EFFECTIVENESS OF SUPPLY CHAIN MANAGEMENT IN PROFITABILITY Essay Example

before being distributed to intended clients. These plastic bags can be used for various purposes such as shopping at markets or disposing of garbage. They are also suitable for freezer storage or as packaging for other items if necessary. The bags come in different sizes (small, medium, and large) and colors (red, yellow blue green white).

The motivation behind choosing this topic is the abundance of fabrication houses in the state. These fabrication houses are essential to our economy as they produce goods for retail merchants and consumers, thereby stimulating economic growth and creating jobs. Many studies have evaluated the performance of these fabrication houses, but they often encounter challenges in managing their internal operations and inventory effectively. One possible reason for this problem could be insufficient supply chain management.

Some individuals may not recognize the interconnectedness of supply chain components or be aware of its existence. The importance of supply chain management in addressing operational and inventory concerns for manufacturing companies lies in effectively managing and connecting each division. This not only helps to reduce costs but also allows independent firms in the supply chain process to operate as a cohesive unit, benefiting all parties involved. The findings of this study will increase awareness and understanding of the business field, helping to handle potential issues in manufacturing companies. Additionally, alternative solutions will be provided to enhance operations and inventory management, leading to higher profit margins.

A. Introduction to Manufacturing

Over time, manufacturing has evolved and continues to do so. The manufacturing sector plays a vital role in economic growth by creating employment opportunities and encouraging investments in small and medium enterprises.

The fabrication industry, located in different states, produces

various end products such as plastics, vesture, footwear, furniture, canned goods, etc. Despite appearing profitable by meeting consumer needs, like any other business, it experiences fluctuations throughout its lifecycle.

B. Understanding Supply Chain Management

Supply Chain Management involves overseeing relationships and concerns across the entire supply chain. This encompasses the suppliers of raw materials and the customers who purchase the processed or finished products. Managing the complete supply chain can be challenging; however, many businesses aim to establish strong connections with both suppliers and customers to gain influence within the supply chain. For instance, a supplier and retailer may collaborate on forecasting to improve supply chain effectiveness and optimize order and production processes for finished products.

Firms in the supply chain collaborate to anticipate future demands, benefiting retailers and product providers by creating a more efficient inventory system. This leads to increased profit margins as poor inventory turnover drives up costs and reduces profitability. Supply Chain Management involves various activities such as system management, sourcing, production planning, order processing, inventory management, transportation, storage, customer service, sales and data collection, promotion, research and development, product design, operations management, and overall system/value analysis. The goal of Supply Chain Management is to reduce inventory investment and enhance customer service. According to Mendoza and Ventura's article on "A Serial Inventory System with Supplier Selection and Order Quantity Allocation," supply chain management is vital in today's competitive environment, prompting companies to focus on studying and analyzing inventory policies within the supply chain system, rather than addressing individual inventory policies for each phase involved.The text emphasizes that companies can gain a competitive advantage in the global market by focusing on their entire supply chain.

It highlights purchasing as a strategic area within the supply chain, as it offers opportunities to reduce costs and increase profits quickly.

Acquiring is significant since the expense of raw materials and components represents the majority of the product cost for most industries. Furthermore, the selection of suppliers should also be considered as they have control over the supply of raw materials or components, as well as prices, timeliness, and assurance of meeting the required quantity (Mendoza & Ventura, 2010).

D. Excess Inventory and its Causes

Dealing with excess inventory can be a major dilemma in a manufacturing company.

Excess stock lists are products that were produced but could not be sold to the target market, resulting in them piling up in warehouses. These excess stock lists may consist of dead, slow-moving, or damaged items. One possible cause of excess stock lists is the poor management of supply chain, which leads to inaccurate inventory records. Within the supply chain process of a company, there may be multiple points that contribute to the neglect of inventory management.

Having an inappropriate calculation of supplied materials in the supply chain can lead to an excess in inventory, resulting in higher supply chain costs for the company. Manufacturing companies with a wide range of operations often handle supplies informally to reduce workload, without considering the consequences of having too much inventory. This lack of consideration for excess supply leads to both inventory loss and additional inventory. Many inventory systems in companies are not accurate in measuring inventory due to the various and large quantities of materials involved, and they do not account for theft when monitoring and analyzing

inventory. The few cases of disappearing inventory further contribute to the inaccuracy of overall inventory analysis, resulting in more losses and unnecessary costs for the company.

Another factor that affects stock list is the logistics of the products in supply chain management. The efficiency in logistics, along with proper information, leads to improved performance of overall stock turnovers and prevents excess stock. A study utilized a First-Use-First-Serve (FUFS) system, using inventory system information to prioritize stock allocation based on the time required by a location in need of immediate stock. This system enhances the stock list process by utilizing excess stock to transfer it for use in another transaction and reduce the inventory on hand. In terms of material demand planning, which refers to the inventory order from a supplier, the analysis of data helps identify excess stock. This analysis includes factors such as the frequency between orders, error location, and late units.

