Supply chain is a connection of retailers Essay Example

of other supply chain members (Vorst, 2004).

The significance of supply chain management for organizations lies in its ability to meet customer demand, achieve a stronger market position, ensure customer satisfaction, and improve responsiveness (Goldhar ; Lei, 1991). Effective management of decision-making processes, resources, financials, and information flow throughout various stages of the supply chain is crucial for fulfilling customer needs. Supply chain management involves activities such as outsourcing and purchasing while maintaining strong relationships with distributors and suppliers to enhance logistics efficiency, flexibility, quality, and productivity (Kaeli, 1990).

The Significance of Efficient Supply Chain Management

Gaining a Competitive Advantage

Efficient supply chain management is vital for organizations to meet market demand in a profitable manner (Hugos, 2006).

Supply chain management is crucial for organizations to provide the best value to customers and generate high demand for their products or services (Anand & Mendelson, 1997; Yu, Yan & Cheng, 2001). By sharing information within supply chain networks, goods and services can flow more efficiently, resulting in lower inventory levels and costs that benefit the entire network. Effective supply chain management enables organizations to gain value and access business information, enabling better decision-making and improved responsiveness to customer needs. It also plays a vital role in achieving and maintaining a competitive advantage in the market (Hsiao et al.). As a result, inventory moves quickly through the supply chain, reducing carrying costs and overall product expenses. This leads to faster product delivery for customers while shortening the production cycle time for organizations. These factors contribute to increased market share and competitive advantages.

Implementing supply chain management allows organizations to achieve competitive advantages through mass production and product customization, ultimately improving the product lifecycle.

Dell serves as an example by adopting a direct sales strategy, building computers to order, and shipping them directly to customers (as cited in Samaddar, Nargundkar & Daley, 2006). Effective communication is crucial in supply chain management for organizations to compete efficiently. By communicating with other organizations within the supply chain management system, critical resources can be controlled (Samaddar et al., 2006). Open and honest communication establishes trust and enables information sharing (Fawcett & William, 2004). Trust among members of the supply chain network leads to commitment (Kwun & Suh, 2004). Towill (1996) suggests that decision makers should trust the overall process in order to effectively manage the supply chain as a unified entity. This involves seamless flow of updated forward and feedback information for optimal decision making. Organizations that trust their suppliers are more likely to foster open communication and information sharing to address concerns.

Having a high level of trust between providers and clients in the supply chain is a significant competitive advantage for organizations (Lynch). Additionally, trust and commitment among supply chain members are essential for effective supply chain management (Lee; Billington, 1992). Partnership commitment within the supply chain management helps allocate resources and achieve the supply chain's goals and performance (Chen; Paulraj, 2004). Nowadays, companies increasingly rely on trusted providers to improve product quality, increase production speed, and reduce product prices in order to compete with rivals (Liker; Choi, 2006). Moreover, trust allows providers to share costs with the organization, resulting in mutual efforts to reduce the provider's expenses through idea sharing (Monczka, Handfield, ; Giunipero, 2009). For example, Dell has established strong relationships with both its suppliers and customers to ensure

the availability of computer components from suppliers to meet customer demands (Taylor, 2005).

Long-run relationships

A good supply chain management plays a crucial role in maintaining the competiveness of the supply chain process and fostering long-term relationships with suppliers ( Choi ; Hartley, 1996 ) . Information sharing is also vital for integration and joint inter-organizational relationships ( Huang, Lau ; Mak, 2003 ) . By establishing long-term relationships, companies can leverage both intra and intercompany integration and management to capture synergy ( Lambert et al. , 1997 ) . However, limited information flow within the supply chain leads to the Bullwhip effect, resulting in unnecessary inventory investment, poor customer service, incorrect capacity allocation, decreased revenue, and production delays ( Lee, Padmanabhan, ; Whang, 1997 ) . To mitigate the Bullwhip effect and improve supply chain relationships and performance, organizations should plan along the supply chain and coordinate information sharing ( Lee et al. 1997 ) . According to Fiala ( 2004 ), the exchange of information is a critical issue for coordinating actions. When members of the supply chain have a free flow of information, it can significantly reduce lead time for information such as orders, demand, capacity forecasts, and point-of-sale information across the entire supply chain.

According to Lee, So ; A ; Tang (2000), the act of sharing sales information can bring various benefits. The researchers also identified key factors that significantly impact this practice. When an organization maintains a long-lasting relationship with its supplier, they gain access to a larger inventory and enjoy reduced costs during periods of high demand, especially when there is a long lead time involved.

Ultimately, customers benefit from receiving superior and cost-effective products within a shorter timeframe. For instance, Chrysler Corporation successfully reduced their supplier base by 50% while involving the remaining suppliers in designing new generation cars. This strategy helped establish a trust-based long-term relationship.

The organization has seen an increase in net income due to the long-term relationship (Braun, Guthrie, McCampbell, ; Sit). The supply chain management system plays a role in reducing costs for administrative staff and controlling inventory flow (Jonsson, 2008). Additionally, the supply chain aims to eliminate non value-added activities from raw material providers to end customers, in order to reduce costs (Vorts, 2004). Therefore, efficient supply chain management can decrease inventory and stock costs for the organization (Steckel, Gupta ; Banerji, 2004).

