There is no service or manufacturing organization that can work alone or in isolation. It always needs suppliers and a supply chain in order to function in an effectual manner. Nowadays, realties as well as trends that are prevailing in the global economy are compelling the organizations to ensure management of supply chain as an essential element of business strategy. In recent years, most organization have started relying on external supply sources, by using outsourcing in order to reduce the cost, and utilize major competencies. Supply chain perspective of operations management has become important because of the role that supply chain is playing for ensuring success of an organization such as it is allowing the company to deliver products in an effective manner, and satisfy customers. It is essential for improving the bottom line and boosting customer experience. Supply chain network is, however, regarded as basic supply chain's evolution. Supply chain network indicates a set of interlinked relations between parties that play their role in supplying inputs to, and receiving outputs from operations (Gattorna, 1998). Moreover, the supply chain represents a network that is created among different organizations in order to produce, handle, and distribute particular product (Cutting-Decelle, 2007).
Because of rapid advancement in technology, organizations having basic supply chain can effectively develop supply chain network in order to ensure more connectivity as well as interdependence among different organizations that are maintaining supply chain network. Further, supply chain network perspective has become important because of the fact that these networks are used in order to increase interactions between organizations, and they also play a significant role in conveying information, and ensuring flow of materials across organization (Chen & Paulraj, 2004).
The effectiveness and importance of supply chain networks can be considered from the fact that supply chain networks have now become more global, as they are designed with five major areas, which are, distribution centers, production centers, external suppliers, transportation assets, and demand zones (Watson, Lewis, Cacioppi, Jayaraman, 2012). Majority of organizations are now focusing on purchasing components in order to design an effectual supply chain network (Hines, 2004). The purchase, however, comprises of transportation vehicles, location, and system for support via which markets of products and services are managed, and products and services are delivered to clients or customers. Location in case of supply chain network can be storage warehouse, distribution centers, manufacturing plants, transport carrier, retail store, third party logistic provider, cross docks, ports, and end customers (Blanchard, 2010). Supply chain network comprises of many transportation modes that are operating within supply chain, and these are trains, trucks, containers, ships, intermodal unit, and cargo planes.
Further, in order to ensure smooth functioning, and to facilitate customers, there are many systems that are use for improving and managing supply chain network such as there are inventory management systems, optimization tools, and replenishment systems etc (Davis, 2013). For ensuring proper management of operations organizations are using latest techniques such as RFID or Radio Frequency Identification (Cox, 2013). However, organizations are also using standards such as GS1 standards, which are allowing automation of Supply Chain Network, and are helping in making supply chain networks more effective (Martel & Klibi , 2016).
Usually organizations just focus on considering benefits associated of organization, such as increase in production, without keeping an eye on the fact that what customers are receiving. Looking at the network of supply chain makes an organization capable of looking at overall flow and movement of information and material from the start to the end, permitting an organization to consider value in establishing partnerships, and also to focus on value of working in collaboration for ensuring that final customers are facilitated in best possible manner. Supply chain networks are becoming popular because of the fact they help in planning, organizing, directing, and controlling flow of materials (Stadtler & Kilger, 2007). This network starts with raw materials, continues via the internal operations, and ends at the distribution of final products. It, however, engage everyone associated with supply chain. An example of this fact is it involvement of supplier’s supplier. Supply chain network is important for most of organization because of its objective of maximization of value, reduction of cost, measurement of performance at global level, establishing a competitive infrastructure, leveraging logistics at worldwide level, and synchronizing supply of goods (Tiwari & Jain, 2013). .
Today, most of the organizations that are conducting business at global level are compelled to keep an eye on production so that cheap raw material can be made certain, and labor cost can be minimized for competing effectively in global market, and for ensuring smooth working in networked economies. Supply chain network and supply chain management is helpful and necessary for such organizations. There are many activities in an organization that requires strategic management, which is not possible without supply chain network. Supply chain networks help in ensuring strategic management of various activities such as sourcing raw materials from one place to another, from one location to another, and then passing finished goods through several chains of distribution network that include distributors, customers, and retailers (Cetinkaya, Cuthbertson & Ewer, 2011).
An example of a company that is maintaining effective supply chain network is Li & Fung. Li & Fung is regarded as biggest trading group in Hong Kong. The company is effectively managing its operations via supply chain networks. There are no production facilities in Li n& Fung, instead the company is maintain global network of above 7, 000 suppliers, which is ensuring adaptability as well as flexibility in the organization. It is also making the company capable of offering complete supply package that comprises of management of production, design, delivery and clearance of custom. Further, supply chain network has also made the company capable of manufacturing at low cost, which is making consumer markets more attractive.
