Supply Chain Management

Introduction

Over the past ten years, supply chain management has become a very important focus of competitive advantage for firms and organisations. The impact on supply chain management has increase rapidly, drawing on developments in Internet, logistics, inventory management, demand chain management, relation management and culture difference.

The term 'supply chain management' is defined as "A supply chain is an alignment of firms that bring services and products to market. (Lambert, Stock and Ellram, 1998) "A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves." (Chopra & Meindl, 2001)

Supply chain management was arisen in the early 1980s. It is to describe the range of activities co-ordinated by an organisation to procure and manage supplies. (Oliver and Webber, 1982) It came to a widespread use in the 1990s. Before this time, business used terms such as logistics and operation management instead. (Hugos, 2003)

According to Czinkota, Ronkainen and Moffett, supply chain management is the integration of three concepts; they are the systems concept, the total cost concept and the trade off concept. These concepts are also important to the business logistics.

The system concept is based on the notion that materials- flow activities within and outside of the firm are so extensive and complex that they can be considered only in the context of their interaction. The system concept intends to provide the firm, its suppliers and its customers both domestic and foreign, with the benefits of synergism expected from the coordinated application of size. To get the system concept works, information flows and partnership trust are instrumental. Logistics capability is highly information dependent, since information availability is key in planning and to process implementation.

A logical outgrowth of the systems concept is the development of the total cost concept. This is to evaluate and optimise logical activities and cost is used as a basis for measurement. The main purpose for this concept is to minimise the firm's overall logistics cost by implementing the system concept correctly. Implementation of this concept requires that the members of the system understand the sources of costs. To develop such an understanding, a system of activity- based costing has been developed, this is the technique designed to assign the indirect and direct resources of an organisation to the activities performed based on consumption accurately.

Finally the trade off concept, it recognises the links within logistics systems that result from the interaction of their components. For example, locating a warehouse near customer may reduce the cost of transportation. However, additional costs are associated with new warehouses. Managers can maximise performance of logistics systems only by formulating decisions based on the recognition and analysis of such trade-offs. A trade- off of costs may go against one's immediate interests. (Czinkota, Ronkainen and Moffett, 2005)

Logistics

International logistics is the design and management of a system that controls the forward and reverse flow of materials, services and information into, through and out of the international corporation. When a company is primarily an exporter from a single country to a single market, the typical approach to the physical movement of goods is the selection of a dependable mode of transportation, which ensures safe arrival of the goods within a reasonable time for a reasonable carrier cost. As a company becomes international, such a solution to the movement of products could prove costly and highly inefficient for seller and buyer. At some point in the growth and expansion of an international firm, costs other than transportation are such that an optimal cost solution to the physical movement of goods cannot be achieved without thinking of the physical distribution process as an integrated system. When a foreign marketer begins producing and selling in more than one country and becomes an international marketer, it is then the time to consider the concept of logistics management, that is a total systems approach to management of the distribution process that includes all activities involved in physical moving raw material, in- process inventory and finished goods inventory from the point of origin to the point of use or consumption. (Albaum, Strandkov and Derr, 2002)

Inventory Management

Just in time (JIT)

The principles of just in time manufacturing were developed in th 1960s by Nippon Wireless and Telegraph Company in Japan. Other manufacturers in the industrial sector implemented JIT, but its applicability to consumer markets was quickly spotted by manufacturers. The JIT concept is the forerunner to initiatives in retail sector such as quick response and efficient customer response. JIT seeks to reduce stock levels of raw materials and components at the manufacturing plant to as low as zero. Instead of inputs being ordered well in advance of the manufacturing cycle and stored at the warehouse or plant, suppliers are delivered at the time they are needed. The orders are placed frequently and at short notice. Communication with suppliers is vital in this process and cost savings in terms of inventory can be significant. It should be noted, however, that these cost savings can be counterbalanced by higher input costs; JIT will work well where suppliers are able to respond rapidly to demands but if the supplier is forced to manufacture a range of inputs and hold them in stock in anticipation of fluctuating demand, the cost of inventory is simply moving further up the supply chain and will be reflected in the cost of the suppliers. In addition, distribution costs may be higher as suppliers are required to make more frequent smaller deliveries. These factors need to be taken into account when deciding whether to implement JIT and reorganising inbound logistics will be part of the process to develop JIT practices.

In many industries it is not always possible to implement JIT techniques. Sourcing inputs from abroad introduces an element of uncertainty into the process and the importance of having all inputs available for manufacture at the same time is vital. If one component or input is missing, this could stop production completely. The longer the lead time from placing the order to receiving the goods, the greater the likelihood that amounts ordered no longer match requirements. Because of uncertainties on the supply side inventory management becomes more significant.