The efficiency of supply chain management allows the organization to have the right goods at the right time and in the right place (Ketchen ; Hult, 2007). This enables the organization to deliver their products according to demand, thus reducing shortage costs that occur when late deliveries need to be compensated for. Additionally, it helps reduce the cost of goods sold, shorten order lead-times, and decrease inventory costs (Li, Ragu-Nathan, Ragu-Nathan, ; Rao, 2006). Furthermore, not having to maintain inventory can also lower the organization's warehousing costs.

Without utilizing warehouse organization, the transit cost from the warehouse to the organization can be saved. Additionally, reducing the cost of production organization can create customer value by reducing the price of the end user's product (Ketchen ; Hult, 2007). For example, Apple Computer was losing money in 1997; Steve Jobs made some changes in supply chain management to save the organization by reducing inventory costs (Taylor,

2005).

Challenges of Supply Chain Management

Planning

An appropriate plan for supply chain management can bring advantages, but if improperly handled, it can lead to tragedy (Taylor, 2005). Accurate planning is important, but planning mistakes can lead to significant changes in plans (Stadtler, 2004). Furthermore, proper planning is needed for transportation schedules, production schedules, and distribution; otherwise, it will result in complexity (Stadtler, 2004). This complexity arises from excessive separate transportation costs due to improper planning.

For example, Kmart Corporation has made a mistake in its planning, which has hindered its ability to compete with Wal-Mart in terms of prices. The worst part is that when the organization is able to attract customers back, the supply chain is not able to deliver to them on time. Due to incorrect forecasting and planning, Kmart is now bankrupt (Konicki, 2002).

Supplier attention

Supply chain challenges include a lack of supplier attention. This lack of attention from suppliers leads to delayed orders due to conflicting objectives and goals.

The main obstacles in providing proper coordination are potential issues with tardy and incorrect delivery by the sellers. Acquiring the materials early will minimize risks and additional costs. Internal procurement issues also fall under the realm of supply chain management (Henrie, 2006). Consequently, a lack of supplier attention leads to inefficiency and ineffectiveness within the supply chain, resulting in increased organizational costs (Byrnes, 2003). This problem hinders the company's ability to effectively manage the timing of material arrivals, when to make purchases, how much to purchase, and when materials should be delivered.

Furthermore, the suppliers in the supply chain delay their business information and raw material, resulting in a bullwhip effect (Lee et al., 1997). As a result,

the organization must wait for the raw material to be processed, workers need to work extra time to produce the product, and additional costs must be paid. NASA Company, for example, has faced this issue as the project will incur reduced costs, damages, and additional warehouse expenses (Galluzzi, Zapata, Steele & Weck).

Customer value

Organisations must respond to changes in customers' perception of value towards a product in order to meet their ever-rising expectations at a manageable cost (Flint, 2004). This requires conducting research to understand how customer perception of value changes and improving anticipation and planning processes. Predicting customer perception of the end-user product can lead to a competitive advantage (Slater, 1997).

Case summary

Ducati, the Italian motorcycle manufacturer, achieved great success by improving its company's supply chain. Ducati implemented principles such as kaizen, TQM, Six Sigma, just-in-time inventory control, and others as part of an "operation turnaround" to revamp its supply chain.

The company achieved cost reduction, shortened time-to-market for products, improved manufacturing quality, and increased production capacity by adhering to a set of rules. Ducati was originally founded in Bologna, Italy in 1962 as a component manufacturer and quickly gained recognition for its production of high-performance racing motorcycles by 1970.

To address supply chain challenges in 1999, the company aimed to eliminate non-value-added activities, minimize waste, and enhance the quality of their racing motorcycles. They focused on enhancing work processes and implementing a predictive maintenance system for all factory equipment to accomplish this objective. As a result of these efforts, machine downtime decreased and productivity increased.

Pellerey, the top director of Ducati, stated that these changes had decreased the

hourly cost of operations. Moreover, Ducati's new supply chain management process allowed the company to have control over its inventory and quickly respond to customer preferences, leading to a reduced turnaround time for a specific motorcycle model.


What lessons can other companies learn from Ducati's supply chain makeover experiences?


Supply chain management contributes to a positive brand image for customers. Toyota Company uses the Toyota Production System (TPS) to enhance its reputation for quality, boost sales, and reduce inventory waste (Ayers, 2006). The lesson learned by Toyota Company is that effective supply chain management can drive down production costs by eliminating excess inventory. On the other hand, inefficient and ineffective supply chain management leads to increased organizational costs, longer product cycles, diminished product quality, and decreased production volume (Kaeli, 1990).

This indicates that the company utilizes a significant amount of money to manufacture a product of inferior quality. The ineffectiveness of managing the supply chain can result in the collapse of an organization, as seen in the example of Kmart (Konicki, 2002). Kmart Company became bankrupt due to inadequate planning in their supply chain management. Furthermore, Kmart encountered difficulties with its financial resources. AMR Research referenced a study conducted by A.T.