The importance of supply chain network in operations management can be analyzed with the help of supply chain theory, which is an integrated theory comprising of network theory, optimization theory, and game theory. In this regard, the network theory helps in identifying the structure of a supply chain and associations so that effective supply chain network can be ensured. By applying game theory, organizations form desirable structure of supply chain so that it can cope with the emerging needs and demands of the society. Optimization theory is meant for capturing criteria of decision makers in the form of variable of decision that they control, functions, and resource constraints (Nagurney, 2006). Game theory is, however, formulated in order to ensure modeling of an organization and competition reality. With the help of Game theory, an organization can determine its strategic direction, because Game theory helps in considering cooperative as well as conflicting behaviors of rational decision makers (Henry, 2011). It also helps an organization to consider different scenarios such as win-win, win-lose, lose-lose, and lose-win, and different situations prevailing in an organization.
Furthermore, Supply chain networks are becoming popular in operations management because in supply chain network various concepts and theories of sociology and economics are involved that play a significant role in bringing efficiency in operations of an organization. In this regard, transactional cost economics, network perspective, social network theory, resource based view, systems theory, and strategic choice theory are worth considering. Transaction cost economic helps the firm to determine the purpose of its presence. It, however, aims at reduction of cost that is linked with transaction when deciding about the making a purchase (Murugan , 2013). There are, however, three factors that exert their influence on decision of firm regarding buying. These factors are transaction frequency, specificity of assets, and level of uncertainty in transaction. With the help of this theory organizations become capable of employing governance mechanisms that are helpful in mitigating the risk in supply chain companies while outsourcing. For example, vehicle leasing companies employ transaction cost economies in their operations and are achieving efficiency in their operations.
The network perspective is of the view that organizations depend not only on their relations with direct partners, but they also form supply chains in order to extend their network for establishing more relationships (Skjott-Larsen, 2007). With the help of this perspective organizations are ensuring management of their supply chain, because network perspective points out towards the fact that competitive advantage can be attained via effectively and efficiently managed supply chain. It is beneficial as it enables a company to develop long term relations based on trust between several supply chain firms, which help in achieving efficiency of operations, and make an organization capable of coping with the latest needs and demands. In supply chain network, social network theory is also worth considering. In order to achieve efficiency in operations, organizations try to consider social and behavioral aspects of different relationships. Social network theory helps organizations to consider social and behavioral aspects of different associations such as firm-firm association, individual-individual association, and individual-firm association. Firms can analyze these relationships from financial, social, and technical perspective.
Further, for ensuring smooth operations, firm consider its capabilities and resources. Resource based view considers that the resources and capabilities of a firm are major assets, and they are most important. Resource based view helps the company to obtain information regarding core competencies of a firm so that it becomes capable of achieving competitive advantage. Almost all the companies try to obtain competitive advantage, so they are considering resource based view in their supply chain network, which is enabling them to achieve competitive advantage. Principle agent theory is concerned with the control mechanism and governance of form in order to eliminate the chances of conflict, conflicting interests, flow of inappropriate information between agent and principle, and opportunism (Tirole, 1988). This theory in supply chain network organizations helps in formation of contracts in order to ensure governance and control mechanisms.
Additionally, incentives are also given that help organizations to meet the minimum standards in order to achieve efficiency in operations. System theory is effectual in context of supply chain network because it helps in bringing different components of complex supply chain together. Different components, however, include capital formation, human capital, financial resources and material. They are joined together in order to form a subsystem that is a part of larger network or supply chain. With the help of the systems theory, organizations develop an understanding of external and internal factors for shaping supply chain performance of an organization (Helou & Caddy, 2006). Further, supply chain network is developed by considering strategic choice theory as it helps in addressing strategic issues as well as political forces that are associated with supply chain.
In this rapidly advancing era, top organizations are maintaining departments for optimizing supply chain networks (Sabri, 2015). It is providing them huge cost advantage as compared to small companies. This can be considered with the help of an example that a big retailer may have several distributions that are spreads across the region, which permit the retailer to complete and process orders of customers in more effective manner as compared to less equipped companies. Improvement in supply chain is helpful for the company in ensuring quick delivery of products at reduced cost (Crandall, Crandall & Chen, 2014). Now, companies are finding it difficult to rely on the traditional systems of supply chain. That is why they are adopting latest practices in supply chain networks so that they can compete effectually, and ensure effective operations.
As a matter of fact, this world is just like a huge supply chain. Supply chain networks and supply chain management consider all the main issues, such as strategic partnerships, growth of international and Multinational Corporation, expansion at global level, fluctuating prices of gas, and environmental concerns, all these issues exert their influence on corporate strategy and on the bottom line (University of San Francisco, 2016). Due to these emerging concerns and trends, supply chain networks and management is regarded as most important element and business discipline in this rapidly changing world today.
In conclusion, supply chain networks are playing various important roles, and are enabling the organizations to achieve effectiveness and efficiency in their operations by boosting customer experience, creating value, reducing cost, maximizing value, and improving bottom line.
References
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