Supply chain management involves the creation, implementation and management of all the processes involved in delivering raw materials from suppliers to manufacturers followed by making of the final product, and delivering the finished product to retail buyers until it reaches the end customer (Bozarth 2011).
Supply chain can be said to entail the flow of raw materials (from suppliers to manufacturers to retailers and finally to the end consumer), and flow of information and cash from customers to manufacturers and back to the suppliers.
Logistics is part of this supply chain, and supply chain is part of the value chain (‘The Times 100 Business Case Studies’ 2012). Effective and successful supply chain management is very important in gaining a competitive advantage. To realize the benefits of successful supply chain management, the following issues should be considered:
Business location: It is important to locate a business in a place that is convenient to its operations (‘The Times 100 Business Case Studies’ 2012). For instance, an electricity generation business should be located near rivers, or lakes.
This is in order to reduce delivery costs. A business dealing with selling of fresh products should be located near its warehouses and stores.
This helps to keep its products fresh. According to the case study on Kellogg’s supply chain, Kellogg has its ingredients grown in many different countries across the world.
Therefore, it is important to situate its manufacturing sites near its distribution channels and customers. This way, Kellogg’s products can reach the retailers’ shelves quickly (‘The Times 100 Business Case Studies’ 2012).
Size and scale: A business should consider its production capacity. This means that if a business produces in large scale, then it should have a large storage facility as well as a large office space for its operations. On the contrary, if it produces in small scale, then it should have a small production and storage space.
For instance, Kellogg produces its cereals and other products in bulk (‘The Times 100 Business Case Studies’ 2012). Large scale production has its benefits.
One is that, it can make a business incur negligible costs of production in its operations. As a result of this, its products are likely to sell cheaply as compared to the competitors. This can be referred to as a competitive advantage.
Customer location (‘The Times 100 Business Case Studies’ 2012): In order to achieve a competitive advantage, a business should consider where its target customers are situated. This way, it can arrange for cost effective means of transporting its products.
For instance, for oversees customers it would be best to use air transport in order to reduce time and to maintain the quality of the products. It is also advisable to consider the cost effectiveness of the means of transport to be used with customer’s location in mind. For example, for customers near the production centre, it is advisable to use road transport because it is cheaper.
Economies of scale (‘The Times 100 Business Case Studies’ 2012): A business should take advantage of this by producing in large scale, thereby transporting in bulk. This way it can reduce the trips covered to transport its products to customers.
As a result, less transport costs will be incurred making the products competitive in the market since unit distribution costs are minimal.
Kellogg shares transportation of its transportation with Kimberley Clark, which manufactures paper goods products. This strategy helps to reduce the number of part-full or empty transport vehicles. Consequently, time, mileage and CO2 emissions are minimized. Profits are maximized if this is done.
Outsourcing of transport costs: A business can allocate transportation roles to a different company. This means that the outsourced company transports on behalf of the business. The advantage of this strategy is that it could be cheaper to outsource rather than the business doing its own transportation.
Another benefit is that a business will concentrate its resources on production which improves efficiency. For instance, Kellogg partners with TDG, a logistics specialist. TDG stores and transports Kellogg’s cereals. This allows Kellogg’s to concentrate on its area of specialization which is manufacturing of cereals among other food products (‘The Times 100 Business Case Studies’ 2012).
Creating and improving healthy relationships with the intermediaries (Gligor & Autry 2012): Intermediaries such as wholesalers and retailers deal with customers directly. Therefore, if businesses have good relationships with them, they can promote its products.
A business can come up with ways of adding value to the intermediaries. A good example is Kellogg’s Shelf Ready Unit that Kellogg developed with Tesco (one of Kellogg’s retail supermarkets). This unit displays Kellogg’s and Tesco’s products and attracts customers because it is attractive and easy to select. As a result, this increases their sales and profits.
Right marketing mix: In order for the business to have a competitive advantage, it should ensure that it has the right product, in the right place and at the right time. It should conduct market research in order to know the needs of the customers.
It should also keep in mind customer location. In order for the products to reach the customers on time, it should have effective distribution channels. For example, Kellogg manufactures the right products based on research into consumer needs. It also manages the distribution channels in order to place its products in stores. This makes its products to be competitive.4
Use of efficient stock inventory software: Such software enables a company to detect and respond to changes in product levels, demand and supply (Handfield 2011). In short, such software aims at achieving optimization or the highest level of production possible.