Kearney estimated in October that $40 billion, or 3.5% of total retail sales, are lost annually due to supply-chain inefficiency (Kemp, 2010). In addition, SABMiller, the global brewing giant, has redesigned its supply-chain management system (Goodwin, 2009). The company reformed its supply chain to reduce stockouts caused by inefficiencies in supply-chain management. SABMiller implemented an advanced supply-chain management system that allows them to gather information from their resource planning system

and financial system to generate useful data for production schedules, raw material orders, and financial forecasts, increasing their flexibility to meet changes in demand (McGettrick, Sewell, & Sivills). Likewise, IKEA also overhauled its own company supply chain with JDA. IKEA aimed to change their supply-chain strategy by reducing suppliers and focusing more on low-cost countries (www.logisticsit.com, 2006).

JDA offers a market place called "Customer-Driven Value Chain" which provides a specialized suite for the supply and demand chain industry. IKEA Company used the JDA software to improve their supply chain strategy, resulting in improved business performance. Nike also invested $225m in reviewing their supply chain to increase production efficiency in 2009. Airbus is also looking to revamp their supply chain management to improve operational efficiency and reduce costs.

Nike Company and Airbus Company have both learned from Ducati Company on how to revamp their supply chain management in order to improve their company performance. Furthermore, supply chain management not only increases productivity but also provides a value advantage. The effectiveness of supply chain management improves the product life cycle and enables the introduction of a variety of products into different market segments to meet customer demands. Toyota Production System, practiced by Toyota, helps identify value-added activities and non-value-added activities through the use of supply chain management.

Non value activities such as waste, overrun, extra processing, and unneeded distribution can be measured and reduced through techniques like kaizen, Kanban, Just-In-Time, pull and push production. The Toyota Production System has revolutionized supply chain management by aligning it with the end user's demands (source: hypertext transfer protocol: //ezinearticles.com/ ? Importance-of-Supply-Chain-Management-in-Modern-Businesses ; A ; id=1240176).


How important is the free flow of information among

members of a company's supply chain to achieve results like those at Ducati? Explain.


In order to achieve results similar to Ducati's, it is crucial for the company to have a smooth flow of information among its supply chain members. This was evident when Ducati had to involve its supply chain partners in their "operational turnaround" as 92% of the cost of a typical bike came from their supply chain. Ducati needed to transfer the culture and techniques for creating a lean and efficient supply chain to their suppliers.

Ducati views their suppliers as extensions of themselves, connected through the web to facilitate the flow of information. This is crucial for improving efficiency within the organization, as they cannot produce all necessary resources internally. Sharing information across company boundaries with supply chain members is vital for enhancing agility, stability, and performance. The efficiency of information flow greatly impacts product quality and response time throughout the supply chain. The importance of accurate information and the impact of disruptions upstream on the supply chain have been quantified. When receiving information from other supply chain members, everything remains the same except for receiving orders from previous members and also receiving current period demand from end users.

The information flow within the supply chain can be influenced by various factors, either by the individual members of the supply chain or as a whole (as cited in Samaddar et al., 2006). To achieve a smooth information flow, supply chain members can make use of tools based on information and communication technologies. These tools provide real-time and accurate information about point of sale demand, enabling members to forecast replenishment needs and eliminate over or

underestimation of orders and inventory (Pendroso & Nakano, 2009). Wal-Mart, for instance, electronically shares point of sale information with its suppliers and places delivery orders when stock levels reach the minimum threshold. Sharing information among supply chain participants enhances planning and coordination (as cited in Welker, Vaart, and Donk, 2008).

Furthermore, information sharing is an important aspect on assimilation and collaborative inter-organizational relationship (Huang, Lau ; Mak, 2003). Ordering procedure is a function related to the information sharing and it is important to process in the supply chain (as in Welker et al., 2008). Hence, organization can make better decision on the ordering procedure, production plan and capacity allocation thus the supply chain dynamics can be optimized (Huang et al., 2003). Furthermore, information free flow is important because partnership always formed so that individual can share unique information (Hsu et al., 2009).

There should be different degrees of information sharing for mutual benefits and cooperation (Christiansen, Rohde & Hald, 2003). Ducati utilizes purchaser-provider schemes to vary information sharing based on the strength of the relationship. Ducati has implemented an integration plan that involves employees and providers working together as a team. For example, companies share information with providers to reduce costs, improve bargaining power, and increase efficiency. Additionally, Ducati's supply chain management processes support activities related to information sharing and communication among partners, helping to minimize the bullwhip effect. Lack of information about the quality of raw materials from suppliers can lead to a decline in product quality and a decrease in customer purchases (Towill, 1996). Therefore, supplier commitment is critical as it allows information to flow within the organization and reduces uncertainty. Planning throughout the supply

chain and coordinating information can help control the bullwhip effect and improve supply chain performance (Lee et al.).

, 1997). Effective supply chain management will help reduce the Bullwhip effect (Pendroso & Nakano, 2009) by improving the flow of order information, which is crucial for efficient supply chain performance. However, if there are disruptions in the flow of information within the supply chain network, it can lead to longer production lead times and excessive inventory levels within the organization.