Supply Chain Performance Management: Role and Importance

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Abstract

A supply chain (SC) is an essential element of any company’s operations, which suggests that an SC must be sustained and upgraded regularly. Moreover, it is crucial to create a responsive and flexible SC that allows implementing change and introducing improvements across an organization without disrupting the key SCM processes. Therefore, an analysis of the SC constituents and characteristics is vital for a firm’s performance and implementation of its projects. By incorporating the principles of agility and innovation into the SC context, one will be able to keep it running successfully even in a highly competitive setting.

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Introduction

A supply chain (SC) is an integral part of any business venture. Allowing a company to obtain the materials for the production process to be launched, an SC serves a crucial function in a company. Shahbaz et al. (2019) define an SC as “the flow of information, material, and money starting from suppliers and ending to end-users” (p. 4301). Therefore, maintaining the SC running and understanding the factors that define its functioning is instrumental to the smooth performance of an organization. For this reason, key characteristics of SCs such as traits and maturity rate, as well as appropriate strategies for keeping them running, need to be identified. By integrating a profound leadership approach, the emphasis on innovative thinking, and the incorporation of effective instruments for financial assessments, one will be able to establish a well-functioning SC.

Traits

To understand the nature of an SC, one will need to have a clear idea of its foundational characteristics and traits. Several dimensions according to which the efficacy of SCM can be judged are currently identified. These are the focus on innovation, the development of key financial metrics that provide vital information about the SC functioning, a well-developed logistics approach, a feedback-driven communication network, planning, and strategic sourcing. Notably, the characteristics mentioned above need to be integrated as interrelated concepts as opposed to fragmented elements. Once incorporated into the SC framework as the components of a single system powered by innovation and data sharing, the specified characteristics of an SC will contribute to its functioning.

Financial metrics are typically listed among essential traits since they provide a clear view of the opportunities that an organization can pursue with the current range of financial assets that it possesses. The use of the Balanced Scorecard approach has been universally considered the main tool in managing the financial aspects of the SCM process within an organization (Llivisaca et al., 2020). Allowing a company to track its progress and determine the company’s financial status based on the current performance rates, the Balanced Scorecard approach also offers an opportunity to develop forecasts. Thus, future strategies for keeping the financial assets and even multiplying them can be designed based on the results of the Balanced scorecard technique application.

Communication is another crucial trait of an SC since it gives insights into the strength of collaboration across the SC and the possible issues that may occur during the information management process. The efficacy of communication defines the success of knowledge sharing and, therefore, the extent to which an SC remains updated and responsive to the changes within the target market (Marimin et al., 2017). Therefore, the integration of agile techniques that help to boost the efficacy of communication is a welcome addition to the SCM framework. Moreover, the application of IT and IT tools for boosting the efficacy of communication is highly recommended.

The ability to plan is yet another trait of an SC that determines the outcomes of its performance. Although rapid changes in local and global markets are a common occurrence, companies can still build a flexible plan that will keep the SCs running even in the event of a drastic change. Collaboration and anticipation of change lie at the foundation of an agile planning framework for an efficient SC.

Finally, one should mention a well-designed logistics framework that represents a vital trait of a contemporary SC. The quality of the logistics strategy developed by an organization depends largely on other traits, primarily, on the productiveness of communication and overall data management. By introducing a flawless communication tool based on a meticulous data analysis, one can create a logistics framework devoid of delays and misunderstandings that hamper logistics processes. Since the present focus on the agile approach has gained more popularity than the traditional lean framework due to the multiple benefits that it provides compared to lean SCM, introducing agility to logistics seems appropriate. Specifically, the development of omnichannel reverse logistics appears to be beneficial for SC managers. The proposed technique is believed to assist in keeping the SC flow consistent. Namely, with the development of a single pool of inventory for SC and by capturing real-time data on the said inventory pool, one will be able to design an effective logistics framework.

