It is the aim of every firm to maximize its profits and reduce costs while at the same time gaining higher market possession for its good or services. Most of the firms have traditionally concentrated on profit maximization concept and have therefore put a lot of effort on cost of raw materials and other inputs that are seen to be more important than anything else.
But recently other aspects have been emerging as being also important in increasing efficiency in operations thus, reducing costs in a firm. Firms have realized that supply chain management play a key role in reducing costs as well as improving relationships with other players in the market, consequently increasing a firm’s competitive advantage.
Supply chain is the interconnection of organizations involving the flow of raw materials, finished products, finances and information that helps in facilitating production marketing and selling of goods and products. It can either be downstream where it starts from the supplier of raw materials and flows through the manufacturer to the retailer and lastly to the customer, or upstream where the point of emanation is at the customer then it passes through the retailer, manufacturer and finally at the supplier.
Supply chain management is therefore, the management of the supply chain system to ensure smooth running and efficiency in the system hence benefiting from it (Horch 2009). Additionally, supply chain management involves inclusion of important factors that help in value addition to the customer as well as the involved organization.
Importance of supply chains
Manufacturers expect to get the raw materials at the right time, to ensure continuity in production process as interruption interferes with the availability of the commodity for delivery to buyers. On top of that, producers want to maintain as minimal inventory as possible to reduce storage costs, while the suppliers expect payment in good time to help them continue supplying.
On the other hand, retailers and wholesalers want a stead supply of goods to ensure that they do not run short of any commodity, while the level of inventories is relatively low since huge inventory increases storage cost but bring no income (Bolstorff & Rosenbaum 2012).
In conjunction to that, availability of the commodity within the customer’s reach at all times is very important not only in maintaining customers, but also in attracting new ones. All these expectations can only be achieved through proper and efficient management of the supply chain to ensure that the flow either downstream or upstream is uninterrupted timely and cost effective (Horch 2009).
Supply chain and competitive advantage
Ability of the firm to secure competitive advantage over its competitors enables the firm to emerge the winner during competition, and this can be achieved through proper management of the supply chain of the firm. Supply chain management requires that a firm carries out it’s competencies but outsource what requires specialization (Bolstorff & Rosenbaum 2012).
Since Kellogg’s is not specialized in transportation issues, it hires TDG a logistics firm which has a lot of experience in this line of specialization. In addition, supply chain management facilitates turnover expansion through value addition where producers get involved in assisting the retailers to reduce their operation costs mostly through delivering commodities just when they are needed reducing the retailers’ cost of holding inventory.
Kellogg’s has achieved this through its joint efforts with Tesco in the Ready Shelf Unit strategy which other than reducing the staff cost for Tesco it increases its turnover as well as that of Kellogg’s. When an organization in the supply chain realizes that there is value increase by being in the system, it becomes more willing to be part of the system hence increasing competitive advantage (Bolstorff & Rosenbaum 2012).
Furthermore, through proper supply chain management a firm is able to know areas of weakness of the partner. The firm can then rectify by helping in these areas and in turn the partner will be forced to stick with the firm hence, gaining competitive advantage over the competitors.
On top of that, supply chain management also helps in the reduction of costs of operation for example maintaining high inventories of either raw materials or finished products or the transportation costs which mostly increases because of sending low quantities several times (Horch 2009).
Through proper supply management, transportation is well coordinated such that goods are sent when they are required and this is always harmonized such that retailers in the same area can be supplied at the same time thus, reducing the chances of vehicles wasting space on their supply trips. Kellogg’s achieves this by incorporating Kimberley Clark, another manufacturer, therefore sharing transportation expenses which help in reduction of costs and consequently commodity price hence attracting more customers.
Having the products at the retailers’ shelves all the time is also a key factor in ensuring that demand for the firm’s goods is high. When customers receive advertisement of certain products and they are able to get them from the retailers when they want them, the probability of them sticking to the product increases.
In addition to that, the firm can use the retailers for promotion reasons when they have ensured constant supply of their commodities (Horch 2009). Kellogg’s has achieved this by liaising with the retailers to ensure its products are on the shelves always while ensuring that the retailers help in promoting the products. Its prices are also competitive because of the cost effective means of distribution due to efficient supply chain management.
The level of integration in the supply chain system highly depends on the number of components that are involved as well as the complexity of each component. It should be noted that, every aspect of the supply chain should be taken care of properly for the benefits of the firm.
Information needs to be incorporated in the system as it helps in collection of feedback from the customers so that effective action can be taken in time to avoid any losses that might be imminent. Products must reach the consumer who is the final person in the chain and therefore anybody or firm that can help in delivering the product to the final consumer efficiently should be integrated in the system (Bolstorff & Rosenbaum 2012).
The process should also take into consideration the risk and reward issue to ensure that there is encouragement for the partners to remain in the chain thus, reducing the risk of chain breakdown. The culture and attitude of the partners also need to be managed for they will highly interfere with the normal flow within the chain.
Proper management of this will ensure that partner differences are resolved and they do not affect the supply chain. On top of that, it is also important to look beyond the delivery of the commodity to the customer and take care of the environment which also increases the level of integration.
Globalization and Emerging issues
The concept of globalization has introduced new challenges into supply chain management hence, compelling the bodies involved to devise new ways of dealing with them. Firstly, globalization has made firms to venture into foreign markets which have different tax structures than their home countries.
This has led to the emerging of a method of managing the supply chain while taking into consideration the difference in tax structures (Bolstorff & Rosenbaum 2012). Tax efficient supply chain management ensures that global firms take advantage of the difference in tax structures to increase their profits.
The importance of going beyond the delivery of the commodity to the customer and look at the disposal of waste materials and the environmental sustainability has also posed a new challenge. This has led to the emergence of the concept of reverse logistics which also should be taken into consideration. Besides, availability of many substitutes due to globalization has increased competition and the linear supply chain management is no longer feasible, therefore firms have to look for a new mode of management (Horch 2009).
Supply chain management plays an important role in increasing competitive advantage of any firm thus increasing its profit margin, hence its importance in today’s management. Unfortunately, globalization has caused the business environment to changing every now and again compelling firms to be on their toes and come up with more effective methods of supply chain management to remain competitive.
Bolstorff, P. & Rosenbaum, G. R. (2012). Supply Chain Excellence. New York: AMACOM Div American Mgmt Assn.
Horch, N. (2009). Management Control of Global Supply Chains. Norderstedt: BoD-Books on Demand.