Provision of goods and services for use by the final consumer involves a series of activities in commercial set ups. The process of production up to the final delivery of such products starts with the extraction of raw materials which is then followed by transportation and storage for appropriate time of use. The process also involves the handling of work in progress and the delivery of finished products to consumers. The series of processes that culminates to the provision of finished products to the final consumer is called supply chain. Supply chain management is thus the management of these processes that forms a supply chain. This paper seeks to discuss strategic supply chain management. The paper will carry out a review of supply chain management strategies with respect to globally operating organizations.
Supply Chain Management
Developments in the commercial sector have made supply chain management to be a key department in every organization. The department has over time been transformed with the aim of improving the services that the department offers to organization as well as the level of satisfaction that partners and customers to the subject organizations derive from services offered. Some of the key issues handled by the department that include development of strong relationships with the company’s agents such as suppliers and customers, departments and other supply chains (Jespersen and Larsen, 2005, p. 17).
Such relationships have been aimed at developing a clear understanding of the parties in order to ensure that supply chain management departments are coordinated in a cooperative way with the parties’ needs for maximum satisfaction. The duties of supply chain managements include “order processing, customer service, distribution, product development and supply” (Jespersen and Larsen, 2005, p. 17). The management of the company’s supply chain departments has for this reason been structured to operate from two perspectives. The two divisions in the supply chain management are “physical and technical” management and “operational and behavioural” management (Jespersen and Larsen, 2005, p. 17). Both departments cover a variety of issues in the organization (Jespersen and Larsen, 2005, p. 17).
Supply Chain Management Strategies
The shape that has been taken by competition in the commercial field has let to restructuring of companies in order to maintain or even increase their market share control. Approaches in the form of strategies have thus been adopted by firms in order to increase their operational efficiency and maintain their profitability. Supply chain management, being the core department that deals with the production process has been forced to adopt from a variety of available strategies to enable it meet its objectives.
Strategies in supply chain management have characteristic features of for example shaping the long term operation of the department. Such influence that are induced by supply chain strategies are normally aimed at changing the business environment, scope and the competitiveness of an entity. The business environment can relate to the physical location of an entity’s operational site or even the entity’s associations such as the relationship between the organization and its suppliers or even the society in which the organization is located.
Adopted strategies can be aimed at improving the environment for higher efficiencies of a supply chain. Strategies can as well be with respect to the scope of the operations of an organization. The bid to ensure efficiency as well as profitability can lead to change in the scope of an organization’s operations.
This can be with respect to widening or reducing the scope of the organization to fit its objectives. Whether made with respect to the organization’s environment or its scope, supply chain strategies are aimed at making the supply chain of an organization to be competitive among other supply chains. Some of the examples of supply chain strategies include having either or more of “many suppliers, few suppliers, vertical integration and joint ventures, keiretsu networks, form virtual organizations, lean strategy and agile strategy” (Darden, n.d., p. 11).
One of the strategies that are normally adopted by organizations is the maintenance of a large pool of suppliers. The approach of having a large number of suppliers involves maintaining contact with them. The strategy then requires the suppliers to make bids for the organization’s orders upon which the best bidder in offered the tender. The best in this case may be with respect to economic, quality or reliability considerations.
The adoption of many suppliers to an organization’s supply chain has a number of advantages. One of such advantages is the availability of vast knowledge and skills that are applied in the production of supplies. This will mean availability of a wide variety in quality and design from which the organization can choose. This ensures that the supply chain satisfies its needs by identifying the best supplies for its operations. Maintaining a large pool of suppliers also has associated financial benefits to the chain.
Following the fact that the level of competition among suppliers increases with their number, a larger pool will mean higher competition level among them leading to provision of incentives to attract the chain. Moves of financial incentives such as offered discounts will thus be benefited as suppliers move to beat each other in the bids. Ensured continuity of supplies is another benefit of maintaining a wide pool of supplies. If for any reason a supplier is not able to meet the needs of the chain, then another one that is in contact with the chain can take over such supplies. This ensures the security of continuity of operations processes of supply chain. Though the strategy of having many suppliers has its share of advantages, it is at the same time associated with a number of challenges.
The cost that is associated with developing as well as maintaining relationships with many suppliers are for example high. Making initial contacts as well as managing the many suppliers might prove to be costly. There is also an encountered challenge in managing many links of suppliers. This is particularly true if the suppliers are from different countries with varying legislations. The complexity of understanding rules and customs of these countries might thus be a necessity that will be a burden to the supply chain. Another challenge that is associated with many suppliers is the difficulty in monitoring the transportation process of supplies to the chain’s stores. This problem is even enhanced when such supplies are simultaneously required.
