Literature Review: Supply Chain Management

Literature Review: Supply Chain Management
Student:
Professor:
Course title:
Date:
Literature Review: Supply Chain Management
Supply Chain Management
Introduction
The profession of supply chain management (SCM) has continued evolving and changing in order to fit the needs of the expanding international supply chain. SCM is essentially based upon the notion that virtually all products that come to the marketplace stem from the efforts of different organizations or companies referred to as the supply chain. Activities in the supply chain encompass everything from development of the product, sourcing, manufacturing, logistics, in addition to the information systems that are required for coordinating these various activities (Corominas, 2013). This literature review exhaustively covers the concept of supply chain. The supply chain framework is analyzed along with the benefits of effective supply chain management, factors that influence SCM, supply chain risk management framework, sustainability, corporate social responsibility, as well as in-sourcing and outsourcing/ buy-or-make decisions.
What is supply chain management (SCM)?
SCM is essentially understood as the range of processes which connect suppliers and customers. It is the oversight of finances, information and materials as they move in a process from the supplier to the producer to the wholesaler to the retailer and lastly to the end-user. SCM entails coordinating as well as integrating these flows among and within firms (Wolf, 2014). For any SCM system, the main goal is about reducing inventory and to ensure that products are available whenever required.
According to Hamta et al. (2015), SCM refers to the active management of supply chain activities in order to make the most of customer value and attain sustainable competitive advantage. SCM represents a conscious effort by companies in the supply chain to create and operate supply chains in the most effectual ways possible. It is notable that activities in the supply chain include product development, sourcing, logistics, production, in addition to the information systems required to coordinate these activities (Wolf, 2014).
Organizational design
Many business organizations are searching for new ways to compete via a competitive supply chain strategy. Successful companies are typified by the following organizational design: (i) There is a senior executive who is responsible for supply chain management and this individual reports to the company’s CEO; (ii) corporate committee which is involved actively in giving direction and guiding the execution of supply chain management strategies (Jain, 2012). (iii) Coordinating strategic initiatives is achieved centrally with active participation of the company’s business units. (iv) Common services are centralized to ensure improved efficiency in every business unit. (v) Ownership for operational facets of supply chain management is with the operational business units (Jain, 2012).
The supply chain management framework
The framework for SCM is as follows:



Efficiency is promoted through the usage of supply chain management best practices. This framework ensures that there is an effective, seamless and efficient system for planning, sourcing, moving, and paying for services and goods (Corominas, 2013).
2. Supply Chain and Business
Defining Supply chains
A supply chain refers to a whole network of entities, indirectly or directly interconnected and mutually dependent in serving the same customer or consumer. A supply chain basically includes vendors who supply raw materials, producers/manufacturers who convert the raw materials into finished items, warehouses which stock up the items, distribution centers that bring the finished product to retailers, and lastly retailers that bring the finished good to the final end-customer (Routroy & Shankar, 2014). Generally, a supply chain covers all the steps it takes in getting a service or a product from the supplier to the end-user and it encompasses every firm that comes into contact with a given product.
Benefits of effective supply chain management
Having an effective SCM is important for an organization as this would translate to reduced costs for the organization. According to Hollstein and Himpel (2013), if a business executes an effective SCM system, it would be able to decrease overhead costs, waste, as well as transport delays. Moreover, effective SCM ensures that the right products are delivered in the right quantities and in the right conditions to the right locations at the right prices at the right time with the appropriate documentation. An effective SCM contributes to business performance as it helps to get products to the end-user cheaper, faster and better. It helps to lower operational costs with timely planning for procurement, production of goods, and retail fulfillment. In addition, it offers competitive advantage for every retailer (Brandenburg & Rebs, 2015). With complete visibility, there is decreased costs which enable an organization to work smarter to get rid of non-essential activities, and to shorten lead times. Effective SCM also minimizes logistics costs by consolidating transport and order whilst also reducing logistics administration personnel (Hollstein & Himpel, 2013).
3. Factors influencing Supply Chain Management
3.1 Managing suppliers
Supplier selection
The main objective of the process of supplier selection is to decrease purchase risk, develop long-term relationships and closeness between suppliers and buyers, and to maximize overall value to the buyer. In many industries, the cost of component parts and raw materials accounts for the biggest percentage of the total product cost. In high technology companies for example, purchased services and products represent nearly 80 percent of the total cost of the product (Alexandru, 2014). As such, choosing the right suppliers is of major importance to procurement process and it in fact represents a significant opportunity for firms to decrease costs across their whole supply chain. Deciding the appropriate method to use in selecting suppliers effectively results in a decrease in purchase risk and increases the number of Just-In-Time suppliers and Total-Quality-Management production (Olson & Swenseth, 2014).
The conventional approach to supplier selection for several years has been to choose suppliers basing exclusively on price. Nonetheless, as firms have learned that it is not efficient to emphasize solely on price as a single criterion in selecting suppliers, they have began using a more inclusive multi-criteria approach. In essence, these criteria have become more and more intricate in recent years as customer satisfaction, political, social, and environmental factors have been added to the conventional factors of service, cost, delivery and quality (Alexandru, 2014).
