The Concept Of Supply Chain Commerce Essay Example

demands and improve the competitiveness of the entire supply chain. In today's global market, it is essential for all parties involved in the supply chain to operate efficiently and effectively to satisfy customer demand and remain competitive. The performance of each party in the supply chain is critical for achieving the ultimate goal of ensuring customer satisfaction.

Supply chain management (SCM) is a broader approach to management that takes into account the collective impact of all companies involved in producing goods and services. This includes suppliers, manufacturers, wholesalers, retailers, end consumers, as well as disposal and recycling. SCM views these companies as interconnected within a network or supply chain. It encompasses all necessary aspects to meet customer requirements such as selecting products, production methods, and delivery strategies. The goal of supply chain philosophy is to ensure customers receive the right products at the right time, place, and price. Decision-making in SCM revolves around two main concerns: customer demand and maximizing company profits.

To achieve a balance between customer service and internal operating efficiencies, companies must enhance their supply chain management. This entails improving customer service levels and internal efficiency across the entire supply chain. Customer service involves maintaining high order fill rates, on-time delivery rates, and minimizing product returns. Internal efficiency for organizations in the supply chain involves generating a good return on inventory investments and other assets while reducing operating and sales expenses. Attaining such efficiency requires timely decision-making by all parties involved at every level of the supply chain in key areas such as production, inventory, location, transportation, and information.

According to Basic constructs of supply chain management ( pp.6 ;A ;7 ), companies in a

supply chain must make decisions regarding the following aspects: Production- Determining which products the market desires, the quantity and timeline for production by creating master production schedules that consider works capacities, workload balancing, quality control, and equipment maintenance.Inventory- Deciding what inventory should be stocked at each stage in the supply chain by determining optimal levels of raw materials, semi-finished goods, and finished goods.Inventory serves as a buffer against uncertainties in the supply chain but can be costly; hence identifying optimum inventory levels and reorder points is crucial.Location- Choosing appropriate locations for production facilities and inventory storage by identifying cost-efficient options.Companies need to decide whether to use existing facilities or build new ones.These decisions determine potential product flow routes for final delivery to consumers.The transportation aspect involves finding the most efficient way to move inventory within the supply chain. Both air cargo and truck transportation are known for their speed and reliability, but they can be expensive options.

Transportation by sea or rail is typically cheaper but often takes longer and is more unpredictable. To account for this uncertainty, higher levels of inventory must be carried. When is it more advantageous to use each mode of transportation?

Information-

How much data should be gathered and shared? Timely and accurate information offers the potential for improved coordination and decision-making. With reliable information, individuals can make effective choices regarding production levels, inventory placement, and transportation methods.

The diagram in Figure 1 shows the relationship between the five supply chain drivers mentioned above (Source: Basic Concepts of Supply Chain Management, Page 17). To achieve a competitive advantage, a supply chain must possess certain key attributes. To ensure

effective supply chains, five guiding principles are essential.

Each principle is outlined below:

Understanding and defining customer needs is crucial for constructing an effective supply chain. This understanding can be achieved through classical market research techniques, developing an information infrastructure to capture customer transaction data, and analyzing this data from an operational perspective.

Over the past two decades, operationally excellent companies have adopted slim doctrines as a key strategy. This approach has led to shorter and more predictable lead times, as well as a reduction in work-in-process inventory from months to days. Additionally, these companies have implemented just-in-time delivery systems for their most expensive materials and have made substantial efforts to minimize setup times. As a result of these changes, indirect costs have greatly decreased and there has been an improvement in physical space utilization.

Creating a solid supply chain information infrastructure is essential for achieving a competitive edge in the supply chain. This entails combining business processes within and between organizations to support the strategic objectives of the supply chain, as illustrated in Figure 2. When these processes are combined with a strong information infrastructure, it enables smooth material flow throughout the supply chain.

Figure 2 - Integrated information systems and concern procedures Unite determination support systems. Academicians and package suppliers have designed and built Decision Support System ( DSS ) environments for single companies and supply ironss. These environments are based on different philosophical theoretical accounts. Besides, they differ in how they forecast demand, and how they drive production and allotment determinations. Their end is to bring forth programs that at the same time consider all elements of the supply concatenation.

Global Sourcing Model

Wikipedia, the free encyclopaedia defined Global sourcing as "a term used to depict pattern of sourcing from the planetary market for goods and services across geopolitical boundaries."

Global sourcing is the practice of improving efficiency in delivering a product or service worldwide. This involves utilizing low-cost skilled labor, affordable natural materials, and economic advantages like tax breaks and low trade duties. However, global sourcing comes with both pros and cons beyond just cost savings. On the positive side, it allows companies to expand into new markets, access unavailable domestic skills or resources, foster competition by finding alternative suppliers, and increase overall supply capacity. On the negative side, there are hidden costs related to differing cultures and time zones, exposure to financial and political risks in emerging economies, an increased risk of intellectual property loss, and higher monitoring expenses compared to domestic supply chains. Moreover, for manufactured goods specifically, there are disadvantages such as lengthy lead times, potential disruptions in supply due to port closures, and challenges in ensuring product quality (Wikipedia 2009).

