Importance of Supply Chain Management to Organizations - Wal-Mart - Case Study Example

Importance of Supply Chain Management to Organizations Name Course Instructor Date Importance of Supply Chain Management to Organizations Introduction Supply chain management (SCM) refers to the activities and procedures involved in moving goods through the various stages of the production process to the end users. A central premise of SCM is to view the system of people, processes and facilities that produce and transform raw materials into end products and distribute them to consumers as a coordinated system rather than as separate units. From the customer-focused perspective, SCM encompasses the integration of important business functions to create optimal value (Hunt & Davis, 2008, p. 13). According to Ketchen and Hult (2007, p. 574), modern business organizations have realized that efficient management of the supply chain results in immense competitive advantages. It can also result in the delivery of an enhanced economic value and customer satisfaction through synchronized and coordinated flow of goods to the market (Monczka et al 2015, p. 105). The aim of this report is to explain why SCM has increased in strategic importance in many organizations across all industries. Using Wal-Mart as a case study, the paper will focus on key drivers behind this phenomenon as well as the advantages that an effective supply chain strategies provides to organizations. Reasons why the Concept of SCM is increasing in Strategic Importance in Organizations Intense competition in the world of business has led to fundamental shifts in what organizations expect from their supply chains. Today, the objective of implementing supply chains is no longer to simply facilitate important business processes. Rather, businesses expect supply chain systems to contribute to realization of competitive advantages. As such, SCM has fundamentally increased in strategic importance. According to Markley and Davis (2007, p. 65-69), SCM is a key pivotal point in business management. Organizations are increasingly relying on supply chains to consolidate market dominance in the modern networked global economy. Studies have identified key drivers behind the growing strategic importance of supply chain management. One of these drivers is the need to create cohesion and improve efficiency in the production and marketing of goods. In modern organizations, SCM is a necessary component for organizations to align their operations with consumer expectations and market trends. Consumers expect high quality products delivered to the market in a timely manner. Similarly, organizations expect to produce and deliver their products more cost-effectively and faster than competitors. All these require high levels of cohesion among the various components of the supply chain system. As Rice and Sheffi (2005, p. 41) explain, cohesion among the various parts of the supply chain system results in increased ability to maintain competitive advantages in accordance with the objective of the business. Another key driver behind the rising importance of SCM is the growing need to contain operating costs and improve financial performance. Companies depend on lean supply chain systems to quickly source products and deliver them to the market without holding costly inventories. Efficient supply chain systems have the ability to decrease operating costs and achieve higher profits, less fixed assets and better firm cash flow. Designing a supply chain system to meet organizational goals at the least cost is a key objective in business management. This, according to Markley and Davis (2007, p. 72), can lead to improved organizational performance as well as the ability to withstand adverse external and internal forces. Another reason why SCM has grown in importance is its ability to eliminate unnecessary steps in business processes. A well-implemented supply chain system optimizes business operations to maximize efficiency, speed and resource utilization (Hines 2004, p. 54). It can indicate areas where more resources need to be allocated and areas where excess resources have been allocated. This way, resources can be utilized more efficiently for optimal results. Large companies accomplish this through sophisticated logistic tools such as management information systems that can choose optimal routes for shipping raw materials and finished products. Others use databases, which facilitate pooling of resources and elimination of redundant routine steps. This saves resources, for example, by ensuring that employees do not spend too much time on unnecessary procedures (Li et al 2006, p. 109). Lastly, SCM has grown in importance because it can help companies to conduct market intelligence and understand competitor’s strategic moves. For example, a good supply chain system can enable a company to locate all potential suppliers and distributors of its products and services (Wisner, Tan & Leong 2015, p. 69). The company can then decide whether its long-term business strategies are compatible with those of the suppliers. This way, optimal decisions can be made regarding which suppliers to work with. In a dysfunctional system, it is difficult to evaluate the