Procurement Logistics And Supply Chain Management Commerce Essay

Traditional purchasing and logistics functions have evolved into a broader strategic approach to materials and distribution management known as supply chain management (Tan, 2001). Successful supply chain management requires cross functional integration and marketing plays a critical role (Lambert and Cooper, 2000). Procurement is extension of supply chain management allows the smooth functioning of departments engaged in the management process. Cooper et al (1997) mentioned that practitioners and educators have variously addressed the concept of supply chain management as an extension of logistics, or as an all-encompassing approach to business integration. BCAM is headed by James Irvine, Managing Director holding 40% of the shares while Tom Irvine is the Production Director with 25% shares in the company. The company was established 100 years ago by the Irvine family which came into existence during mass industrialization of UK agricultural sector manufacturing tractors and wide range of associated agricultural equipments like harvesters, balers, mowers and sprayers. Over these years, BCAM was able to build good reputation in the market but lacked innovation and neglected both product and market development failing which the company was not able to react to the demand and had to face stiff competition, mainly from Europe, USA and Far East. As supply chain management and procurement logistics are important in efficient, smooth and continuous functioning of the company, this paper critically analyses the supply chain management process of British Consolidated Agricultural Machinery (BCAM), its consequences on the operation and management of the company and evaluating different approaches of supply chain management to benefit the company in terms of improved procurement and supply chain management.

A) Supply Chain Management Process – BCAM

According to Mentzer (2001) supply chain management is the systematic, strategic coordination of the traditional business functions within a particular company and across businesses within the supply chain for the purposes of improving the long term performance of the individual companies and supply chain as a whole. Further Hugos (2006) states that supply chain management is the coordination of production, inventory, location and transportation among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served” Various definitions from different authors concentrate mainly on flow of goods and materials within the company for timely production, cost effective operations and better customer service which is not evident or persistent in the supply chain process of BCAM. The supply chain process at BCAM did not meet any of the essential criterions as suggested by several authors in Mentzer (2001). BCAM lacked strategic planning in its supplied chain process as purchasing officer would make a reorder for the goods and materials only after the low stock level and stock issue made by the warehouse. Warehouse officials manually carried the inventory and issued reorder report to the purchase department after which purchase department would require three days to forward purchaser order to the supplier, which may extend to week further if the individual product lines are batched up into one large order with a single supplier. It may be noted that logistics play a major role in supply chain management process which is not limited to single organization but refers to a network that work together and coordinate their actions to deliver a product to the market (Hugos, 2006). Delivering product to customers requires implementation of the strategic process within the firm to integrate the firm with other members of the supply chain and other operational activities at day to day level (Lambart, 2008). Procurement of materials, which is the primary task of purchase department lacked decision making power as it did not vested with any individual and dispersed across different units making it a tedious job for purchasing unit. Organizations give the power to purchasing department to take the decisions and send purchase order to the suppliers, but at BCAM, production staff and engineers made most of the decision that doesn’t apply in supply chain process. Moreover, the purchase order is placed in bulk in order to secure maximum discounts but out of the items purchased, only few are used for the production while the rest are maintained in the warehouse which is a serious problem concerning the high operational costs and low profits of the company. The company lacked the basic tenets of supply chain management like integrated behavior, mutual sharing of information, mutual sharing channel risks and rewards, cooperation, similar goal and focus of serving customers, integration of processes and partners to build and maintain long term relationships (Mentzer, 2001). The instance of purchasing materials in bulk shows that the company lacks partnerships with small suppliers as it has to purchase items in bulk to minimize the logistics cost. Moreover, the deliveries of goods by the suppliers were often late, as it is evident that they were not interested in doing business with BCAM due to late payments. Mutual sharing of information is not evident at BCAM as the company was not able to meet the market demand. The instance of new products being launched and irregular notice to the purchasing department makes it clear that there is no cooperation and coordination in the internal business units at BCAM. Market demand could not be meted due to inefficient managing practices because fulfillment of market demand is the process of measuring the process and communicating the results throughout the firm and to key members of supply chain (Lambart, 2008). Marketing department needs to provide necessary information to the production and purchasing departments about the new product, the market demand and requirements so as to meet the demand on time. Supply chain management at BCAM is not integrated with most of the departments not sharing information which is essential for production and meeting the market demands. BCAM’s supply chain management lacks integral relationship with similar goals and objectives and works on its own while decisions are taken at all levels. Lack of basic characteristics of supply chain management has resulted in various challenges to BCAM in form of competitors in the industry, high operating cost, low profit, inability to meet the market demand, inability in procurement of materials, low level of coordination in the management, and the situation where the management is thinking of merger with French firm, Eiffel Mecanisme which is lower than its size but makes more profit than BCAM, thanks to its low operational cost, effective marketing strategy and management. The ineffective supply chain management has very drastic consequences which is evident in case of BCAM which is at the verge of merging with a French company and on condition that all the senior management positions should be French while production operations being transferred to the French factories. In order to avoid the major setbacks and merger with French company, BCAM will have to restructure its organization and reformulate its strategy matching the technology of its competitors and producing innovative products meeting the expectations and demand of the market.