Supply Chain Hazard

The supply chain is a network of interconnected organizations that exchange products, services, funds, and information between a source and a customer. This vulnerability to risk factors can disrupt the overall health of the supply chain. Global influences make international supply chains particularly susceptible to these risks. Some hazards in the supply chain are challenging to predict and come in various forms, including natural disasters (such as severe weather, fires, and earthquakes), unpredictable flu/pandemics, economic risks, political risks, strikes, terrorism, transportation risks, unstable demand, and unstable supply. It is the responsibility of the Supply Chain Risk Management Manager in each organization involved in

the supply chain to minimize these types of hazards.

The first step for the director is to comprehend the risk factors that can cause disruptions in the supply chain. It is crucial to prioritize these risks based on their level of severity. Ultimately, the director must create strategies to mitigate these risks and take appropriate action. According to Kinaxis [2008, p.6], these mitigation strategies may vary depending on the specific situation. They may involve sourcing from different suppliers, establishing supply sources in other regions of the world, utilizing alternate modes of transportation, and modifying product designs to incorporate standard components for risks related to the supply base. For risks associated with demand variability, strategies such as demand shaping, delay strategies, and buffer inventory can be implemented.

Advantages of Supply Chain

All parties involved in the supply chain mutually benefit.

If not, the supply chain may not be functional. Both parties in the supply chain choose to be part of it because they believe they will benefit from its ultimate goal. The length and nature of the benefit depend on the business involved. The benefits for individuals within the supply chain also vary based on their specific role. According to Constructing Excellence (2004), the advantages for individual companies, end-users, and project clients in the supply chain are as follows: reduced costs with careful attention to margins, encouragement to eliminate waste from the process, increased certainty of costs, delivering better value to clients, increased repeat business with key clients, and improved long-term planning. End-users and project clients also benefit from a more responsive industry that provides facilities that meet their needs and are delivered on time and within budget with minimal

defects.

This, in turn, leads to increased levels of customer satisfaction and an enhanced reputation for the industry.

Supply Chain Security

The global supply chain is at risk due to the involvement of various entities handling large quantities of goods and information, as well as the frequent need for goods to be transferred. This vulnerability has two aspects: the risk of the supply chain being disrupted by a terrorist attack and the risk of terrorists using transportation systems to carry out attacks. Additionally, countries' economies are also vulnerable as many companies rely on the supply chain for their production, and the general population depends on international trade for supplies. After the 9/11 terrorist attacks on the World Trade Center in New York and the Pentagon in Washington DC, ensuring supply chain security became a top priority for individual countries and international organizations such as the World Customs Organization (WCO), International Maritime Organization (IMO), EU, APEC, etc. In the reference guide [2010, p.

The importance of trade security is now as crucial as free trade, emphasized by 46. The events on September 11, 2001, highlighted the need for improvements in border and transportation infrastructure. Acts of terrorism can disrupt the movement of people, goods, and modes of transportation across borders. Taking measures to prevent terrorism can provide certainty and stability to the global economy, increase investor confidence, and facilitate trade. It is now recognized that ensuring secure trade holds equal significance with promoting free trade (World Bank, 2003, p182). This event marked a turning point in shifting the mindset towards border control; transitioning from minimal intervention to comprehensive inspections in international trade.

The United States

has implemented various security enterprises, reflecting the utmost importance placed on security, particularly in the realm of security Freight Initiative (SFI) - 100% Cargo Screening. This initiative has caused significant controversy. There are different security enterprises developed by individual states like the USA, regional groups like the EU and APEC, and international organizations like the WCO. Some examples of these security enterprises include Advanced Manifest Reporting (including 10+2), Security Freight Initiative, CT-PAT, Authorized Economic Operator, WCO Framework of Standards, and Secure trade in APEC Region.

The United States' Security Enterprises

Prior to the terrorist attacks of September 11, the USA had implemented various security plans due to frequent terrorist attacks targeting US establishments and interests. Immediately after the events of 9/11, the American government and Customs launched the pre-existing security initiatives.

Some of the plans mentioned are Customs-Trade Partnership Against Terrorism (C-TPAT), Advance Manifest Regulation ("24-hour regulation"), Container Security Initiative (CSI), Free and Secure Trade (FAST), and Automated Commercial Environment (ACE).

