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The aim of every firm is to maximize its revenue and reduce costs in order to widen the profit margin while at the same time increasing the market share for its good or services in comparison to their competitors. Traditionally, Most of the firms have concentrated on profit maximization concept because profits were the only measure of success of a firm.
Therefore, these firms have put a lot of effort on reduction of direct costs and other inputs that are seen to be more important than anything else. However, quite recently other aspects, more especially issues dealing with management, have been emerging as being also important in increasing efficiency in operations thus, reducing costs in a firm.
Supply chain management has proofed to play a key role in cost reduction as well as improving relationships between a firm and its partners in the market, consequently boosting a firm’s competitive advantage.
Supply chain is the process interconnection among organizations which involves the flow of resources of production, information, finances and finished products that helps in facilitating production, marketing and selling of goods and services.
It is a two way process and can either be downstream where it begins from the supplier of raw materials and flows through the manufacturer to the wholesaler the retailer and lastly to the consumer, or upstream in which case the chain starts from the consumer passing through the retailer, the wholesaler, the manufacturer and ends at the supplier.
Supply chain management is for that reason, the management of the supply chain system to ensure efficient, smooth running and well coordination of the chain of supply in order to take advantage of it (Sinha 2009). Furthermore, supply chain management involves the incorporation of important aspects that add value to the consumer over and above that of the partners in the supply chain.
Significance of supply chains
Producers expect to receive inputs of production at the right time, to ensure that production process is carried on without interruption because interruption interferes with the entire supply chain since the commodity will not be available for delivery to buyers. In addition to that, the higher the inventory kept by producers the higher the storage costs and consequently the lower the profit margin. Therefore, producers desire to maintain at its minimum possible quantity in order to reduce storage costs.
At the same time, suppliers expect to receive payment in time to cater for their expenses and therefore enable them continue supplying. On top of that, wholesalers, chain stores and other retailers expect a Continuous supply of commodities to ensure that they do not run short of any commodity, while they want the level of inventories to be at minimum since huge inventory increases storage cost but bring no income (Bolstorff & Rosenbaum 2012).
On top of that, it is to the advantage of the producers, wholesalers and retailers if consumers find the commodity they are looking for on the shelves of their local retail shops always because this will help in boosting consumers’ confidence.
On top of that, availability of commodities near to consumers’ locality all times is very important not only in maintaining current consumers, but also in attracting new ones. These expectations can only be realized if proper and efficient management of the supply chain is put in place thus making certain that the flow either downstream or upstream is continuous, well-timed and cost effective (Sinha 2009).
Competitive Advantage through Supply Chain Management
Ability of any company to gain competitive advantage over its competitors in the market enables the firm to come out as a winner during competition, and this can be attained by proper management of the supply chain system of the company. Supply chain management calls for a firm to carry out its competencies while outsourcing what needs specialization to be accomplished (Bolstorff & Rosenbaum 2012).
Because Kellogg’s does not specialize in transportation issues, it hires TDG a logistics firm which has incomparable experience in this line of specialization. Additionally, supply chain management hastens turnover expansion through value addition by involving manufacturers in assisting retailers to reduce their costs of operation especially by delivering commodities just when they are needed thus reducing the retailers’ cost of holding inventory.
Kellogg’s through its joint efforts with Tesco has initiated a strategy dubbed the Ready Shelf Unit strategy which not only reduces the staff cost for Tesco, but also increases its turnover as well as that of Kellogg’s. When a partner organization in the supply chain recognizes that there is a possibility of reducing operation costs by being in the system, it becomes more willing to be part of the system hence increasing competitive advantage (Bolstorff & Rosenbaum 2012).
Additionally, through proper supply chain management a company is capable of realizing areas of weakness of the partners. The firm can therefore rectify the same 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.
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On the same note, supply chain management helps in the reduction of operational expenses especially costs of maintaining high inventories of either raw materials or finished products or the transportation costs which mostly increases because of sending low quantities of a commodity each time (Coe 2005).