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Maturity

Another important characteristic of an SC, its maturity needs to be examined as one of the features that affect the choice of performance management strategies. The concept of SC maturity typically means the extent of resilience that the SC in question shows in the selected economic environment. As a rule, mature SCs can be maintained even in a setting that can be described as quite harsh. Moreover, the high maturity of SCs suggests that they should be able to extract essential resources and opportunities even from environments that can be described as economically and financially hostile.

Additionally, the levels of maturity define the range of connections that a company has made throughout its existence and performance. Namely, the number of businesses with which a company established relationships, including the range of its partners, suppliers, and investors, also affects the company’s ability to retain its mature status without approaching the stage of decline. Although the latter is ultimately inevitable, delaying it is possible with the application of appropriate strategies and careful use of resources available to an organization.

As a rule, the first stage of maturity in the SC context is defined by high rates of reactiveness. In turn, the second implies the presence of internal SC integration, flexibility, and collaboration. Finally, the third and the last one focuses on dynamic adaptation. The latter is vital to the existence of an SC in the market environment. It is caused by the presence of ever-changing external forces and the introduction of new factors shaping the performance of an SC (Sjödin et al., 2018). However, other factors defining the rate of an SC maturity also bear significance. For instance, the levels of reactiveness show the extent to which a company can respond to emergent challenges and new opportunities in the target market (Sjödin et al., 2018). In turn, the levels of flexibility of an SC indicate how fast it can respond to these changes and how effective the alterations within it are going to be. Similarly, collaboration affects the SC at its core due to the need to cooperate with every member of the SCM process. Thus, a company can ensure that products and supply items are delivered on time and that the key goals are achieved accordingly.

Therefore, maturity should be recognized as a crucial parameter for assessing an SC and its performance. Because of the maturity of an SC, one can control the extent of the SC’s resilience, the levels of collaboration within it, and the ability of an SC to adapt to changes in its target environment. Thus, an organization will be capable of reaching the final stage and creating a universal framework for responding to change and promoting innovation across its SC.

Strategy

Unlike traits and maturity, which typically have an established set of characteristics and elements, strategies that can be used in the SC environment are numerous and versatile. Often depending on the specifics of the organization and its target environment, the development of the said strategies requires thinking outside the box of the traditional business strategy designs. However, certain homogenous elements can be identified in the process of creating an SC strategy.

Traditionally, SC management (SCM) starts with market research, including the identification of its segments and the analysis of its profitability, as well as the presence of competitors and the overall development prognosis (Yu et al., 2016). The next stage of creating an SC strategy requires locating the areas that hold the most of the potential for the company to explore. Afterward, based on the combination of market research results and the assessment of the company’s strengths and weaknesses, and SC strategy is formed (Yu et al., 2016). The outlined approach requires a vast study of the target market and the customers that represent it, as well as the isolation of the desired niche and the evaluation of competitors.

Typical SC strategies include the focus on innovation, specifically, the promotion of incremental innovations as the platform for the company’s development along with disruptive ones as the means of gaining leverage in the target market. In addition, the focus on communication and uninterrupted data flow as the main factor in performing the essential logistics processes need to be singled out as an important approach in SCM (Gölgeci & Kuivalainen, 2020). The described approach suggests that the stakeholders should collaborate and keep each other informed about possible hindrances in the delivery of the necessary materials, as well as the related delays and other issues. Thus, fewer misunderstandings will occur, which will minimize the threat of errors and amplify the outcome of SCM.

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In addition, strategic SCM will require that real-time changes in customer demand should be taken into consideration. The task of tracking down alterations in customer demand in any market would have been seen as impossible several years ago. However, the current set of tools for controlling and observing changes in the target economic setting makes the described goal quite attainable. Finally, the introduction of the agile SC as the head strategy in managing its internal processes deserves a mentioning. Being a rather recent addition to the frameworks for coordinating SCM issues, agility has not been fully defined yet, similarly to the notion of agile SCM (Al-Refaie et al., 2020). Currently, the available definitions for the subject matter vary from flexibility in performing key SCM tasks to collaboration and effective information management in the SCM context (Tarafdar & Qrunfleh, 2017). Nonetheless, the integration of agility into the context of contemporary SCM is essential when building a competitive advantage.