Customs-Trade Partnership Against Terrorism (C-TPAT)

C-TPAT serves as the core of the system. It is a voluntary certification program designed to ensure that importers are not subjected to more inspections than before September 11. Kommerskollegium, [2008, P. 30], states that according to US customs, the Customs-Trade Partnership Against Terrorism (CTPAT) is an initiative aimed at strengthening and improving the entire international supply chain through collaboration between companies and governments.

C-TPAT only applies to imports to the USA. It has also stated that "the American customs could only guarantee that certified companies would not be subjected to a higher frequency of inspections than before September 11. However, in the American usage's strategic plan for C-TPAT, more ambitious goals are expressed: to

enhance security for a significant proportion of the cargos arriving in the USA; to provide benefits and incentives to those companies that meet or exceed the requirements laid down in C-TPAT, and to focus CPB's resources on the cargos that are assessed to have the highest risk." C-TPAT primarily includes companies with operations in the USA and certain specially invited foreign manufacturers.

The aim of the company selection for the plan was to choose companies responsible for parts of the conveyance chain into the USA. The chosen companies should pose a low risk but handle a large volume (Kommerskollegium, 2008, p. 30). For a company to be C-TPAT certified, it must meet requirements in various fields (Kommerskollegium, 2008, p. 30). The requirements vary depending on the type of company and its role in the supply chain, but there is some overlap between them (Kommerskollegium, 2008, p. 31). Importers must also conduct a comprehensive assessment of their entire international supply chains, from the origin point to the distribution point (Kommerskollegium, 2008, p. 31).

The countries that have demands on importers in C-TPAT are listed in bullet point form below:

• Business partner demands;
• Container security;
• Physical access controls;
• Personnel security;
• Procedural security;
• Security training;
• Physical security; and

IT Security

C-TPAT also clearly specifies the requirements that participant companies must fulfill. These requirements include extensive cooperation with supply chain partners, documented procedures for selecting business partners, certification for eligible importers showing their potential status in C-TPAT, written certifications for companies not eligible for C-TPAT certification indicating their ability to comply with the specified security demands (validated by contracts or letters from managing directors), and certification of compliance with the WCO's SAFE framework issued by a foreign customs authority (Kommerskollegium,

2008, p.31).Furthermore, C-TPAT requires the importer to indicate the origin of the merchandise, ensuring that the importer and its partners have proper procedures in place to prevent any tampering or alteration of the cargo during shipment. The importer must also regularly inspect the processes and facilities of their business partners to ensure they meet the importer's requirements. Additionally, the importer must ensure that their partners document any involvement with other customs security programs and have a stable financial position to meet enhanced security demands.

Additionally, it is clearly stated in C-TPAT that concern spouses must be C-TPAT compatible (Kommerskollegium, [2008, p. 31]). The Advance Manifest Regulation, also known as the "24-hour regulation," is a law that requires goods being imported into the USA to be notified to American customs 24 hours before they depart from the port of shipment (Kommerskollegium, [2008, p. 29]). This regulation allows customs authorities in the USA to inspect high-risk cargos before a container is loaded at a foreign port.

If a company violates regulations, they may face legal consequences and may not be allowed to fully ship their cargo. The Customs' Automated Targeting System (ATS) uses pre-programmed criteria to select containers for inspection, assigning a risk factor to each shipment based on terrorist threat. The Container Security Initiative (CSI) is a network of security-certified ports located outside the USA where American customs forces are stationed (Kommerskollegium, 2008, p. 39).

The main goal of the CSI is to identify and evaluate containers that may be used for terrorist activities (Kommerskollegium, 2008, p. 37).

The Free and Secure Trade (FAST) agreement, involving the USA, Canada, and Mexico, regulates customs clearance

coordination between the countries. Its aim is to expedite the processing of certified companies and carriers at border crossings (Kommerskollegium, 2008, p. 29).

The participating countries have agreed to harmonize their cargo clearance procedures at the border to the greatest extent possible (Kommerskollegium, 2008, p. 40).

The American Congress passed the SAFE Port Act in October 2006 to further strengthen port security. This comprehensive legislation includes provisions to enhance CSI and Ca?‘TPAT. Additionally, it directs the Department of Homeland Security to develop a proposal, known as "10+2", for submitting additional information about cargo and transportation to American ports to improve risk assessment. The SAFE Port Act is the informal name commonly used to refer to this legislative bundle.

Kommerskollegium, [2008, p. 40].

Regional Groups Security Initiatives

EU Security Initiatives

After September 11, 2001, European governments have introduced several security proposals following the example of their American counterparts: Kommerskollegium, [2008, p. 50].

• Rules for civil airpower security in 2002,
• Enhancing ship and port facility security in 2004 and port security in 2005,
• Amendment of the Community customs code and introduction of authorized economic operators (AEO) and 24-hour advance notice,
• Enhancing supply chain security, and
• Further support of civil airpower security, currently being prepared in 2007.