Just-in-time is an example of such software. It ensures that only enough products are produced to fulfill orders and therefore limited stock is kept. Such systems ensure that stock is always available, and ordered products are delivered on time. This helps to reduce storage costs and consequently help in achieving competitive advantage.
Improving inter-organizational exchange relationships: This involves effective communication of reliable and timely information between two or more players in the supply chain (Gligor & Autry 2012). A business should aim at establishing ways of communicating effectively with its suppliers, wholesalers and retailers.
This can reduce uncertainty as well as lower the costs of production. For example, with effective communication with the supplier, a business is able to know changes in supplier capacity and make timely adjustments on the level of production so as not to affect production capacity.
Competent supplier evaluation: In order to achieve competitive advantage, a business should evaluate its suppliers based on their competence. Factors such as delivery ability, flexibility of orders, quality and reliability as well as pricing can be used as a benchmark to select the best supplier (Breitenbach 2011).
For instance, a vendor that has exceptional ability to deliver on time will reduce delay in production, which can affect the level of output. Additionally, a supplier that provides exceptional quality and reliability will deliver products that tie with the business requirements. This can save money and time spent on inspecting quality and quantity of the products.
Effective procurement (purchase) and distribution of products: For a business to offer affordable prices to its customers, it can reduce the costs of purchasing its production materials. This can be implemented during procurement. For instance, Wal-Mart is a large retail chain which deals with various products.
Some of them are food products while others are consumer electronics. It uses this strategy of reducing costs during procurement. Wal-Mart does this by buying its goods directly from the manufacturers and suppliers.
As a result, it is able to bypass the intermediaries, agents and middlemen (Angrish et al. 2005). This leads to reduced procurement and distribution costs and this way Wal-Mart affords to sell its products at very competitive prices.
Use of bar codes, hand held computer systems such as ‘Magic Wand’: The bar codes can be used to put labels on products, shelves and bins while the hand held computer can guide the employee to the exact location of a product.
This device can record and update the packaging department on product levels. Wal-Mart also uses RFID (Radio Frequency Identification System) which is much more effective (Angrish et al. 2005). These mechanisms allow Wal-Mart to meet expectations of the clients fast and to increase the competence level of the distribution center operations.
Introduction of E-commerce in supply chain management: “E-commerce” and “e-business” involves or entails commercial transactions conducted over the internet. This enables a business to buy or sell its products on the internet (Zank & Vokurka 2003).
When a business uses the internet to conduct its business, it reduces costs such as transport and advertising. For example, a business person selling services such as consultancy need not travel from one place to another in order to do business.
This helps to reduce time and transport costs. A business selling books over the internet does not incur any advertising costs making the books cheaper. E-business can make a business very competitive since products and services incur fewer costs compared to competitors who do not use the internet.
Supply chain management involves creation, management and implementation of processes involved in the supply chain. Some of the processes include packaging, procurement, transportation and distribution.
In order for a business to achieve a competitive advantage, it should consider some factors that can help it to improve the processes in its supply chain. Such factors are business location, size and scale of operations, customer location, economies of scale, outsourcing of transport costs, creation and improvement of healthy relationships with the intermediaries among others.
A business should aim at improving these factors in order to reduce its production and distribution costs. When the costs of production are high, the prices of end products will also be high. On the other hand, the lower the costs of production, the lower the prices of end products.
A business with high production costs will increase the cost of its final products making them less competitive than a business with low production costs. Consequently, when the end products are affordable, sales and profits will rise and vice versa.
Angrish, S, Chivukula, S, Devvitt, V, Patel, B, Shamsi, R, Yellapragada, S, & Ramachandra 2005, ‘Wal-Mart Case Study’, RFID and Supply Chain Management.
Bozarth, C 2011, ‘A Quick Premier on BPM’, Business Process Management.
Breitenbach, Z 2011, ‘What Should the Professional Supply Chain Manager Know about Six Sigma’, Supply Chain Management.
Gligor, D & Autry, C 2012, ‘The role of personal relationships in facilitating supply chain communications’, A Qualitative study, vol. 48 no. 1, pp. 24-43.
Handfield, R 2011, ‘The Supply Chain IT Investment Enigma’, Companies are Rethinking IT Investments.
‘The Times 100 Business Case Studies’ 2012, Kellogg’s Case Study: Supply chain manufacturing to shelf.
Zank, G & Vokurka, R 2003, ‘The Internet’, Motivations, deterrents, and impact on supply chain relationships.