Forces shaping Supply Chain Management
Various business and economic forces influence the effectiveness of a supply chain. They include consumer demand, globalization, competition, information and communication, regulation and environmental concerns.
Consumer Demand
The key focus of an organization is to find a balance between cost and quality, and customization and availability without compromising on any one of them. Customers' expectations with regard to quality, speed of service, choice, and price have increased significantly. So, organizations have to make the products or services cheaper, better and available within the minimum possible time. The objective of supply chain management is to keep the customers satisfied by providing them with what they want, when they want it and at a price they can afford.
Globalization
Organizations are realizing the importance of benefiting from the competitive advantages of other economies. For instance, American and European companies have realized the cost benefits of outsourcing operations to Asian or Latin American. In these economies they are able to find skilled labors for fraction of price they have to otherwise pay in developed countries. Supply chain globalization is also the result of companies planning to take advantage of untapped foreign market.
Exhibit
Benefits from Supply Chain Management
To see how supply chain management helps organizations in improving productivity, let us look at two real world business examples:
P&G and Wal-Mart
Wal-Mart and P&G have used the capabilities of the supply chain management system to the fullest. Before these two companies started collaborating, most retailers were wary of sharing information with manufacturers. In order to improve the flow of information between them, they use software that connected P&G with Wal-Mart's distribution centers. This software link allows P&G to get real time information about the status of its products in Wal-Mart's distribution centers and a few of Wal-Mart's individual retail outlets. Based on this information, P&G can replenish stocks that have reached re-order level. The system even allows P&G to monitor shelves in Wal-Mart stores through real-time satellite links that send the information to P&G, whenever any of its products are scanned at the sales counter. P&G gets to know what to manufacture and ship. Besides, invoicing and payments are also automated. Through this system, P&G is able to reduce its inventory and order-processing costs, which it can pass on to Wal-Mart directly.
Cisco Systems
Cisco systems, which operates through a network of component suppliers, distributors and contract manufacturers, links these entities through its extranet, which forms a virtual supply chain. For instance, when a customer's orders a router from Cisco, the message is automatically passed on to the contract manufacturers of printed circuit board assemblies. Distributors who provide components for routers are also alerted. As the distributors and contract manufacturers are aware of the incoming orders through Cisco's extranet, which is linked to Cisco's manufacturing system, they are in a position to supply the requisite material at short notice.
Once the contract manufacturer receives the information, the Cisco extranet monitors the contractor's assembly line to check the status. Once the factory assemblers put the bar code on the router, and plug in the cables that stimulate the corporate network, automated testing software at Cisco matches a particular item to a specific customer order. If everything is working satisfactorily, Cisco's software provides the customer's details to the subcontractors for shipping the finished items. Such an automated system minimizes the need for paperwork, warehouses and inventory.
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Competition
Competition in every business has increased significantly over the last decade. It has increased due to advancements in technology, increased globalization, easy access to information, creative business designs, etc. These factors have dislodged many market leaders. Earlier, market share was a good measure of profitability, but now organizations are redefining their competitive space. For example, having a significant market share in the mainframe and minicomputer market cannot ensure the profitability of a company because of the change in the competitive space. Now, the market for PCs and workstations is much bigger than that for mainframes and minicomputers. Improvement in information flow and transportation has given even the small companies the competence to operate in international market with other big players.
Information and Communication
The improvements in information flow and communications systems are key forces providing support for supply chain decisions. The Internet is an application, which is redefining the way products are purchased, sold and distributed. It has given the customer access to information regarding every aspect of the product. Now, customers can evaluate and compare different products and then make a purchase decision. Many companies are purchasing and distributing products without distributors or resellers. The information explosion is facilitating the expansion of supply chain activities to different parts of the world.
Government Regulation
Governments have played a significant role in the evolution of the supply chain. The scope of supply chain activities is no longer restricted by national boundaries. An organization's supply chain decisions have to take into account the regulations and policies of other countries as well. Trade barriers, duties and other such trade related decisions are in the hands of governments of various countries. These rules and regulations directly affect the functioning of supply chain entities. With the formation of international trade organizations like the WTO, and other regional trade agreements, governments around the world are trying to bring in consistent regulations in all member countries.
Environment
Growing concern for the environment has made an impact on supply chain design. Many European countries have regulations regarding the usage of packaging material. Many organizations are designing products that can be recycled completely when their operational life is over. Government regulations to protect the environment also affect supply chain decisions.
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