Importance Of Supply Chain Management To Organization Management Essay
Efficient supply chain management is the essential to being able to satisfy market demand and to do so in a way is profitable (Hugos, 2006). Supply chain management of the organization that enables them to deliver the best value to their consumers will generate a strong demand for the organization product or services. When information is shared in between supply chain networks, it can result a more efficient flow of goods and services (Anand & Mendelson, 1997), reduced inventory level, and lower costs (Yu, Yan & Cheng, 2001), which benefits the overall network.
Hence, the organization can do mass manufacturing and mass customization that will offer competitive advantages given that the product life cycle if the product is improve because the organization will offer variety of product to different market segment and consumers preference. For example, Dell became the largest producer for personal computer in the world after they implemented the supply chain management to change their strategy by adopting a direct sales strategy, building every personal computer to order and shipping it directly to the customer (Klinker, Terrell & Mahfouz, 2006).
2.2. Supply management
2.2.1. Communication, Trust & commitment
According to Towill, (1996) decision makers need to depend the overall of the process so they can manage the supply chain as one single company, to minimum uncertainty updated feed forward and feedback information flow coupled with optimal decision making. Hence, organization that trusted the supplier willing to communicate and allow information free flow among them to ease their businesses. Communicate with other organization within the supply chain management that controls their critical resources allow them to compete effectively in their environment (as cited in Samaddar, Nargundkar & Daley, 2006).
Moreover, supply chain management built on a foundation of trust and commitment among the supply chain members (Lee & Billington, 1992). Commitment of partnership in the supply chain management will dedicated their resources to achieve the goal of the supply chain and their performance (Chen & Paulraj, 2004). Organization is more and more rely on their trusted supplier to improve the product quality, produce the product faster and reduce the product price so they can compete with their competitors (Liker & Choi, 2006). For example, Dell developed a strong relationship with both suppliers and the customers allow it to ensure those computer components are available from supplier to meet customer demand (Taylor, 2005).
2.2.2. Long-term relationships
Supplier will become part of the supply chain and have a long relationship on the competiveness of the process of the supply chain with a good supply chain management (Choi & Hartley, 1996) .Moreover, information sharing is an important aspect on incorporation and joint inter-organizational relationship (Huang, Lau & Mak, 2003).Long-term relationship will create opportunity to capture the synergy of intra and intercompany integration and management (Lambert et al., 1997)
Limitation of information in the supply chain will lead to Bullwhip effect such as unnecessary inventory investment, poor customer services, wrong capacity allocation, reduce revenue and missed production (Lee, Padmanabhan, & Whang, 1997). Plan along the supply chain and coordinating information can control Bullwhip effect and improve their supply chain relationship and performance (Lee et al. 1997).
According to P.Fiala, (2004) information exchange is a very important issue for coordinating actions. If member of the supply chain have free flow information it can reduced their lead time of information such as orders, demand and capacity forecast, point-of-sale data for the whole supply chain. (Lee, So & Tang, 2000) find that the benefits of sales information sharing and identified the drivers that have significant impacts.
Organization that have long term relationship from the supplier will obtains larger inventory or cost reduction when the demand is highly associated if the lead time is long. Eventually customer will receive a higher quality, cost-effective product in a shorter amount of time. For example, Chrysler Corporation cut their supplier base in half and brought the remaining supplier in on the design of a new generation cars and develop long term relationship based on trust. The long term relationship has helped the organization increase in profit (Braun, Guthrie, McCampbell, & Sit).
2.3 Reduce cost
Supply chain management system can influence the organization cost for administrative personnel and information purpose to plan and control the flow of inventory (Jonsson, 2008). So the efficiency of supply chain management can reduce the organization inventory and stock cost (Steckel, Gupta & Banerji, 2004). The efficiency of the supply chain management allows the organization having the right good at the right time in a right place (Ketchen & Hult, 2007).
Therefore, organization can deliver their product according to agreement so it can reduce the shortage cost, delay cost arise when late delivery occur to compensate the customers. Besides, organization does not need to hold inventory can reduce their cost of storing their inventory at their warehouse. Without using warehouse organization can save the transportation cost from the warehouse to the organization. Moreover, the cost reduction of the production organization can create customer value by reducing the price of the end users product (Ketchen et al., 2007). For example, Apple Computer is making lose in 1997; Steve Jobs do some changes in the supply chain management has saved the organization by reducing the cost of inventory (Taylor, 2005)
4. Challenges of Supply Chain Management
Appropriated plan of the supply chain management can get advantages, improperly handled will lead to tragic (Taylor, 2005). Accurate planning is important but planning error will lead to dramatically change in plans (Stadtler, 2004). For example, Kmart Corporation have planning error that the organization crippling its ability it match the price offered by Wal-Mart, the worse is when the organization able to lure back the customer but the supply chain not able to deliver to them in time. Due to the wrong forecast and planning Kmart is now bankrupt (Konicki, 2002).
4.3 Supplier attention
Supply chain challenges include lack of supplier attention. While lack of supplier attention will cause late placed orders due to conflicting objectives and goal. Potential issues of vendors, late delivered and wrong delivered allow the project teams potential risks. Early obtaining material will minimize risk such as additional cost. Internal procurement issues also subject to supply chain management (Henrie, 2006).
Due to this problem, company cannot managing well as when the material arrive, when the material should be purchase, and how many quantities should be purchase and when the material should be delivered. For example, NASA Company had experience this problem because the project will face shrinkage costs, breakage and additional cost for warehouse (Galluzzi, Zapata, Steele & Weck).
4.4 Customer value
Customers always change the value perception toward a product, so the organizations will response to the change or predict the change (Flint, 2004). Therefore, organization need to response toward the challenge by doing research on how the value perception of the customer change and improve their prediction and planning process. Competitive advantage can be gain if organization can predict their customer perception of the end user product (Slater, 1997).