Key Supply Chain Management Processes
The Network perspective is used in order to interpret and study the major theory groups. It reflects on how organizations, as social networks interact with each other, enter into conflicts and become involved in rational-choice or exchange (Hanneman, 2007). In this study, most especially in supply management, the network perspective becomes of great importance as it would examine the interaction between the organizations, their suppliers, and customers and how they work hand in hand to produce an advantage over the firms’ competitors.
After discussing the different theories of supply chain management, one must also understand that the proper management of supplies entails a lot of activities. In order to illustrate the wide range of activities covered by the practice of such, the model developed by the Global Supply Chain Forum shall be presented. According to the Global Supply Chain Forum (Swafford, Ghosh and Murthy, 2000), activities included in the practice of supply management can be categorized into three levels: (1) strategic; (2) tactical; and (3) operational.
The strategic level includes the following activities (Swafford, Ghosh and Murthy, 2000): (1) an optimization of the strategic network which includes very important information such as the number, location and size of warehouses, distribution centers and other
suppliers, distributors, customers) and at the same time, develop communication channels to enable to exchange of critical information and operational improvements such as cross docking, direct shipping and third-party logistics; (3) the coordination of product design so that businesses would be able to integrate new and existing products into the supply chain which could also lead to the efficient and proper management of load; (4) the development of the necessary information technology infrastructure to ensure that the businesses’ operations of the supply chain are properly supported; (5) to come up with decisions concerning where-to-make and what-to-make-or-buy; and lastly, (6) to ensure that the overall strategy of the entire organization is significantly aligned with those concerning supply.
Meanwhile, the following are the activities that the Global Supply Chain Forum considers to be included under the category tactical (Swafford, Ghosh and Murthy, 2000): (1) decision making concerning sourcing contracts and other issues that involve purchasing; (2) decision making agenda regarding production, usually includes contracting, locations, scheduling and planning process definition; (3) decision making agenda concerning issues regarding inventory, covering areas of concern regarding quantity, location and the quality of such inventory; (4) transportation strategy (i. e. frequency, routes and contracting); (5) the benchmarking of all operations vis-a-vis that of the businesses’ competitors together with the implementation of best practices throughout the organization; (6) making of milestone payments; and finally, (7) the ability of the organizations to focus on the demands of their customers. The third and last category included in the supply chain management model developed by the Global Supply Chain Forum is called operational.
This usually includes the following, as enumerated by Swafford, Ghosh and Murthy (2000): (1) the day to day production and distribution planning which includes all aspects of the supply chain; (2) the scheduling of all production activities of all manufacturing facilities being used in the operation of the supply chain; (3) the planning and forecasting of demand in order to forecast the needs of the customers while sharing this important information to their suppliers; (4) planning of sourcing that usually includes current inventory and the forecast of demand, working hand in hand with the suppliers; (5) the management of inbound operations (e. g. transportation from suppliers and receiving inventory; (6) production operations (e. g.
consumption of materials and the management of the efficient flow of finished products; (7) management of outbound operations which include all activities related to the interaction with customers; and finally, (8) the management of order promising which usually concerns the accounting for all the constraints experienced in the supply chain, including those coming from all suppliers, the organizations’ manufacturing facilities, distribution centers and other customers. In relation with the model developed by the Global Supply Chain Forum, as thoroughly described in the work of Swafford, Ghosh and Murthy (2000), Rao (2007) specifically mentions that businesses must be able to efficiently integrate the supply chain network into their organizational structure in order to ensure its efficiency. In fact, this researcher, concurring with yet another important name in the field of supply management, Lambert (2004), the proper integration of supply chain networks should be accompanied with the important processes of the supply chain.
These key processes are grouped in the following categories, as enumerated by Rao (2007) and Lambert (2004): (1) customer service process; (2) procurement process; (3) product development and commercialization; (4) manufacturing flow management/support; (5) physical distribution; (6) outsourcing/partnerships; and lastly, (7) performance measurement. The processes concerning the management of customer service usually includes the customer relationship management which is basically comprised of the actions of most businesses in order to ensure that they are building and developing good relationships with their customers (Rao, 2007; Lambert, 2004). It is through this that they hope to obtain the important information they need from their customers. At the same time, it is also through this that customers are updated with the real-time information on product availability through the different portals developed by a company’s production and distribution operations (Lambert, 2004).
