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Chain Management and the Creation of Competitive Advantages Essay

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Updated: Jan 16th, 2020

Introduction

Successful supply chain management and creation of competitive advantage requires effective demand and supply chain management. Supply chain management can be described as the cumulative process that involves different players who are involved in the delivery of a product to its final destination.

Supply chain management involves coming up with deliberate measures by the parties involved in the whole process to come up with a supply chain that is most effective and efficient (James & Mbang 2012, p. 198).

An effective and efficient supply chain is good for any business because it leads to the reduction of operational costs of the business and hence an increase in the business profits.

Therefore, as the paper reveals, to have an effective and sustained supply chain management that is competitive enough, there is a need for an effective demand and supply chain management.

Management of Supply Chain

Supply chain management has come out as one of the aspects all businesses need to strengthen to remain competitive because it touches on all aspects of any given business as long as the given business needs to deliver its goods and services.

LU (2011) indicates that competitiveness in business is moving away from between organisation and organisation to how effective a business can cooperate within the supply chain as a way of getting the best deal in the supply of its goods and services (p.8).

Supply of goods and services is one of the major components that make up supply chain in that in the flow of goods and services, there is an original point from where the goods originate as they flow forward to the end, which is the demand.

The nature of supply chain management is in such a way that the process is cyclic with different players playing specific roles at different levels.

Therefore, there has to be a balance in the flow of goods and services at all levels so that a single level is not overwhelmed or underutilised and hence the sole reason as to why there is a need to manage the supply and demand points of the whole system.

At a glimpse, the supply chain management can involve the following players: manufacturers, distributors, whole sellers, retailers, consumers, and transporters. All these players except the consumers have to be efficient and effective enough for them to maximise their income.

The Distribution Network Setting

The need to manage demand and supply is necessitated by the nature of the distribution network. Transport cost for goods and services is one of the most expensive parts of the supply chain management. If not properly managed, it can lead to an increase in prices of the items.

The longer the distribution network from the supplier to the consumer, the more expensive the items will be towards the end of the channel. Therefore, there has to be a proper connection between the supply and demand of the goods and services so that they are distributed in the most cost effective manner possible.

Too much supply of a certain good and service will definitely affect the different parts of the distribution network thus disrupting the flow of the distribution network due to the supply chain relationship that develops over time.

When suppliers produce too much goods than they are supposed to do, it will force them to create space for the goods produced, which has a domino effect on all the rest of the levels of supply chain management.

Therefore, the need to manage the supply of goods is very important in supply chain management as a way of controlling backlog of goods and other services.

On the other hand, when there is less supply of goods in the chain, other sectors will be underutilised thus having an effect to the end consumer of the goods and services.

When less goods and services are supplied to the chain, such sections like transport will be affected because they will end up transporting fewer goods at the same cost thus raising significantly the cost of transport.

This situation can be disruptive to the chain because most players would not want to engage in a business process that is expensive where it can be cheaper. Most supply chains have come up with a distribution system that is so effective for them and one that they have found to be efficient over a long period.

When the system is disrupted for whatever reason, it will have drastic effects on the entire system (Sourjan, Ramachandaran & An 2008, p. 6168).

For instance, if a given manufacturer withdraws from the system, transporters will be forced to find other clients who will fill up the space in their trucks. This strategy might mean a change to their usual routes, which might translate to a delay in the delivery of goods and services at the end of the channel.

Risk Management

Effective demand and supply chain management involves taking measures that would involve risk management.

According to Yang and Yang (2010), “supply chain risk may be the outcome of unexpected variations such as capacity constraints, machine breakdowns, uncertain yields, quality problems, fire, or even natural disasters” (p.1903).

The eventuality of such risks needs to be mitigated in such a way that the consumer at the end of the channel does not suffer the consequences. The customers at the end of the conduit are the demand bit of the whole process.

When they suffer, they tend to change their suppliers into more reliable ones thus leading to a disruption of the whole system.

Therefore, suppliers in the chain system should put up measures that would enable them continue their supply to the consumer in case certain risks befall them so that they (risks) do not lead to massive losses.

An example to such disruptions is when a fire destroyed a certain section of a facility in New Mexico, which supplied important chips to the Ericsson Company. This destruction led to a $2.3 billion loss on Ericsson because it could not continue with its manufacture of mobile phones without those chips.

This situation could not have happened had the company in New Mexico put measures to forestall such a problem (Wakolbinger & Cruz 2011, p. 4064). Risk mitigation approaches can be divided into supply management, demand management, product management, and information management.

Such risk mitigation steps include the following two steps: adding redundancy and building flexibility.

Adding redundancy involves the production of more stock in that, at any given moment, there is so much stock available in the inventory that can enable a continuous supply even though manufacturing of the given object has stopped. This case is simply excess inventory.

On the other hand, building flexibility comes about in more than one form.

It involves having multi skilled staff members who can be deployed in any area of work, having machines that are versatile, and having a close working relationship with suppliers and customers in that there is a room for flexibility due to the last minute changes.

Adding redundancy as a good fall back strategy is costly to the manufacturer because they will have to spend extra money to stock goods that may not give immediate returns.

Controlling the Bullwhip Effect

Effective demand and supply chain management definitely leads to the controlling of the bullwhip effect. The bullwhip effect comes about when there is a distortion in the prediction of the demand at the consumer level thus leading to an oversupply of goods to the market.

The changes from the retailer due to consumer changes tend to take effect slowly. By the time they reach the manufacturer, their magnitudes tend to look bigger than what they seem on the ground.

Therefore, this case usually affects the manufacturer depending on the information flow because they at times end up sending the usual supplies when changes have been sounded (Panda, & Mohanty 2011, p. 16).