By efficiently managing supply, transportation is well coordinated and as a result goods are sent only when they are required, and this is always harmonized in a way that retailers in the same area can be supplied at the same time thus, eliminating chances of vehicles wasting space on their supply trips.
Kellogg’s accomplishes this by incorporating Kimberley Clark, another manufacturer, therefore sharing transportation expenses which help in reduction of costs, space wastage and consequently commodity price hence attracting more customers.
Ensuring availability of a firm’s commodities at the retailers’ shelves at all times is also an important factor in making sure that demand for the firm’s goods is kept high. When consumers receive advertisement of given products and they are able to access them from local retailers when they need them, the probability of them sticking to the commodities increases.
On top of that, a company can be able to use retailers for promotion purposes after they have ensured constant supply of their commodities to the retailers (Sinha 2009). Kellogg’s is able to accomplish this through liaising with the retailers to make sure that its commodities are on the shelves always and ensuring that the retailers help in promoting the products.
Due to efficient supply chain management, Kellogg’s is also able to afford cost effective means of distribution and therefore capable of offering competitive prices in the market which is essential in increasing demand for its commodities.
Integration in Supply Chain Management
The intensity of integration in the supply chain system extremely depends on the number of constituents that are involved as well as the complexity of each constituent. It is paramount to note that, each aspect of the supply chain system is important and should be looked into properly for the benefits of the firm.
Information systems need to be included in the supply chain system because they help in collection of feedback from the consumers so that effective action can be taken in time incase of a problem to avoid any losses that might occur.
Supply chain will only be advantageous if products 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 effectively and efficiently should be incorporated in the system (Bolstorff & Rosenbaum 2012).
The process should also considerably evaluate the risk and reward issue to ensure that partners are always encouraged to remain in the chain thus, reducing the risk of chain breakdown which may end up being costly to the partners. The culture and attitude of partners is also paramount and needs to be managed because of the high probability that they will highly interfere with the normal flow within the chain.
Appropriate management of the same will ensure that differences among partners are resolved and that they do not affect the supply chain. On the same note, it is also paramount to look beyond the delivery of the commodity to the consumer and consider the effects the commodity is likely to have to the environment, and this increases the level of integration (Coe 2005).
Emerging Issues in Supply Chain Management
Globalization has brought about new challenges into the process of supply chain management hence, forcing the organizations involved in the supply chain system to come up with new ways of tackling supply chain issues. To begin with, globalization has brought about internationalization where companies have ventured into international markets where tax structures are different from those in their home countries.
This has necessitated supply chain management to take into consideration the tax structures of various countries where the partners of the chain system will be operating, because it has been depicted that tax structures highly influences the profit margins (Bolstorff & Rosenbaum 2012). As a result, a new strategy of supply chain management, known as tax efficient supply chain management, which ensures that global firms take advantage of the difference in tax structures to increase their profits has been developed.
The need to go beyond delivery of the commodity to the consumer and look at how waste materials are disposed as well as environmental sustainability also poses a new challenge. This has led to the emergence of the concept of reverse logistics which also should be taken into consideration.
On top of that, traditionally linear supply chain management was very effective because substitutes were minimal and competition was not stiff. On the contrary, globalization has increased competition as well as substitutes and linear supply chain management system availability is no longer feasible which has compelled firms to look for a new mode of management (Sinha 2009).
Supply chain management plays a key role in increasing competitive advantage of any company therefore increasing its profit margin; consequently it is very important today’s management. Unfortunately, expansion of international trade has made the business environment to change continuously thus compelling firms to work day and night and come up with advanced ways of managing the supply chain in order to remain competitive.
Bolstorff, P & Rosenbaum, GR 2012, Supply Chain Excellence, AMACOM Div American Mgmt Assn, New York.
Coe, TM 2005, Electronic Supply Chain Collaboration for Small Job Shop Manufacturers: An Explanatory Triangulation Study, Universal-Publishers, Boca Raton.
Sinha, A 2009, Supply Chain Management: Collaboration, Planning, Execution and Co-ordination, Global India Publishers, Mumbai.