Moreover, six key elements of agility and ASM have been identified. These include the ability to change direction quickly, improve key operations, scan the target setting, empower buyers, maintain flexibility, and recover from disruptions (Gligor et al., 2019). With the integration of ASM, the processes within the SC are expected to be better coordinated. Furthermore, the extent of resilience toward a variety of shocks, changes, and damage that an organization can sustain in local and global markets is expected to increase with the integration of ASM. The described change is believed to occur due to the rise in preparedness and better management of data.

Conclusion

By developing the financial metric that allows for a careful assessment and forecasting, as well as the leadership framework geared toward innovativeness and corporate ethics, one will be able to establish a perfectly functioning SC. Although other elements, specific to the target setting, will need to be added as the SC expands, the described components constitute the bulk of a well-designed SC in the environment of the modern global and local economies. Therefore, one may recommend developing tools for encouraging innovation and exerting careful control over the corporate processes, including financial ones and the ones related to the company’s maturity. Thus, the life cycle of an organization will be extended to the maximum as far as its economic potential allows, and every opportunity will be used accordingly to promote further organizational development. With the focus on a well-structured SC, a company will build an outstanding competitive advantage that will allow it to reach a high position in the target market.

References

Al-Refaie, A., Al-Tahat, M., & Lepkova, N. (2020). Modelling relationships between agility, lean, resilient, green practices in cold supply chains using ISM approach. Technological and Economic Development of Economy, 26(4), 675-694. Web.

Gligor, D., Gligor, N., Holcomb, M., & Bozkurt, S. (2019). Distinguishing between the concepts of supply chain agility and resilience. The International Journal of Logistics Management, 30(2), 467-487. Web.

Gölgeci, I., & Kuivalainen, O. (2020). Does social capital matter for supply chain resilience? The role of absorptive capacity and marketing-supply chain management alignment. Industrial Marketing Management, 84, 63-74. Web.

Llivisaca, J., Jadan, D., Guamán, R., Arcentales-Carrión, R., Peña, M., & Siguenza-Guzman, L. (2020). Key performance indicators for the supply chain in small and medium-sized enterprises based on Balance Score Card. Test Engineering and Management, 83, 25933-25945.

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Marimin, M., Wibisono, A., & Darmawan, M. A. (2017). Decision support system for natural rubber supply chain management performance measurement: a sustainable balanced scorecard approach. International Journal of Supply Chain Management, 6(2), 60-74.

Shahbaz, M. S., Sohu, S., Khaskhelly, F. Z., Bano, A., & Soomro, M. A. (2019). A novel classification of supply chain risks. Engineering, Technology & Applied Science Research, 9(3), 4301-4305.

Sjödin, D. R., Parida, V., Leksell, M., & Petrovic, A. (2018). Smart factory implementation and process innovation: A preliminary maturity model for leveraging digitalization in manufacturing moving to smart factories presents specific challenges that can be addressed through a structured approach focused on people, processes, and technologies. Research-Technology Management, 61(5), 22-31. Web.

Tarafdar, M., & Qrunfleh, S. (2017). Agile supply chain strategy and supply chain performance: complementary roles of supply chain practices and information systems capability for agility. International Journal of Production Research, 55(4), 925-938. Web.

Yu, Y., Wang, X., Zhong, R. Y., & Huang, G. Q. (2016). E-commerce logistics in supply chain management: Practice perspective. Procedia CIRP, 52, 179-185. Web.

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BusinessEssay. "Supply Chain Performance Management: Role and Importance." January 15, 2022. https://business-essay.com/supply-chain-performance-management-role-and-importance/.