Supplier profitability and performance measures
Developing an effective and strong supply chain would benefit both the manufacturer and its customers. It is vital to make certain that there is effective supplier collaboration as this would improve profitability. Business organizations in various industries have become very much reliant on their suppliers. Consequently, their business performance is now directly entwined with the performance of their suppliers. This essentially implies that a failure to monitor and manage performance of the supplier could result in significant supply chain disruptions, poor quality, delivery problems, as well as other issues which damage the credibility of the firm, in addition to the company’s bottom line (Chen, Sohal & Prajogo, 2013). Supplier performance measurement, as Wolf (2014) reported, is understood as the process in which supplier performance is measured, analyzed, and managed in order to reduce costs, mitigate risk, and drive constant improvements in operations and value. Consistent and common measurements could help business organizations in focusing resources, identifying performance anomalies, formulating strategies for supply chain improvements, and determining the total cost of ownership of products, supply relationships, as well as entire supply chains. In essence, failure to correctly measure, assess, and manage performance of suppliers could increase a firm’s cost, damage the company’s product quality, and hamper its competitiveness in the marketplace (Chen, Sohal & Prajogo, 2013).
To really understand how well a given supplier is performing, supplier performance metrics have to be integrated with data from quality management and supplier risk management. The common supplier measures include the following: ability of supplier to deliver on the expectations, timely delivery/on-time delivery, and financial health of the supplier since a supplier who is bankrupt can be a threat to business operations. Other performance measures include quality, total cost, service, lead times, contract compliance, and responsiveness (Grötsch, Blome & Schleper, 2013). The other areas that are usually measured are technical support, accuracy of quotes and promises, as well as price variances.
3.2 Managing inventory
3.2.1 Economic order quantity (EOQ)
EOQ, as Brandenburg and Rebs (2015) pointed out, refers to the order quantity of inventory which reduces the full cost of inventory management. It is the order quantity which reduces full inventory holding costs as well as ordering costs. It determines the best possible number of units to reduce the total cost linked to the purchase, shipping, as well as storage of the product. Assuming that a company wants to determine the best possible number of units to order for it to reduce the whole cost linked to the acquisition, shipping, and storage of the manufactured goods. Parameters required to the solution are the total demand for the year, fixed cost to place the order, acquisition cost for every item, as well as storage cost for every item annually (Brandenburg & Rebs, 2015). The basic assumptions are: fixed lead time, constant ordering cost, constant purchase price of item and there is no discount, rate of demand is known, just a single product is involved, and replenishment is made instantaneously.
3.2.2 Just-in-time (JIT)
JIT inventory is understood as an inventory management system whose main objective is to have inventory readily available to satisfy the demand, but not to a point of glut in which the company has to stock extra products (Hofmann et al., 2014). With JIT inventory, products or materials are acquired or produced only as the demand requires. In essence, maintaining inventory has costs and takes time, and this is what really motivates business organizations to implement Just-In-Time programs. Just-In-Time inventory has become more and more popular in the past 15 years as retailers and suppliers work together in trying to control inventory costs whilst still meeting demands of customers (Chen, Sohal, & Prajogo, 2013). The JIT approach is meant to evade situations wherein inventory is more than demand and puts increased burden on the corporation to manage the added inventory.
3.2.3 Customer value (CV)
This is the difference between what an end-user obtains from a given good, and what this customer has to give for him/her to acquire it (Jain, 2012). An effective inventory management helps to improve customer service. Having a clear picture of what stock the company is holding would assist the company’s sales team since it will provide accurate amounts of available goods. In the competitive business landscape of today, inability to satisfy the requirements of customers could be the difference between never hearing from a customer again and establishing a lasting relationship. A good inventory control system ensures that the company has products available for its customers whenever they want them (Olson & Swenseth, 2014). A company can leverage its inventory control system in ensuring product availability as well as the resulting customer satisfaction which the company depends on. A key factor in customer satisfaction is the availability as well as timeliness of the delivery of products. If the client has to wait before receiving a product – even for only a few more days – it could be damaging to their feeling of satisfaction, and in most cases a dissatisfied client is a former client. Providing customer value for just a single retained and satisfied customer could lead to many customers in future (Ho et al., 2015).
4. Supply chains and risk
4.1 Defining risk
A risk in supply chain refers to any threat of interruption to the supply chain workings. Risks result from any type of uncertainty in the environment or a process (Hollstein & Himpel, 2013). It is notable that risk is relative to the capability of identifying and predicting its impact in advance. In addition, risk is relative to the capability of preventing the occurrence of risk in time and to reduce the effects of the risk if, despite the preventive action, it happens after all (Hollstein & Himpel, 2013).
Supply chain managers nowadays grapple with uncertainty, risk, and volatility. Earthquakes, floods, hurricanes, tornadoes plus other natural disasters could bring about considerable disruptions in supply chain and it may take months or weeks to recover from the effects of such disasters. At the moment, some business organizations are still dealing with aftershocks of the tsunami and earthquake that occurred in Japan March 2011 (Varzandeh, Farahbod & Zhu, 2014). Supply chains could be susceptible not only to the fiscal pressures of a global recession. Compliance risks; cultural and political issues; ethical responsibilities; possibilities of a supplier defaulting; as well as supply chain disruption for instance natural and physical disasters are all risks which could have a major impact on the business and disrupt the company’s supply chain. In supply chains, risks could crop up in supplying a service or product to a client in terms of timely delivery, cost, as well as impact on image. These risks affect various stakeholders including producers, retailers, the logistics, and the clients (Carbone, Moatti & Wood, 2012).
The 2 major risk types are internal risks and external risks. External risks in the supply chain: these could be driven by events either downstream or upstream within the supply chain and cannot be controlled by the company. External risks include supply risks: brought about by disruptions to the flow, be it parts or raw materials, in the supply chain. Physical plant risk: brought about by the condition of suppliers’ physical facility and regulatory conformity (Wolf, 2014). Demand risks: brought about by misunderstood or unpredictable end-user or customer demand. Business risks: brought about by factors like a supplier’s management or fiscal stability. Environmental risks: these come from outside the supply chain and normally relate to climate, governmental, social, and monetary factors, including terrorism threat (Hall, Matos & Silvestre, 2012). Internal risks in the supply chain: th...