapidly and effectively (Lee & Whang, 2010). Why Implement Supply Chain Management Software? When it comes to implementing supply chain management technology, the question most organizations will ask prior to adopting the system is how much competitive edge the company will have in the market.

A study conducted in 2009 by Gartner in partnership with Supply Chain Digest and illustrated by the figure 2 shows that 17% associate SCM competence to be the primary competitive differentiator in their markets, 58% indicate SCM is one of numerous sources of differentiation in their businesses, while 25% sees supply chain has a commodity function for their businesses (SCDigest. com). Examining the technology side, 13% of respondents indicated that their businesses are prepared to take the risks with new supply chain technologies prior to them been proven. 32% indicated of their conservativeness and will only accept if the technologies are well proven, while the majority (55%) were somewhere in the middle (SCDigest. com). Figure 2: 2009 Gartner/SCDigest Supply Chain Study Source: SCDigest . com Integration of Supply Chain: E-Business

While many organizations have been connecting with their suppliers and customers for many years on various level, the improving reliabilities of the Internet have presented new prospective for these businesses (Downing, 2010). .As technology is playing a significant role on how businesses are run in terms of examining and reinventing their strategies in supply chain, the goal of a company is to establish a much solid relationship between customers and suppliers, hereby driving both parties toward a strategic partnership (Vipul & Benjoucef, 2008). Buyers look at E-businesses as a way to not only purchase goods at lower prices but also look for suppliers that can provide quality and better customer service.

Companies recognize that the level of customer service mostly positive drives customer’s satisfaction or preference, profit and sale growth as well as the market. Ever more, researchers have acknowledged the strategic importance of integrating manufacturers, suppliers and customers (product flows, information flows and business process), which defines the fundamental nature of supply chain management (Hong, Tran & Park, 2010). Figure 3 illustrate the transactional flow and the relationship between buyers and sellers. Figure 3 Arrangement for e-business relations between buyers and sellers Source: (Croom, 2001, p24) Challenges and Emerging issues

With more businesses becoming web-based and conducting products sale over the internet, the rising long supply chain models bring challenges such as the call for inter-enterprises infrastructure; the possibility of incompatibility between collaborating businesses; the high costs and complexities that comes with the implementation of integrating the supply chain model (Vipul & Benyoucef, 2008). With the adoption of e-business technology come uncertainties, changing in business process, business structure and supply chain relationships (Shaw, 2003). Other challenges businesses are facing with the integration of technology is on how to respond to the increasing unpredictability in demand; the consumers demand for variety of products, the competitive pressure forces for products Benefits

With the integration of technology, companies have seen the benefits that come from implementing the systems such as reduction in inventory level, accuracy in order processing, achieving their goals of responding quickly to the to the demands of their customers as well as its business partners need (O’Brien & Marakas, 2008, p. 312). The e-business technologies give organizations the abilities to focus on customer retention, services and acquisition (Shaw, 2003). Suppliers and buyers are mutually benefiting from the market. Table 2 taken from Hau L. Lee & Seungjin Whang article “E-Business and Supply Chain Integration” (2001), expanded more on the benefit impact of the integration of the supply chain by focusing on key dimensions. Table 2: Supply Chain Integration Dimensions Dimension |Elements |Benefits | |Information Integration |Information sharing & transparency |Reduction of bullwhip effect | | |Direct & real-time accessibility |Early Problem detection | | | |Faster response | | | |Trust building | |Synchronized Planning |Collaborative planning, forecasting & |Reduced bullwhip effect | | |replenishment |Reduced cost | | |Joint design Optimized capacity utilization | | | |Improved service | |Workflow Coordination |Coordinated production planning & operations, |Efficiency & accuracy gains | | |procurement, order processing, engineering |Fast response | | |change & design |Improved service | | |Integrated, automated business processes |Earlier time to market | | | |Expanded network | |New Business Models |Virtual resources |Better asset utilization | | |Logistics restructuring |Higher Efficiency | | |Mass customization |Penetrate new markets | | |New services |Create new products | | |Click-an-mortar models | | Source: (Lee & Whang, 2001). Financial Impact Integrating technology with supply chain has proven to have a huge impact on how businesses compete in the ever changing global market and the effect on the economy.

Businesses have seen a rise in performance and productivity. More businesses are pushing products and coming up with innovative processes in supply chain operations while managing and influencing customer’s demand as well as from a fulfillment and production viewpoint (O’Marah & Hofman, 2010). Big enterprises with more than $10 billion in revenue that implemented integrated planning will see an improvement in profitability through improve, and additional integration decisions across their supply chain (Woods et. al. , 2010). Proving the effectiveness of integrating technology to supply chain resulting in financial success, a study was conducted by Dr.

Alex Ellinger and a team of colleagues at the University of Alabama and Texas A&M, using the Altman Z-score found that the leading supply chain business as outlined by the Supply Chain Top 25 (figure 5) were more successful as compared to their competitors, for example, Colgate-Palmolive was able to provide a three-year weighted ROA of 19. 6% with a solid growth of 5. 9% weighted average in three years and by integrating the technology has achieve excellent supply chain performance, the company has seen consistency in data standards, reliability in transaction operations and global visibility. (O’Marah & Hofman, 2010). Figure 4 The AMR Supply Chain Top 25 2010 Source: Gartner (June, 2010) Conclusion

Overall, Supply Chain Management (SCM) is very effective for helping enterprises achieved business growth while providing good services and customer satisfaction. SCM enable businesses to lower errors hereby provide high efficiency; keeping up inputs while reducing surplus inventories. Businesses are able to address major areas of concerns which are agility, delivery dependability, lead time and inventory levels within SCM. With the advancement in technology, especially the Internet, businesses have found a way to integrate technology with supply chain to establish a strong relationship with its customers and suppliers. Companies such as Colgate-Palmolive, Nike have seen growth in revenue with the integration of technology while meeting customers’ needs and demands. References Croom, S. R. (2001).

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