The impact will be that the chain increases its personnel and facilities to facilitate and monitor such transportations especially if the suppliers do not undertake to transport the commodities. This will have the ultimate effect of increasing operational costs of the chain. There is also an identified risk complexities of managing many suppliers resulting in disruption of operations (Simonson, Karthik, and Mukerjee, 2009, p. 3).
An organization’s supply chain can on the contrary identify few suppliers who have relayed their understanding of the chain and at the same time pledged their commitments to meeting the chain’s needs. An organization then establishes long term agreements with few parties that are then entrusted with the organizations supplies. Few suppliers are identified with along term strategy of an organization which is willing to put its trust in few individuals for its operational supplies.
This strategy is associated with the benefit of a deeper understanding of the organization’s needs by the suppliers who will be expected to be long term partners.
The few links will also create easy understanding between the organization and its selected suppliers in terms of operations and legalities. Since the organization has the choice of suppliers, it will be able to select the few ones that are reliable and dedicated thus maintaining the advantage of continuity in supplies.
This strategy is also advantageous to the appointed suppliers to develop an understanding into the organizations demand trends for planning into “lower transaction costs and lower production costs” (Gasper, 2005, p. 627) due to economies of scale. There is however an increased risks in the delivery of supplies in cases of accidents.
The organization will be forced to disrupt its operations till a new supplier is sourced (Gasper, 2005, p. 627). Having fewer suppliers also gives more powers to the suppliers over the organization. Though a binding contract may not exist that prevents contracts with other suppliers, commitment to few suppliers will have the effect of limiting the organization’s choices to what the suppliers can offer.
The organization might at the same time be forced into pressure from the suppliers especially if a good relation has been beneficial to the organization. The need for continuity might also force an organization to submit to its few reliable suppliers (Hines, 2004, p. 45).
Vertical integration refers to the exclusive ownership of the supply chain by an organization. Under the vertical integration, the organization controls all the stages of the supply chain from the extraction of raw materials up to the delivery of goods or services to the final consumer. The integration can be with respect to information, resources or operations (Bidgoli, 2010, p. 121).
Vertical integration is achieved by gaining control of the processes that might have previously been in the hands of other parties. The integration can either be forward or backward. In forward integration, an organization moves to acquire higher levels of the chain such as its suppliers. Backwards integration on the other hand involves acquisition of control of the lower levels such as distributers and retailers. An example of a perfect vertical integration was realized in Ford automotive company that ensured control of even the farming of rubber plants that the company used in the production of its vehicles (Swamidass, 2000, p. 826).
The integration is also identified with rich advantages to an organization that adopts it. It has for instance been associated with reduced formalities in the transfer of commodities across supply chain levels. This is realized in relation to administration and expenses that are incurred in transacting the movements of commodities.
Vertical integration will thus eliminates these costs as the operations across supply chain levels will be undertaken just like any other normal operations under the organization’s structure. Control of distributers and retailers by an organization also plays an effective role in shaping the market for its products. Its ability to influence these parties through incentives or to keep them away from stocking competitive commodities to the products of the subject organization is also a tool to increasing market control.
Vertical integration also has its share of risks in the supply chain. A problem encountered at one level of the supply chain will easily be transferred to other level.
A recession in the production of raw materials will for example affect production process, at least until such generation of materials is resumed or the materials outsourced. This will negatively impact the organizations profitability while it could have simply shifted its suppliers if it were not under vertical integration (Enz, 2009, p. 1).
Joint venture is another identified strategy. Under joint venture, an organization can partner with another in a different country in order to help it spread its chain into new market (Branch, 2008, 151). Joint ventures establish mutual benefits to the partners especially in markets where a partner might not have had adequate knowledge (Hill and Jones, 2009, p. 269).
Joint ventures are advantageous because they make it possible for specialization to be carried out. The partners in different countries can get engaged in only the processes which are financially advantageous to them. This will make it possible for more profits to be realized as the whole process will cost less.
Supply chain strategies are set ideas into effectively accomplishing objectives of an organization’s supply chain. Each and every strategy has its strength and weakness that is different from the other strategies. Effective management of supply chains is effected through a high level of collaboration between all the partners involved in the production process. The type of supply chain strategy used will depend on the goods involved and the type of organization in question but generally the adopted strategies are aimed at improving the environment for higher efficiencies of a supply chain. The strategies used in supply chain management include altering the number of suppliers, the types of ventures, networks and virtual organizations adopted.
Passing of information up and down the chain is vital as it makes it possible for the partners involved to be prepared early enough in case of some foreseen requirements. It is also important that various strategies are employed in the management of a supply chain. However care should be taken when involving various partners and strategies as there is likelihood that if there is an improper mixing of the strategies they may work against the chain management. It is therefore beneficial to have a partial integration of supply chain strategies.
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