The process in which good moves to become a usable product to the final consumers is referred to as a supply chain. This chain is dynamic in nature because it involves a constant flow of products, information and funds in the different processes (Chopra, 4). The chain of events is what is known as supply chain management (Saunders, 4). The chain flow can be represented as follows;
- The first step is obtaining the order from the customer with the specifications they require, quantities required and due dates for delivery.
- Production is then commenced, here the raw materials have to be obtained and combined in a manner that will yield the expected output.
- After production, the product can then be stored and distributed.
- The supply to the customer’s site is then done.
Customer satisfaction should be put in mind in the entire chain flow and thus high-quality products should be guaranteed. Supply chain management has some benefits which include (Chopra, 18);
- Inputs into consideration the consumer needs and thus consumer satisfaction are the basis for production efficiency.
- It reduces inventories.
- It lowers the cost of operations since there is a systematic flow of activities.
- It also ensures that the products are available to the consumers through the distribution mechanism in place.
History of Supply Chain Management
The concept of supply chain management is widely accredited to a Booz Allen consultant named Keith Oliver who in 1982 defines supply chain management as;
“Supply chain management (SCM) is the process of planning, implementing and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work in process inventory, and finished goods from point-of-origin to point-of-consumption” (357)
This was the earliest definition of supply chain management, although the thought began earlier in 1950 in his systems theory developed in physics and biology. The management scholars adopted these concepts to enable them to explain the behavior of processes, individuals and economies (von Bertalanffy, 23-29). Forrester in 1961 utilized the concept of systems theory in his industrial dynamics approach by explaining the behavior of industrial organizations and their supply systems, this model was a mathematical model for analyzing the stability and fluctuations in the industrial system across the whole supply system (New and rot, 4).
There emerged another concept of transaction cost economics which discussed the rationale behind the production process. Williamson in 1975 presented an institutional economics perspective which enabled the determination of the most economic governance structure, the argued that there were three critical factors namely; asset specificity, uncertainty and frequency of transition. This argument is basically one of the amortization costs and is more viable in vertical integration.
Supply Chain Management – the 1970s
Supply chain management in the 1970s became more acceptable when the concepts of its application were clearly becoming more applicable in the business world. In these times there emerged an extension in the 1944 game theory by Von Neumann and Morgenstern where there was optimization of economic decisions to involve more than one stakeholder e.g. supplier and consumer (New and rot, 5). During these times the market and the supply chain were characterized by the following attributes as indicated by New and rot in his contribution to the history of supply chain management (5);
In the Markets;
- There was an increase in the Focus on Customer Loyalty in terms of tastes and preferences in the society at large and the producers became more cautious for their customer’s needs in their production processes.
- Quality assurance gradually became the concept believed to contribute to consumer loyalty and thus it emerged that quality was the king to success.
- Product engineering and transformation basically to conform to consumer needs emerged necessitating the producers to carry out surveys and sampling the markets for consumer rating and expectation analysis as competitive advantage mechanisms aimed at increasing dominance in the market.
In the Supply Chain
- Vertically integrated enterprises emerged as was advocated by the transactional cost economics in the 1970s which was a decision to determine whether to buy or to produce certain resources in their facilities.
- Primarily domestic products were incorporated and this chain was gradually taking a global dimension.
- The supply chain was highly regulated
- It was difficult to manage the supply chain beyond the extended enterprise as it became practically impossible and thus not applied.
- The chain was rigid, stable, slow but predictable in terms of achieving the intended purpose i.e. Provide the consumers with the products they needed.
- Managed by function since a choice of governance had to be determined.
The essence of supply chain management was gradually understood by many.
Supply Chain Management – the 1980s
The Markets in this time were faced with more complex economic conditions e.g. the end of Soviet Union globalization, which saw the supply chain management became extemporary applicable to many organizations. Also, new organization forms were gradually being formed e.g. networks, alliances, mergers, etc. this era was characterized by;
- The market demanded variety in the products and thus the producers had to increase the variety to satisfy different consumers in the market.
- A shift in the earlier ideology that the quality is king changed into that of Cost is king; this necessitated the use of technology to drive manufacturing efficiencies.
- Global markets were developing
- The Supply Chain Deregulation was evident as many governments joined multilateral trade agreements.
- Learning to manage global supply and demand
- The beginning of the horizontal management craze was high from a shift from the earlier thought of vertical management integration.
- Managed through functional collaboration emerged.
This made many producers change their attitudes and embraced technological advances for efficiency and as a cost-cutting measure.
Supply Chain Management – the 1990s
The Markets in this era comprised of supply chain integrations brought about by the advances of the internet and information technology, this comprised of empirical research by independent research organizations e.g.
- The chartered institute of purchasing and supplies supported the IPSERA group with finances for research.
- The supply chain council in 1997 was established by big multinational companies to enhance best practices across the companies.
The supply industry at this time was characterized by the following attributes;
- Throw away consumerism emerged and is the evident product life cycle of a product where it was measured at blink speed.
- Cost is still king, but manufacturing has nothing left to give for their advancement but to stick with the current conditions.
- Global competition increased as many companies went global by investing in foreign countries or involvement in international trade.
- Global markets were identified and many companies segmented them to fit their standards and also choose the ones that were economically viable.
- Most companies became technologically enabled in their production processes.
- The services industry explosion was seen as there was a boom in the service industry.
- Most companies became dynamic, agile and reconfigurable to any changes in the external environment.
