Evolution of Supply Chain Strategies - Example

Evolution of Supply Chain Strategies Name Institution Affiliation Introduction With the integration of the supply chain and market changes, the movement of goods and services from the supplier or manufacturers to the customers has changed completely. While some organizations are failing to adequately supply goods to their customers, some are already formulating supply strategies to ensure customer satisfaction by coping with the dynamic market trends and increased competition. Research shows that logistics play a major role in helping companies to adjust to the ever changing market and increased customer demands (Meade and Sarkis, 1995). Most organizations in fact, have a logistic department that is responsible for planning, implementing and controlling the storage and movement of goods, services and information between the supplier and the final consumer. Initially, logistics and the supply management were the responsibility of the personnel in the purchasing and distribution of goods and services. Today, they have evolved under the influence of external factors like strategic alliances, advancement of technology and increased competition in the market (Meade and Sarkis, 1995). Internal factors attributed to this evolution include, amongst others, decision support systems, performance expectations and integration of information systems. Much research has been done on supply chain and logistics and what organizations can do to improve production, marketing and overall performance. Researchers, however, have paid more attention to strategic decisions and how they influence the supply of goods and services to consumers. The following paper will elaborate how supply chain strategies have evolved over time and how they will prepare the industry for future challenges. It will begin with a brief introduction of what supply chain management entails. Understanding supply chain management Supply chain is simply a network that contains the steps taken to deliver goods or services from the supplier or manufacturer to the final consumer (Gattorna, 2008). Supply management is there very important for organizations as it involves the coordination and integration of information flow, material flow and finances flow within the company and among other businesses. Since the supply chain has a direct influence on costs of delivery, companies seek to have an optimized supply system in order to lower the costs. To improve efficiency, most companies have integrated information systems, in particular, supply chain management software such as planning and execution applications (Hines, 2004). While the planning applications are used for filling order through advanced algorithms, execution applications are useful in monitoring the methods used to manage materials, financial information and physical status of the goods to be delivered to the customers. Today, most companies today are increasingly adopting web-based applications in the supply chain management (Gattorna, 2008; Sople, 2012). This is one of the supply chain strategies that have proven to be valuable to organizations. The next section will explore how supply chain strategies (distribution systems) have evolved over the last two decades. Supply chain strategies Generally, the supply chain strategies define how organizations should operate their supply chain systems in order to gain a competitive advantage and achieve a particular supply-chain objective. Research shows that companies successfully develop business strategies but they fail to design supply chain strategies. It is believed that supply chain strategies are crucial to the success of an organization as they stress on lowering the operational costs and maximizing the efficiency (Hines, 2004). For example, a company may formulate a strategy anchored to the supplier management in order to improve competitiveness. Another importance of supply chain strategies is that they enable supply mangers to establish and monitor the entire supply chain including the suppliers and the customers (Morash, 2001). Implementing a goal-oriented supply chain strategy creates value for the company. Experts say that, due to the ever increasing competition in the market, there is need to strengthen and support existing relationships in the supply chain. Elements of supply chain strategies The four key elements that shape any supply chain strategy include industry framework (marketplace), organization’s competitive positioning, supply chain processes and link between strategy and supply chain processes (Cohen and Roussel, 2013). The market place entails the interaction of customers, suppliers, technology and other economic factors that influence competition in any industry. Within the industrial framework, drivers that have a significant influence on the supply chain design include demand variation, market mediation costs and the lifecycle of products (Ross, 2011). Unique value proposal of an organization relates to its competitive positioning that describes how different it is from other competitors. It is important for the managers to understand the alignment and connection between supply chain processes and the competitive positioning of the organization. Basically, the relationship or connection between the two elements is guided by the process of decision making under managerial focus of the supply chain. Managerial focus is one of the most crucial elements that promote the consistency between the unique value proposal of an organization and the execution of its supply chain. Supply chain processes are internal processes that strengthen supply chain activities including making and delivering (Cohen and Roussel, 2013). Evolution of the supply chain (distribution system) With the industrial revolution, most large companies started to optimize the design of supply chains or distribution systems in order to cope with the dynamic nature of the market. Studies shows the distributions systems have been in existence since the 1970s when companies used to utilize optimization technology for issues relating to multi-products. The development of distribution systems led to the reduction of distribution costs while simultaneously enhancing the customer service (Geoffrion and Powers, 1995; Poirier, 2004; Sople, 2012). Since then, there have been a remarkable evolution and development in the supply chain (distribution system). Key areas that have developed over the last more than two decades include logistics, information technology, algorithms, data development, software capabilities and use of software in designing the supply chain (Geoffrion and Powers, 1995). In the article Twenty Years of Strategic Distribution System Design: An Evolutionary Perspective, Arthur and Richard confirm that these evolutionary processes have occurred unexpectedly. The main focus here, they say, is not to describe the processes, but rather to interpret or explain their significance in the supply chain. Logistics Evidence shows that there has been a significant transformation of the status of logistics for the last twenty years (Geoffrion and Powers, 1995; Neubauer and Heyden, 2011). In most organizations, to be precise, logistics has changed from being a neglected function to a function that is more valued for its strategic role and profitability. According to Geoffrion and Powers (1995), much work has been done in this area and information regarding the same has been documented. Researchers have focused analyzing the evolution of logistics by discerning three phases: management of the physical distribution of goods and services, integration