capabilities of all possible suppliers. For this reason, companies have turned to SCM not only as a strategy for understanding the market but also as a tool for keeping competitors at bay (Markley & Davis 2007, p. 765). Benefits of SCMto Organizations: Case Study of Wal-Mart Wal-Mart is a retail company headqartered in the United States. The corporation was founded in 1962, and has grown over the years to become the largest and most successful retailer in the world. It operates thousands of grocery stores, hypermarkets and departmental stores in 30 countries around the world. Wal-Mart employs about 2.5 million workers who serve millions of customers daily in its stores. The retail giant’s stores stock products sourced from more than 100 countries, and at any given time operate more than eleven thousand stores. With these statistics, an efficient SCM system is necessary. Being a leading player in its industry, Wal-Mart’s mission objective is to create a lean supply chain system and drive costs out of the system to remain competitive in the industry. As such, the concept of SCM is of major significance to Wal-Mart (Gereffi & Michelle 2009, p. 573). Wal-Mart has developed a sophisticated supply chain system whose core objective is to enhance efficiency in the procurement and distribution of goods. A key benefit that Wal-Mart drives from its supply chain system is improved reduction of operational costs and the ability to sell its merchandise at cheaper prices than competitors (Lichtenstein 2009, p. 59). It achieves this by emphasizing strengthened relationships with supplies, distributors and other key players in the supply chain. To maintain low costs, Wal-Mart procures goods directly from manufacturers, which eliminates the need for costly intermediaries and saves time. Because it buys in huge quantities, Wal-Mart maintains strong bargaining power over suppliers and distributors. Accordingly, the company gets huge discounts, which it passes off to end consumers in the form of low prices. For this reason, goods move fast through the corporation’s supply chain, and this is a major aspect of the company’s competitive advantages (Movahedi, Lavassani & Kumar 2009, p. 75-76). Wal-Mart uses an integrated demand and supply system to keep track of inventory in its stores. The system enables suppliers and customers to cooperate with Wal-Mart using computer technologies. Through the system, the suppliers can know when to replenish the stores and make appropriate arrangements (Fishman 2006, p. 78-81). The integrated demand and supply system benefits customers by supporting real-time order processing. It also helps the company to track what distributors and suppliers are doing at any time. By tracking movement of inventory, Wal-Mart benefits through enhanced ability to reduce wastage, shipping delays and overhead costs. The tracking system also positively impacts other important areas such as turn-around times and product quality. In effect, the automated supply chain system gives Wal-Mart strong competitive advantages in the market and helps the retail corporation to mitigate costly risks associated with procurement and inventory management (Ingram, Yue & Rao 2010, p. 53). Wal-Mart also benefits from its supply chain system through improved quality and raise output. The computerized system has incorporated quality management systems along the supply chain. As a result, Wal-Mart is able to inspect and identify areas of quality failure as goods move through the supply chain process. Through the quality control systems, Wal-Mart is able to proactively reign in on quality disruptions and take appropriate remedial measures in time (Kouvelis, Chambers & Wang 2006, p. 449). In addition, the company uses special algorithms to improve communication and coordination of quality management issues between its retail stores and transporters. The centralized and streamlined distribution strategy, which is the primary objective of Wal-Mart’s supply chain system, gives more output results (Barstow 2012, p. 29). Conclusion An effective and efficient SCM system is the most important aspect in any business. The primary aim of SCM is to improve a business’ profit needs by satisfying customer needs. As explained above, Wal-Mart has developed a complex supply chain system to facilitate procurement of goods and distribution of products to consumers. For many years, Wal-Mart has maintained leadership position in the retail industry mainly because of its superior SCM strategies, which is able to link thousands of stores with suppliers from all parts of the world in real time. Despite sourcing products from several countries, Wal-Mart’s efficient supply chain ensures that it is able to deliver products to the market cheaply, faster and at better quality than competitors. References List Barstow, D 2012, Wal-Mart Abroad, New York: The New York Times Company. Fishman, C 2006, The Wal-Mart Effect: How the World's Most Powerful Company Really Works—and How It's Transforming the American Economy. New York: The Penguin Press. 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Wisner, J, Tan, K & Leong, G 2015, Principles of supply chain management: a balanced approach. Boston: Cengage Learning. Read More