More often than not, organizations make use of the following processes in building customer relationships: (1) the determination of mutually satisfying goals, both on the side of the organizations and the customers; (2) establishing and maintaining rapport with the customers; and lastly, (3) producing positive feelings in the organization and their customers. Procurement processes are then also very essential to managing the supply chain, Rao (2007) mentions. These processes are usually accompanied with strategic plans that are developed by the businesses, with their suppliers in order to ensure that the manufacturing flow and the development of their new products are properly supported (Lambert, 2004).
Simply put, this particular category includes all activities that pertain to the acquisition of products and materials from suppliers outside of the organizational framework, often requiring the following, as enumerated by both Rao (2007) and Lambert (2004): (1) resource planning; (2) supply sourcing; (3) negotiation; (4) order placement; (5) inbound transportation; (6) storage and handling; and lastly, (7) the assurance of quality. Product development and commercialization is also an integral part of the supply management framework (Lambert, 2004). This is because of the fact that it is in here that customers and suppliers are taken into consideration in order to reduce time to market.
Because life cycles are shortened, the products launched must not only be of quality but at the same time, be competitive enough to stay in the market (Rao, 2007). It is because of this then that customer relationship management has increased its importance once again. Aside from those already mentioned, the manufacturing flow must also be managed efficiently in order to respond to the changes in the market and at the same time, to allow mass customization (Rao, 2007). On the other hand, the key business processes of the supply chain also include physical distribution which is primarily concerned with the distribution of the materials to the end users, or the customers.
It also includes the processes that involve outsourcing strategies, defined as the transfer of the provision of services previously performed by in-house personnel to an external organization, usually under a contract with agreed standards, costs and conditions (BNET Online Business Dictionary). Finally, processes related with the proper management of the supply chain also include the measurement of performance which focuses on the perspective of supply chain vis-a-vis the company’s relationship with their customers, an important step to improve their performance. Performance is usually measured by the following internal measures, as enumerated by Rao (2007): (1) cost; (2) customer service; (3) productivity measures; (4) asset measurement; and finally, (5) quality. The presence of these business processes could eventually lead to the competence of a business supply chain and the manner by which this is organized.
In connection with the discussion presented above, the Computer Sciences Corporation (2007), lists the following as the dimensions of supply chain competence that may also summarize the different business processes that are incorporated in SCM; these are the following: (1) alignment with business strategy; (2) strategic customer integration; (3) strategic supplier integration; (4) cross-functional internal integration; (5) supply chain responsiveness; (6) planning and execution process and technology; (7) supply chain rationalization or segmentation; and lastly, (8) risk management. 2. 3. The History of Supply Management: A Focus on its Evolving Role within the Health Care Industry
This section of the literature review, as the heading explicitly reveals, shall present a brief discussion of the history of supply management, focusing on the evolution of this particular subject matter in the health care industry. Without a doubt, as presented in the earlier parts of this chapter, the use of supply management practices had been adopted in the hopes of organizations to increase their advantage over their customers (Barnfields, 2002; Page, 2005b). In their hopes to stay alive despite the presence of a competition, organizations tend to focus more on material and service inputs coming from their suppliers and how this, in turn have affected their ability to cater to the needs of their customers. Simply put, according to Barnfields (2002), the earliest practices of supply management were primarily concerned with the reduction of costs.
However, things began to change for most organization as they start to give more importance to the supply chain as a whole – from the acquisition of raw materials, to manufacturing them to the distributors, the retailers, and finally the customers, and its impact on the end users (Barnfields, 2002; Burns, 2002). Thus, the practices of supply management are no longer directed towards just reducing the costs of a certain organization. Rather, firms are now making use of such tool in order to increase revenue by having the right product when customers demand it (Barnfields, 2002). Nonetheless, using supply management by providing more efficient material and information flow to decrease their costs have not been disregarded.