These factors have an impact on the overall stock list process, leading to errors and ultimately resulting in a higher job within a company's stock list system. Additionally, mistakes in location can increase transportation costs. However, material demand planning aims to optimize and ensure a more accurate ordering for the company. The size of batch orders for specific items also affects the company's measurement analysis, as it may necessitate holding extra components, thereby increasing the stock list further. There are various other factors that contribute to excess stock, such as low customer demand, forecasting errors, inaccurate stock list records (including the inability to track duplicate orders), inadequate planning and execution, long lead times in production, obsolescence, master agenda smoothing, adjustments in inventory holding costs,

and shortcomings in the company's retail stores or sales team. Customer demand is the primary factor that must be considered when dealing with surplus and obsolete inventory.

The overall director determines if a stock list is excessive and obsolete, while the finance person assesses the risks, develops follow-up plans, and ensures compliance with policies. Inventory allowance is suggested for surplus and obsolete stock. Additionally, the inability to track duplicate orders significantly damages the company, particularly its operations. Retailers and customers often become impatient when waiting for products that have long lead times to produce, leading them to place multiple false orders from various suppliers or distributors. This subsequently causes problems at the manufacturing facilities when the retailers and customers cancel their additional orders, leaving the company with unnecessary stock in production.

The orders from the fabrication house that are not genuine would be a waste of time as real orders cannot be focused on. Differentiating genuine demand from duplicate orders would prevent an overestimation of the demand rate, customer sensitivity to delays, and excess inventory.

Solutions for Excess Inventories

Various solutions have been presented and implemented in manufacturing houses to address the issue of excess inventory. Selling is a significant aspect of every organization.

Without gross revenues, the organization cannot generate cash and ultimately survive. A strong relationship with existing clients is indicative of marketing success and the ability to sell the company's products or services. However, this should not hinder the pursuit of new clients. Regular and consistent marketing efforts are necessary for sustained growth.

Businesses should reconsider and explore the addition of new product lines while reducing the ones that are not profitable. Successful marketing occurs when individuals comprehend

the company, its products or services, and realize that they meet their needs. Excessive inventory can be sold either internally or externally. There are various methods available, such as selling items in bulk at a centralized settlement auction that maintains records and offers high profits, selling everything immediately to a liquidator, selling in small quantities to an excess inventory specialist who can still sell to customers, establishing an online account for selling surplus products, or donating the items to the public as charitable contributions, which also result in tax deductions from the government.

First and foremost, the obsolete stock list is being reassessed for potential alternative uses. Manufacturers can take different approaches to recycling these materials into finished goods. They can directly collect used products and eventually disassemble them to create raw materials for the product itself. They can also deal with retail merchants who distribute their products or outsource the collection of materials or used products to a third party. This supply chain model can help reduce manufacturing costs as the used products have no value to other retailers or consumers, but only to the manufacturing company. The management should conduct quarterly analysis to determine any potential additional inventory and reduce inventory exposure when calculating the 12-month excess inventory.

Datas assemblage for prediction is crucial in determining future gross revenues or client demand in modern fabricating environments. To achieve maximum efficiency and meet their goals, manufacturing firms require extensive amounts of data. This data encompasses various aspects including merchandise and procedure design, assembly, materials planning, quality control, programming, maintenance, and error detection. All of this information is stored in data warehouses. For certain businesses, previously

collected data can aid in determining forecasts or future events. Additionally, it is beneficial to establish an independent group responsible for managing the consensus prediction process. This group would effectively handle the political conflict and address informational and procedural defects caused by organizational distinctions.

Studies and research have been conducted to determine the precise calculation of market supply for plastic bags, a type of fictile demands. These efforts include analyzing strategies related to the exportation and importing of these products, as well as prioritizing the global market and considering dollar rates in different countries. Manufacturers can utilize the insights obtained from this research to expand their market further.

The survey aims to evaluate the demand for plastic and identify potential markets for investment. It will assess the annual consumption and serve as a forecasting tool for future manufacturing. While there are viable alternatives for managing excess inventory, some manufacturers are still inclined towards a simpler and irrational approach. Engaging in price cutting is not a wise or sustainable strategy. It only leads consumers to believe that the company's products or services are only unique because of their low price. Price becomes the sole factor influencing their purchasing decisions.

The available schemes to improve packaging, offer special deals for top clients, confuse clients with different price reductions and brand names, and ensure the value and quality of products despite higher prices are better options. However, relying on price cuts or discounts for publicity purposes will only be effective for a limited time. It is recommended that companies plan ahead to prevent excess production and manage inventory wisely.