According to Wangphanich, Kara, and Kayis (2010), “…companies need to synchronise the upstream flow of incoming materials with the downstream services for them to respond to uncertainties in customer demand” (p. 4501).

The problem that is brought about by the bullwhip effect, which in essence is a mismatch between manufacturers’ supply and the demand on the ground, is that it leads to losses, which might run into millions with time.

When highly perishable goods are supplied in excess, they will end up expiring before they are sold thus translating to a big loss.

On the other hand, when long life shelf goods are supplied in excess to the retailers coupled with a much low demand, they will end up having stock that is not moving quickly thus tying up money that could be used to do other purposes in the business.

The bullwhip effect can be controlled by continuously developing the communication between the players in the supply chain, as well as collaboration between members.

The managers within the supply chain have the responsibility of improving the structure of the chain network, improving the levels of information sharing, and ensuring efficiency of the units.

This strategy will drastically reduce the chances of the bullwhip effect, which comes when a single component of the chain is altered thus affecting the efficiency and effectiveness of the whole system.

Inventory Control

Inventory control can be one of the measures that when properly put in place can lead to competitiveness in the supply chain. Inventory control should happen at all levels of the chain as long as goods are being channelled from one point to the other (Silver & Zufferey 2011, p. 924).

Walmart has come out as one of the most successful stories when it comes to inventory control by coming up with a system that has integrated all its suppliers to its own system.

This move happened when Walmart developed an inventory program that is connected to its suppliers in such a way that sales of a particular item are instantly shown to the suppliers system. This technology would enable suppliers dispatch specific inventories to the different stores without waiting for orders.

Therefore, there is a need for collaborative inventory control between players so that the systems they have put in place work out efficiently (Bernhard & Stephan 2013, p. 82).

For instance, the warehouse manager should be able to inform the manufacturer of the amount of goods that have been dispatched so that the manufacturer replaces the same amount instantly to enable the warehouse to utilise its space by having it fully occupied.

On the other hand, the transporter will be well placed to know what goods are needed where within a certain time together with their amounts.

This technique will enable the transporter to organise for the best possible trucks that will be able to carry the specific amount of goods efficiently to the needed destination without wasting space.

This can only happen when there is proper communication as well as exchange of information between the different players on the amount of inventory that needs to be moved in a certain direction.

Conclusion

Successful supply chain management and creation of competitive advantage can only be achieved through collaborative efforts between different players. This goal can only be achieved when there is proper communication and exchange of crucial information between the different players.

It is therefore prudent for the different players to identify areas that they can collaborate in to make their supply chain effective and efficient (Yogesh 2011, p. 64). An effective supply chain leads to lowering of costs, which at the end of the day makes goods cheaper when they get to the consumer.

The supply chain management is a dynamic area that needs continuous forecasting as well as contingent measures being put in place to forestall any problems that may occur because, though demand can be forecasted, it is dynamic in such a way that it can change unpredictably.

Therefore, there is a need to manage properly the supply chain for it to meet the demand in the market.

References

Bernhard, S & Stephan, E 2013, ‘Transferring the Retail Format Successfully into Foreign Countries’, Journal of International Marketing, vol. 21 no. 1, pp. 81-109.

James, J & Mbang, A 2012, ‘A New Introduction to Supply Chains and Supply Chain Management: Definitions and Theories Perspective’, International Business Research, vol. 5 no. 1, pp. 194-207.

Lu, D 2011, Fundamentals of Supply Chain Management, Ventus Publishing, London.

Panda, K & Mohanty, K 2011, ‘Supply Chain Management and Bull Whip Effect: A Conceptual Framework for Efficiency Improvement in Supply Chain’, The IUP Journal of Supply Chain Management, vol. 8 no. 4, pp. 16-29.

Silver, E & Zufferey, N 2011, ‘Inventory Control of an Item with the Probabilistic Replenishment Lead Time and a Known Supplier Shut Down Period’, International Journal of Production Research, vol. 49 no. 4, pp. 923-947.

Sourjan, K, Ramachandaran, B, & An, L 2008, ‘Application of Control Theoretic Principles to Manage Inventory Replenishment in a Supply Chain’, International Journal of Production Research, vol. 46 no. 21, pp. 6163-6168.

Wakolbinger, T & Cruz, M 2011, ‘Supply Chain Disruption Risk Management Through Strategic Information Acquisition and Sharing and Risk Sharing Contracts’, International Journal of Production Research, vol. 49 no. 13, pp. 4063-4084.

Wangphanich, P, Kara, S, & Kayis, B 2010, ‘Analysis of the Bullwhip effect in Multiproduct, Multistage Supply Chain Systems – A Simulation Approach’, International Journal of Production Research, vol. 48 no. 15, pp. 4501-4517.

Yang, B & Yang, Y 2010, ‘Postponement in Supply Chain Risk Management: A Complexity Perspective’, International Journal of Production Research, vol. 48 no. 7, pp. 1901-1912.

Yogesh, M, Alex, N, & Brian, R 2011, ‘Building the Supply Chain of the Future’, McKinesey Quarterly, vol. 1 no. 1, pp. 62-71.

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IvyPanda. "Chain Management and the Creation of Competitive Advantages." January 16, 2020. https://ivypanda.com/essays/chain-management-and-the-creation-of-competitive-advantages/.

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IvyPanda. 2020. "Chain Management and the Creation of Competitive Advantages." January 16, 2020. https://ivypanda.com/essays/chain-management-and-the-creation-of-competitive-advantages/.

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IvyPanda. (2020) 'Chain Management and the Creation of Competitive Advantages'. 16 January.

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