At the end of 2003, the Commission proposed measures to improve security in the supply chain to the European Parliament and Council.

The proposal was adopted as a ordinance of the European Parliament and Council amending Council Regulation ( EEC ) no. 2913/92 establishing the Community Customs Code Kommerskollegium, [ 2008, p. 51 ] .

APEC/STAR Security Initiatives

When it comes to security for transportation and travel, Asia Pacific Economic Cooperation ( APEC ) has organized the so-called STAR conferences

( STAR - Secure Trade in the APEC region ) since 2003.

The conference in 2007, STAR V, took place in Australia in June and focused on finding cost-efficient solutions to enhance security in travel and transportation. STAR, along with C-TPAT and CSI, was established in response to the terrorist attacks of September 11, 2001. In order to improve security for goods, ships, aircraft, and passengers, the APEC states' leaders have developed an action plan that incorporates various security measures (Kommerskollegium, 2008, p. 61).

International Security Enterprises

Currently, there are three main international security standards dedicated to enhancing supply chain security on a global scale: The World Customs Organization's Framework of Standards to Secure and Facilitate Global Trade (WCO's SAFE model); the International Ship and Port Facility Security Code (ISPS Code); and ISO/PAS 28000.

The WCO's SAFE Model

The SAFE Model, developed by the World Customs Organization (WCO), is a highly ambitious endeavor aimed at enhancing security in the supply chain. It involves the participation of all member countries of the WCO and promotes cooperation between customs administrations and companies. This model also applies to various modes of transportation.

Objectives and Regulations

According to the WCO, the SAFE Model aims to establish standards that ensure security in the supply chain, fostering confidence and predictability. It encompasses all modes of transportation within the supply chain. Additionally, SAFE aims to strengthen the role and function of customs administrations and facilitate cooperation among them to improve their ability to identify high-risk cargoes.

Another important element is to strengthen cooperation between customs governments and companies, while promoting smooth flows of goods through secure supply chains (Kommerskollegium, 2008,

pp. 19 & 20). SAFE will benefit three target groups: states/governments, customs governments, and companies. SAFE will enhance economic growth and development of states and governments by securing and simplifying international trade, while also combating terrorism. Increased cooperation between customs governments will allow for earlier reviews in the supply chain and more efficient allocation of resources. For companies, international trade facilitation will make it easier to move goods between countries. Authorized Economic Operators (AEOs) will also experience faster customs clearance of their goods, resulting in time and cost savings (Kommerskollegium, 2008, p.).

The text highlights the four core elements of SAFE, which are aimed at improving security in the supply chain: Advance electronic information, Risk management, outbound inspection, and Business partnership (Kommerskollegium, 2008, p. 20). Specifically, Business partnership refers to the benefits that customs authorities should provide to businesses that meet minimum supply chain security standards and best practices. SAFE is composed of 17 security standards categorized into two pillars: customs to customs network agreements and customs to business partnerships.

This construction follows the security and facilitation steps and plans developed by the member provinces of the WCO (World Customs Organization). Kommerskollegium, [2008, p. 20].

The Implication of The New Distribution Contract For Bright Spark Pty Ltd

Basic Facts

The Bright Spark Pty Ltd is a company involved in the production of engineering merchandise.

The company sources a variety of natural materials and semi-finished components from different countries. The main component used in the final product is currently obtained from a country with much lower labor costs compared to other potential suppliers. Additionally, the government of this sourcing country offers additional tax incentives to retain business. It is important to

note that this country is considered a security concern by the US Government. The final assembly process occurs in Malaysia, and the finished product is exported from Tanjung Pelepas, a CSI port. This marks the company's first time exporting to the US market.

The new distributor, Flotsam and Jetsam inc., is a member of the US C-TPAT plan. This presents an opportunity to Bright Spark Pty Ltd. as the company benefits from not being subjected to frequent inspections and receives better facilitation compared to non-member importers. Consequently, the product can easily enter the American Market.

However, in order for the negotiated distribution contract between Bright Spark Pty Ltd and Fiotsam and Jetsam Inc. to be successful, it is important that Bright Spark Pty Ltd implements a well-planned supply chain management strategy and provides the necessary information to Fiotsam and Jetsam Inc. as required by US C-TPAT. According to the US C-TPAT program, the importer must provide information about business partners, including current certification indicating compliance with the WCO's SAFE framework issued by a foreign customs authority, as well as details regarding the location where a product is packed or shipped from, and so on.

Since the primary element is sourced from a country designated as a security concern by the US Government and the production site (Malaysia) is not assumed to be free from susceptibility to terrorist attacks, the company needs to ensure the security of the entire supply chain. This task is not easy as it involves evaluating both the internal security system of the company and the external security system of all sourcing countries along the supply chain. This review process may require a significant budget.

Additionally, since this is the first time the company is exporting the product to the US market, the shipment...