Critical Elements Of Supply Chain Management

The Supply Chain Management is explanation of the planning and controlling function of materials and flow of information and logistic activities of the company internally as well as externally. The framework of the supply chain management incorporates key areas of supplier and buyer relationships that further include supply base reduction, maintenance of long term relationships, development of cross functional teams, communication and involvement of suppliers (PAULRAJ, 2004).

The author highlighted several key forced that drives the maintenance of superior relationships among the supply chain members. Primarily, he stresses upon environmental uncertainty arising as a fundamental problem. Also, internal corporate strategy and organizational structure also have an influence on success of such initiatives. The author recognized the importance of competitors’ activities, support from top management and strategic decisions pertaining to purchasing over the effectiveness of supply chain (PAULRAJ, 2004).

Critical Elements of Supply Chain Management:

The elements are actually the approaches that are initiated by the companies and organization to address supply chain management. These elements are examined carefully to derive its impact on the performance of overall supply chain process. They are as follows –

Strategic Purchasing:

The strategic purchasing is believed to have an inert role in organizations and it is defined as the integration of internal as well as external functions pertaining to industrial purchasing by taking into consideration quality of purchasing done and measurement of customers’ perceptions. This has resulted in achievement of breakthrough by means of innovation, proactiveness and risk taking. The initiative has also resulted in the establishment of cooperative relationships with suppliers to comply with the competitive stance (PAULRAJ, 2004).

Supply Management:

This area mainly focuses on the delivery of products and services to the distinguished customers and the area had increasingly got strategic importance and strategic recognition over the years in large organizations. However, it is clear that selection of suppliers and suppliers’ activities have a direct relationship on the cost and quality of the products/services delivered by the buying firms. Thereby, it is imperative to have an effective two-way communication throughout the supply process. In addition, adoption of multiple sources for buying/purchasing in order to avoid dependency on the single supplier. This will further results in numerous benefits such as reduction of inventory management costs, achievement of economies of scale and reduction in other costs. Also, selection of suppliers is the most critical aspect of the entire process that is needed to be handled skillfully and strategically as this has a direct impact on financial as well as operational function of the business (PAULRAJ, 2004).

Logistics Integration:

The logistics integration can be done both internally within the functional boundaries of the company as well as externally to supply and distribute products/services to the customers. The industry certainly requires high level of integration especially externally and for doing so it is important to coordinate logistics activities with suppliers and customers (PAULRAJ, 2004).

Supply Network Coordination:

The researcher views Supply Chain as a blend of three essential stages comprise of procurement, production and distribution which further encompasses of multiple facilities. With the help of mathematical models and bullwhip models, the author has studied several supply chain problems and issues including of – variation in demand, scheduling, level of inventory, number of stages in between the process, number of distribution centers, plants, number of products and type of products (PAULRAJ, 2004).

Managing Supply Chain Relationships:

Success of supply chain performance is determined by the trust and commitment established among supply chain partners. For the purpose of sharing and releasing financial or strategic information to supply chain partners is largely dependable on the trust extending to the supply chain partners. The supply chain trust is largely related with investment in assets as well as behavioral uncertainty. The author emphasized on the fact that sharing of information results in the decrease of behavioral uncertainty. At the same time, goodwill and reputation of the firm is also considered important at the time of building of trust and member’s perceptions also affect the relationships of members (Kwon & Suh, 2004).

With the use of conceptual and behavioral models, the author has also described that supply chain relationships are determined by the dynamic knowledge management by the members in relationship building. Thereby, the author identified that intensive training and education is essentially imperative at the time of supply chain implementation (Kwon & Suh, 2004).

Large Organizations are found to be more collaborative than those of small or medium sized firms and using contractual agreements at the time of entering partnerships or collaborations. Supply Chain partners throughout the supply chain process are working in integration on major customers’ processes and for the achievement of goals. The partners willingly share information about the future plans or specifications of designs or any information pertaining to research and development or competitive forces (Kwon & Suh, 2004).

The collaborative behavior results in engagement of supply chain partners in joint planning and goes beyond to the development of intensified relationships. The author justified his fact by stressing upon the achievement of cost leadership in the procurement function and other revenue encouraging strategic initiatives (Kwon & Suh, 2004).

Determinants of Effective Supply Chain Collaboration:

With the partnering and collaboration of supply chain members or firms involved in the process requires the integration of several supply chain functions such as ordering of raw materials, receiving of raw materials from throughout manufacturing process to the distribution process for supply of finished goods and services to the customer. The author demonstrated that the idea of collaboration is endowing organizations to achieve improved procurement, lower inventory costs, and lower operational costs (RAJAGOPAL, 2006).

The supply chain infrastructure, flow of information, sharing of resources and organizational linkages are determining the effectiveness of supply chain processes. From the statistics obtained from the investigation, flow of information among the supply chain partners and their linkages are determined to be the most influencing and important factors having impact on of supply chain partnering and collaboration. On analyzing the case studies, the author revealed that high scale partnering is more effective than that of low scale partnering for the success of supply chain partnering (RAJAGOPAL, 2006).