Lavassani and his colleagues (2008b) have enumerated six (6) movements that are essential in describing the development of the practice of supply management, these are the following: (1) the creation era; (2) the integration era; (3) the globalization era; (4) the first phase of the specialization era, also known as the period of outsourced manufacturing and distribution; (5) the second phase of the specialization era, also known as the period of supply chain management as a service; and finally, (6) supply chain management 2. 0. According to Lavassani et al. (2008b), the creation era was wherein the term supply management was first introduced by an American industry consultant in the early 1930s. This was first developed as a response to the agricultural crisis of the 1930s that have seriously damaged economies (Lines, 2007).
In fact, this was highly evident with the policies adopted by then President Roosevelt who decided to support the prices of agricultural products in the United States by cutting out excess supplies. However, Lavassani and his colleagues (2008b), notes that one must remember that supply management practices have already been used long before the start of the twentieth century, most notably during the introduction o the assembly line. In this era of supply management, the need for changes, most especially in the large scale, is highlighted. Moreover, it also focused on reengineering, downsizing brought about by cost reduction programs, and finally, the desire to adopt the practice of management introduced by the Japanese (Lavassani et al, 2008b, Lines, 2007).
Following the creation era was the period of integration wherein supply management practices had been reinforced by the development of technology such as the Electronic Data Interchange systems or EDI in the 1960s and the Enterprise Resource Planning systems or ERP (Lavassani, et al. , 2008b). During this era, the further development of supply management through the use of technological advancements became popular in order to prevent prices from falling further in order to prevent depression, to prevent the collapse of the economy (Lines, 2007). Eventually, this era continued on until the twenty first century as more technological advancements had been introduced, especially those systems that make use of the internet. Lavassani, et al.
(2008b) as well as Lines (2007) have noted that it is also in this era that organizations are now prioritizing the value of their products and cost reduction through the integration of their business processes. Lavassani, et al. (2008a; 2008b) then named globalization era as the period that follows integration. In this particular phase of supply management’s evolution, organizations turn their attention to competing in the global arena. In the same manner, the firms are also giving importance to the global systems of supplier relations as well as the expansion of the supply chain that transcends the national boundaries, moving into other continents.
Because of this, the era of globalization is characterized to be a period wherein organizations are starting to integrate global source into their businesses in order to increase competitive advantage, creating more value-added and of course, to reduce costs (Lavassani, et al. 2008a; Lavassani, et al. 2008b). The fourth stage of the evolution of supply management is the phase one of the specialization era or also referred to as Outsourced Manufacturing and Distribution. According to Lavassani, et al. (2008b), it was in the nineties where organizations started to focus on their core competencies and to achieve this, have adopted a specialization model.
Eventually, the firms, during this period have started to abandon vertical integration, outsourcing their operations that are considered ‘non-core. ’ One notable characteristic of this era was the tendency of OEMs or contract manufacturers to become brand owners that should be given attention to in the supply base. Generally, the main task of this group of people, in this stage of supply management’s evolution was to control the entire supply chain from above since they are not generally included within the framework of the organization (Lavassani, et al. , 2008a; Lavassani, et al. , 2008b). This is connected obviously with the second phase of the specialization era, often referred to as Supply Chain Management as a service.
This is usually characterized by the following, as enumerated by Lavassani, et al. (2008b): (1) the inception of transportation brokerages, management of warehouses and non-asset based carriers; (2) the maturity of services, going beyond transportation and logistics especially in areas of supply planning, collaboration, execution and performance management. In the same manner, a very important facet of this particular era is the vital role that market forces play on the supply chain. According to Lavassani and his colleagues (2008a; 2008b), these market forces affect the following: (1) suppliers; (2) logistics providers; (3) locations; (4) customers; and finally, (5) the other participants of the supply chain.
Because of this, the infrastructure of the supply chain networks has been significantly affected as well, thus improving their over all competencies in the same manner as outsourcing do. The last stage of the evolution of supply chain management is often referred to as Supply Chain Management 2. 0. This term for the last stage of the evolution of supply chain management has been coined in order to describe the significant alterations in the supply chain as well as the modern processes, methods and tools that are used in this particular phase. A very important development introduced by SCM 2. 0 was the use of the World Wide Web so as to ensure creativity, facilitate information sharing and collaboration among the participants.