B) Supply Chain Management Approaches for BCAM

Kale (n.d.) mentioned that the supply chain management within the organization includes all the functions involved in fulfilling a customer demand like new product development, marketing, operations, distributions, finance and customer service and any break in the chain of functioning between these departments will have an adverse effect on the organization (Basu and Wright, 2007). Operating successfully in any business environment today requires companies to become much more involved in how their supplies and customer do business. As global markets expands and competition increases, making products and services that customers want to buy means that businesses must pay closer attention to where materials come from, how their suppliers products are designed and produced, how they are assembled, transported and stored, etc. Steve Darendinger, Vice President of advanced sourcing and supply chain strategy for Cisco Systems, California stated that the key to developing effective supply chain management programs is keeping the customer in mind and if the customer is skipped during decision making process, then these decisions transfer risks costs and additional waiting time along the supply chain leading to higher operational costs and lower end customer demands (Wisner et al, 2008).

Supply chain is a holistic approach that stretches forward across the organization and customer and backwards through various suppliers and to their suppliers. There can be substantial benefits for all stakeholders by having integration across company boundaries which was missing in BCAM’s supply chain management process (Basu and Wright, 2007). Regarding suppliers too, BCAM didn’t had much to choose among the suppliers as most of them were not satisfied by the payment terms of the company which resulted in less priority in delivering the goods. The ultimate objective of supply chain management is to achieve strategic fit between the company’s competitive strategy and supply chain strategy (Kale, n.d). Cutting et al (2006) states that the main objective of supply chain management is to have the right products in the right quantities at the right time at minimal cost in a situation that would guarantee optimal service levels for the customer and optimal performance for the organization (Basher, 2010). This is the main problem with BCAM as the departments within were not able to coordinate with each other and the basic objective of supply chain management was not fulfilled. According to supply chain management philosophy (Markland et al 1995) inventory should be the last resort in solving supply and requirement imbalances between the tiers but at BCAM, inventory was carried out manually and 80% of the man hours would be spend on matching the documents of suppliers sent during the delivery of goods. Companies, nowadays, formulate their strategies devising supply chain management that suits their organization. Leo and Bart (n.d.) recognized three basic forms of supply chain namely internal supply chain. which is an integrated flow of material and information within the business unit, from supplier and towards the customer; external supply chain, an integrated flow of material and information within the business unit, across the direct suppliers and customers; and total supply chain, an integrated flow of material and information within the business unit, across multiple trading suppliers and customers.

According to Harrison et al (2005) supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses and stores, so that merchandise is produced and distributed at the right quantities, to right places and at right time so as to reduce operational costs while giving optimum customer satisfaction. It is important to note that logistics plays an important role in successful implementation of supply chain management. The supply chain management approach differs from the logistics functions like optimization of the transportation and distribution structure. Two different approaches have been identified namely ‘make to stock’ and ‘make to order’. The difference between the two approach lies in production strategy wherein if a product is created according to specific customer demand, it follows make to order approach while production on any other criteria is due to make to stock, as the products are produced to stock in advance to meet the ever increasing market demand. The supply chain approach benefit the organizations in maintaining low operating costs, flexibility and responsiveness and delivery performance (Dickersbach, 2009). BCAM should reinvent its supply chain management by focusing on internal processes. Internal supply chain would be efficient so as to integrate the departments and initiate systematic coordination, cooperation and mutual sharing of information among the departments in the company. Moreover, the company should focus on make to order approach of supply chain management in the current situation so as to avoid unnecessary costs of extra items being purchased from the suppliers. BCAM should apply modern approach of supply chain management which encourages facing challenges across organizations, different lines of business, and across consumers and eliminate the traditional approach, which is being presently practiced in the organization (Altekar, 2005). In conclusion, Tom Irvine, Production Director’s strategy should be implemented to improve the procurement and supply chain process which aims to use make to order approach, reduce the excessive inventory and aggressive marketing of the products.

Conclusion

BCAM should focus on restructuring its supply chain processes so as to improve its performance in the market and withstand stiff competition from its rivals. Tom’s strategy to revive the company’s performance in the market should be implemented as it focuses on reducing the overall operational expenditure and low cost production mechanism.