Abstract
The notion of supply chain management (SCM) is not new, but it poses different understanding issues in terms of organizing internal processes and relationships with suppliers and customers. Different companies, different industries require for distinct SCM. The most important thing for organizations is to comprehend that they are part of a SCM and that it is in their power and responsibility to guide activities and processes to best fit their business objectives. By analyzing three SCM dedicated sources, this paper aims to answer several stringent aspects of SCM in the contemporary business world. The challenges of organizing SCM in order to meet market’s demand, to gain competitive, differentiate and eventually increase market share are addressed in this essay. The paper also delineates the sources of uncertainty in supply chain management that can influence production, demand, storage, and other activities, which, better aligned, can generate increased performances. Knowing these, as well as knowing how marketing can influence SCM and how SCM can impact the business, managers can be better prepared to tackle the challenges of 21st century business environment.
Key Words: supply chain management, internal processes, suppliers, customers, market’s demand, competitive, differentiate, market share.
Question 1
Companies take time to consider their supply chain, mostly in moments of constraint, when something does not function as expected (Cohen & Roussel, 2013). However, maintaining a constant focus on supply chain management (SCM) can generate major benefits in terms of strategy and business consolidation. Cohen and Roussel (2013) indicate that some major benefits include establishing a core strategic vision that helps the organization to better address customers’ needs and differentiate in the marketplace. Dittman (2013) also recognizes this advantage and also adds that SCM helps companies to recognize global trends and implications for the foreign and domestic competition, contributing to shaping future directions for increasing competitiveness. Cohen and Russel (2013) also indicate that SCM supports companies in gaining competitive advantage, by aligning firms’ basis of competition (innovation, customer experience, quality or cost) with the internal process architecture, so that the internal resources and capabilities to be engaged in enhancing competitiveness. Furthermore, Hogos (2003) observes that supply chain management requires improvement in customer service and internal operating efficiencies, in a simultaneous manner, which increases organizational capacity of achieving performances.
Question 2
In a vertical integration supply chain, the company controls its suppliers and the implicit activities, aligning them as it considers most suitable to achieve its business objectives, “competitive differentiation, business growth, customer experience or superior offerings” (Cohen and Roussel, 2013, p. 14). Hugos (2003) notes that through vertical integration, companies maximize their efficiency by achieving economies of scale. This is the case of Ford, which back in 1900 owned iron and steel mines, plants that made car parts and assembly parts where finished products where delivered, plus farms and forests for linen, respectively wooden parts (Hugos, 2003). This business model defines predictable activities that can generate profit in a “one-size-fits all industrial economy” (Hugos, 2003, p. 22). However, Zara, a contemporary business model, also integrates all its activities in new product or service development, coordinating the “management of the process, physical assets and information” (Cohen and Roussel, 2013, p. 4). This model also results in cost efficiency, but the retailer assures constant growth by having the best-selling products available across different stores (Cohen and Roussel, 2013).
On the other hand, in the horizontal integration supply chain strategy, the internal functions, such as sales, customer service or accounting, are organized along a horizontal process with the activities of suppliers, following the product, information and cash flow, while under the coordination of the corporation (Dittman, 2013). In this SCM strategy, firms might encounter functional barriers in meeting customers’ requirements that should be overcame by getting the buy-in of all the supply chain actors into the alignment of work processes and capabilities (Dittman, 2013).
As compared with the vertical integration, where the corporation controls all processes and activities, in the horizontal supply chain strategy, company does not control everything and there might appear conflicting interests among different actors of the supply chain. On the other hand, companies with vertical integration are less flexible when seeking to diversify or enter new markets, whereas the firms with horizontal strategy can more easily adjust to new business objectives.
Question 3
There are various challenges in supply chain management. In the case of canned peaches sold by a major food-processing company, the sources of uncertainty can appear both in the upstream and downstream supply, which can also influence internal organization and processes uncertainty. In the upstream segment, namely, the relationship with the suppliers, there can be identified uncertainty in production planning, because it is dependent on the downstream segment, specifically on customer consumption. Therefore, purchasing the raw materials, in this case the fruits, passing them through the canning process, assuring the relationship with the can producer, are all dependent on customer consumption. Furthermore, storing the end products is dependent on the distribution, and distribution is influenced on the sales. The information flow can diminish the uncertainty, as it can help managers forecast the consumption and based on this, align the rest of the processes. Cohen and Roussel (2013) state that demand should be aligned with production volume. But demand is a source of uncertainty, unless managers are able to drive it and further forecast it.
Question 4
Relationships between suppliers and customers are intermediated by companies, but, as Dittman (2013) observes, this is not the total scope of supply chain management. Starting with the knowledge that customer demand is unpredictable, supply chain management has evolved into becoming a semi-science of understanding and influencing customer demands and requirements, and further aligning the production with the demand. In addition, SCM have evolved in terms of scope because it does not solely involve connecting activities of suppliers to meet consumer demands, but also using suppliers to expand, by maximizing their production lines existent in different locations in the world (Cohen and Roussel, 2013). It is not solely a source of gaining competitive advantage, but also for increasing market share. This also influences the complexity of SCM activities, as corporations are challenged with constant change management to integrate and realign operations and processes according to market’s dynamics (Dittman, 2013).
Question 5
Marketing influences sales, hence, customer demand. Knowing or being able to predict customer demand is a major advantage for companies, because they can organize their production, as well as their storing capacities and distribution in accordance with the demand. Marketing is often considered an integral part of supply chain management, and not a separated domain, coordinated with SCM (Hugos, 2003). Marketing is necessary within a company, because it contributes to creating the strategy, but also to reaching organizational objectives. Therefore, this orienting this organizational component towards close collaboration with SCM is important, because it tells managers what clients want, which can result in changing the product and the materials composing it, in order to fit the customer requirements. Marketing and supply chain management are in an intertwined relationship, because marketing helps managers understand the market, and adapt to its needs by modeling the product or service through supply chain, through a cause and effect system.
References
Cohen, S. & Roussel, J. (2013) Strategic supply chain management. Second eds. New York: McGraw Hill Education.
Dittman, P.J. (2013) Supply chain transformation. New York: McGraw Hill Education.
Hugos, M.H. (2003) Essentials of supply chain management. New Jersey: John Wiley & Sons, Inc.