- Supply Chain was seen as a strategic imperative strategy.
E-commerce and information technology revolutionized the way business is done on a global scale.
Current trends in Supply Chain Management
Supply chain management has become one of the generally accepted concepts in the modern world. However, there is no existing standard model of supply chain management operating in today’s world. It has developed from a compelling method of competitive advantage to a baseline of 21st-century completion which is characterized by professions and occupations.
Supply chain management, just-in-time production (JIT), quick response manufacturing, vendor management, and other terms such as agile manufacturing all share the goal of improving vendor response to customer demand. All of these philosophies or concepts share the same core values. Supply chain management embraces the other philosophies and extends its scope from one firm to all the firms in a supply chain.
The forces driving supply chain management include; First, is that there is the new communications technology available now that allows managers to actively manage a supply chain. Second, customers are demanding lower prices and better products and services. To meet their customers’ demands, firms are optimizing the entire supply chain. Supply chain management allows all the firms in a supply chain to look beyond their own objectives to the objective of maximizing the final customer’s satisfaction. The payoff for supply chain members that can do this is increased profits for their shareholders.
Types of Supply Chain Management models
The SCOR Model
The Supply-Chain Council in the 1990s formed the Supply-Chain Operations Reference-model which became a global institution. Its main objective was to provide a guideline in supply chain management. It can be applied in many business fields e.g. in the consumer foods sector, electronics, software and planning, etc.
- Conferences and seminars, informal retreats, benchmarking studies and guidelines, and development of the Supply-Chain Operations Reference-model (SCOR) are sponsored and supported in terms of educational programs, which are designed to improve users’ efficiency and productivity in the global perspective.
- It also promotes research in supply chain management with the aim of increasing the efficiency and the effectiveness of the supply chain management area is also developed by the thought leadership in the model.
Common standards of referencing in the supply sector are formulated for members to follow to reduce the cases of conflicting interests among the members. Supply chain management requires an unprecedented level of cooperation between the members of the supply chain. It requires an open sharing of information so that all members know they are receiving their full share of the profits. Since many of the firms in a supply chain do not have a history of cooperation, achieving the trust necessary for supply chain management is a time-intensive task.
Process Reference Models
Business process reengineering in terms of operations in the supply and financial sectors, business benchmarking, and cross-functional framework of process measurement in an organization is referred to as the process reference model.
Mode of transportation & Hub
Transportation is evaluated in consideration of distance, weights of products, type of product, etc. However, the issue is not only cost centered but also resource centered i.e. the availability of resources and its costs influence the supply chain
In summary, the evolution of supply chain management can be summarized as follows;
- 1960’s – Inventory Management Focus, Cost Control
- 1970’s – Operations Planning
- 1980’s – Materials Management, Logistics
- 1990’s -” Purchasing, Financials, Manufacturing, Order Entry
- 2000’s – Optimized “Value Network” with Real-Time Decision Support; Synchronized & Collaborative Extended Network
- Shorter product life cycles of high-technology products
The Importance of Supply Chain Management
Supply chain management has the following benefits;
- Less opportunity to accumulate historical data on customer demand.
- The growth of technology and information technology such as the Internet, mails, E-commerce has enabled greater supply chain collaboration activities between supply chain trading partners in a marketing model, it is characterized by the following ideology;
- By failing to do something the competitors will certainly do it to beat you in the market thus you should take every opportunity that comes your way.
- The increase in the Availability of supply chain management technologies and products on the market has enabled firms to acquire a large variety of products.
Difficulty faced in supply chain management
The largest barrier to successfully managing a supply chain is perhaps the human physiological characteristic elements. Failure to correctly manage the issues of trust and communication will abort any attempt to manage the supply chain. When there is a lack of trust and communication, the supply chain’s members will soon succumb to greed or suspicion that other members of the supply chain are profiting at their expense.
When the communication is not adequate, the supply chain will not improve its response enough to increase profits for its members. Without an increase in profits, the efforts to manage the supply chain will be reduced, because there will be no reward for actively managing it. Supply chain management requires an unprecedented level of cooperation between the members of the supply chain. It requires an open sharing of information so that all members know they are receiving their full share of the profits. Since many of the firms in a supply chain do not have a history of cooperation, achieving the trust necessary for supply chain management is a time-intensive task.
There is no cookbook for managing the supply chain. However, there are some basic principles that can be used for it. And, a set of best management practices is evolving as managers gain experience managing their supply chains.
Chopra, Sunil, and Peter, Mendi. Supply Chain Management: Strategy Planning and Operation. 3 ed. Upper Saddle River, New Jersey: Pearson Education, 2007.
Forrester, James. Industrial Dynamics. Cambridge, MA: MIT publishers, 1961.
Lambert, Douglas. ‘Essential Supply Chain Management Processes’ Supply Chain Management Review, 2004, 18-26.
Marquis Who’s Who Inc. Who’s Who in Finance and Industry 2000-2001? 31st ed. New Providence, N.J: Marquis Who’s Who Publishers, 1999. Print.
New, Steve, and Roy, Westbrook. Understanding Supply Chains; Concepts, Critiques and Futures. New York: Oxford University Press, 2006.
Saunders, Malcolm. Strategic purchasing and supply chain management. 2nd ed. Great Britain: prentice hall, 1997.
Von Bertalanffy, lvrin. ‘Theory of open systems in physics and biology’ science, III 23-29. 1950.