Results & Findings:

The field analysis resulted in the identification of several factors noted in the supply chain performance of UAE food industry. The study is conducted within eight Firms operating in the UAE food industry from the senior managerial participants. The key determinants found have an imperative influence in the supply chain performance. The important findings are presented in the following sections –

Inter-Firm Relationships:

Mutual Trust & Commitment:

The strength of relationships is managed on the fact that how the firms are integrating vertically sharing product information, and are having commitment and interdependency among each other. The strength is demonstrated by the comments of the participants of the study. The comments of the participants reveal that while dealing with their suppliers for obtaining fresh products, it is important to maintain open relationships with multiple suppliers owing to the emerging high demand for quality in the market. Almost all of the participants emphasized on the fact that they are ought to maintain long term relationships in the process for mutual benefit. The importance of maintaining long term relationships may also results in negotiation of costs incurred in the transaction. Also, if not managed effectively, it will bring the firm in the collegial position and isolate from the rest of the chain. It was also determined that producers are ought to understand the view point of business of processors as well as business of retailers to encourage sharing of benefits and risks in the supply chain.

Mutual Investment:

Mutual Investment by the firms to address the needs of producers, processors, retailers, market agents is certainly important for value creation at the time of transaction in supply chain. This mutual investment would be further helpful in building new facilities such as warehouses that improves the storage or delivery of goods.

Knowledge Asset & Firm Performance:

The knowledge flow in the supply chain process can stimulate the entire process and it is carried out and transmitted with the use of technologies, such as Content Management System, Internet, and EDI. In addition, use of e-mails, bulletin boards and video conferences are also popular in many of the organizations.

The Knowledge Flow in the process of Supply Chain as determined during the field study is summarized below –

Supply Chain Process

Formally Structured

Informally Structured

Product Design & Development

Customer Requirements

Components Specifications

Engineering Specifications

Estimated Cost

Market

Target for Quality and Cost

Innovative Concept

Relationship Management

Information on Potential Buyers

Corporate & Marketing Strategy

Product & Service Contract

Performance Specification

Market Power

Expected Service Level

Trust

Demand & Sales

Purchasing Information/Receipt of Order

Sales Proposal

Point of Sale/Key Customer Data

Response & Cycle Time

Order Fulfillment Rate

Sources of Demand variability/uncertainty

Bid Process

Product Processing

Production Plan

Schedule

Capacity

Inventory Level

Quality Plan

Efficient Consumer Response/Flexible Manufacturing

Demand Forecast

Technical/Special Skill

Distribution

Shipment Plan

Delivering Plan

Invoicing

Logistic Process

Service & Support

Customer Complaint/Feedback

After Sales Service

Support for Product Consumption

Returns

Return Business Rules

Legal and Environmental Compliance guidelines

Return Rates and Business Impact

Effective return Process

Identify defective product/areas of improvement

The Firms have a separate group of people for the collection of data from the market and also some are conducting surveys to collect data.

The Firms are using advanced technologies to have access to the scanned data knowledge and are also formulating reports for sharing of common interests.

The acquired knowledge is helpful in forecasting demand by reducing their inventory lead times and ordering lead times and is also helpful at the time of negotiation from large consumers.

Use of Inter-Organizational System:

Several cutting edge and state-of-the-art technologies have been used in the supply chain processes and practices by the UAE food industry firms with an aim to lower and reduce the cost. The success of the IOS usage is relying heavily on the sound inter-firm relationships. From the discussions held with the concerned authorities of different firms revealed the process of supply –

Automatic Text Messages are sent from Transport to Store for delivering the loads.

The Ordering System gets used and then incorporates in the system installed in the unit.

EDI System is used for bringing in the orders and later gets integrated with the in-house developed computer management system.

Several insights were received that the IOS usage results in lowering of costs by reducing lead time, accurate estimation of inventory, orders needed and also in the distribution of products.

Compatibility Issues in IOS Usage:

Difficulty in integrating in-house installed computerized systems.

Difficulty arising at the time running of system by the consumers those who have access under the individual franchise agreement.

Issues pertaining to software upgrade, software installation and agreement for obtaining sales data back.

Uncertainties in the Food Supply Chain:

Demand Uncertainty:

The Firms are ought to meet the contingencies arising due to seasonal uncertainties, and have also concluded on the fact that they are ending up with backlog of stock or with no stock due to volatility in demand.

Supply Chain Uncertainty:

Problem of derailment (de-railing of rail line for 5 to 15 times in a year) occurring resulting into the disruption of services, especially in perishable goods. Breakdown of factory or any manufacturing unit also results in the risk of uncertainty of timely supply. Uncertainty also arises on the part of farmers those are responsible for the supply of good grains.

Product Perishability:

The product perishability has been commonly faced by the firms as they actually have only few days for keeping the stock of such products and to avoid the degradation of quality or any code of expiry of such products. This uncertainty is largely influenced by the demand and favorable market conditions, eventually results in higher transactions costs for the firm.

External Factors in the Food Industry Supply Chain:

Several dominant factors are influencing the supply chain performance within the food industry in the UAE. They are as follows –

International Competitors:

Presence of multinational competitors such as Wal-Mart as the same high level of quality of the food products offered in their supermarkets is ought to be maintained and that is what the customers prefer or buy. Owing to the growing market share of such brands, it becomes imperative to track their activities.

Policy of Technology Use:

Making use of technology within the process becomes a skeptical issue in terms of affordability, though presence of visible benefits in the production. Problems in adaptations results in the increase of inter-firm transaction or collaboration costs.

Environmental Concerns:

Insights gained pertaining to the environmental concerns emphasize on the controlled use of energy and power, use of diesel, petrol and kerosene and carbon footprints which is very critical.

Trading Regulations:

Several governmental regulations certainly influence the supply chain process in terms of economic viability, balancing of well being and bringing about fair trade on foods. In additions, impact of deregulations was also seen as a major concern to achieve a competitive edge in the market.