of the logistics functions within the firm (internal) and integration of logistics functions between companies (Geoffrion and Powers, 1995). The first phase of the logistics evolution was manifested through the emergence and development of management of the materials flowing into the firm. Material flows in this case include raw material, purchases and inbound transportation. The phase was also characterized by the physical distribution of finished goods from the suppliers to the consumers. This included, amongst others, managing the inventory control, customer service, order processing and outbound transportation. As a result of the evolution, organizations reorganized to form a centralized form of managerial control that would be helpful in coping with the dramatic changes. One significant re-organization pertinent to the managerial control was the formation of a corporate hierarchy that included key associations like Council of Logistics Management. Experts believe that the first phase of the logistics evolution was supported by the integration of total cost analysis, development of various simulation models relevant in distribution and emergence of computer applications like material resource planning (MRP) and data analysis. The introduction of cost analysis in logistics management was important as it promoted proper trade -offs. In the latter stage of the first phase, the customer service became more protuberant as managers focused more on trade-offs between the costs and services (Geoffrion and Powers, 1995). Phase two of the evolutionary process (internal logistics integration) involved the integration and combination of the physical distributions and other functions executed by marketing into one managerial responsibility. The two major reasons or factors that led to this transformation in the 1980s were, one, constraints experienced in the expansion of international operations and, two, emergence of several logistics providers seeking to take over several functions that were initially performed within the firm. Other factors included the need to embrace computer technology relevant in logistics, reduction of labor forces by companies and the need for organizational flexibility. While the second phase focused on the internal functional management of organizations, the third phase was more focused on the external environment that included other companies in the distribution system (Geoffrion and Powers, 1995). Research shows that intercompany coordination is important in reducing costs, minimizing risks as well as leveraging resources (Kersten, 2011). The result of the cooperative coordination is mutual logistics partnership. The truth is, the evolution of logistics has paved way for the integration of web-based computer applications for logistics (Gattorna, 2008; Geoffrion and Powers, 1995). Computer technology The development of computer applications and their significance in logistics systems have been evident since the 1970s (Geoffrion and Powers, 1995). At this time, most logistics companies practically used their mainframe computers to access different computer applications. Data was usually stored in magnetic tapes, data input was accomplished through key stroke and outputs included large paper that presented little information (Geoffrion and Powers, 1995). Many of the organizations always sought to improve their use of information technology but the technology, then, was very expensive and very slow as it required assistance from system analysts and programmers. For this reason, it was very challenging to integrate data systems internally and externally. However, a lot of changes started to occur by the year 1990. Firms started using information system on their desktop machines which were more reliable, sturdy, powerful and fairly cheaper than the previous computers. Unlike the 1970s, organizations were now storing their data on disks, automated scanning devices were used for accomplishing data input and output reports were done through video screening (Geoffrion and Powers, 1995). What’s more interesting is the fact that more user-friendly software became available, allowing firm managers to design tailored reports and retrieve important information. The emergence of electronic data telecommunications paved way for interaction and business transactions between different companies globally (Institute of Management Sciences, 1971). Presently, there is much development in the computer applications used in the distribution system (Ayers, 2011; Geoffrion and Powers, 1995). Key among them includes the replacement of Character-based User Interfaces by the Graphical User Interfaces. There is also a key improvement in the equipment used for price-performance desktop computing. The performance ratio of communications equipment has changed since the 1970s and the 1990s. Today, for instance, modems used to access the internet have a higher speed than those used in the 1990s. Other notable improvements in the information technology sector include Electronic Data Interchange (EDI) and the development of desktop software (Geoffrion and Powers, 1995). Algorithms More than two decades ago, designers mostly used heuristic methods to control the memory requirements and the execution speed (Geoffrion and Powers, 1995). However, using these methods posed many challenges as they were slow due to their lower sophistication in implementation. Usually, companies used case-wise linear programming in absence of computationally adequate mixed-integer programming optimizer to improve the logical configuration. To overcome the shortcomings associated with the integer programming, organizations started using specialized optimization packages by utilizing special problem structures like single distribution. Organization managers actually preferred using the Commercial Mixed-Integer Linear programming (MIP) because they perceived it to be only software for providing realistic models. However, the software could not be used without writing back-end and specific front modules (Geoffrion and Powers, 1995). Although there has been a lot of advancement of the optimization of algorithms since the 1970s, evidence shows that most of the improvements in this area have not actually been helpful in designing distribution systems (Geoffrion and Powers, 1995; Minis, 2011). For instance, the newly designed interior point methods have little importance in the distribution system because they are not appropriate or suitable for solving many LPs. One development that proved to be of importance is the Primal Network Simplex algorithms that emerged about three decades ago. Since then, many other improvements have taken place including the primal network simplex method designed to reduce memory and improve speeds. Reducing memory and improving the speed benefited the software used to design the distribution system. Today, most organizations are using commercial software like the case-wise linear programming to design promising configurations in the distribution system (Geoffrion and Powers, 1995). Data development and management tools We know that optimizing logistics networks not only depends on technology but also development of data and management tools used (Gudehus and Kotzab, 2012). Research shows that most organizations spend over 70% of time preparing data related to logistics. Since the amount of data being prepared is dependent on the type and size of business, large companies are more likely to spend more time in preparing data than the small companies. Since the 1980s, several researchers have sought to develop management tools pertinent to designing logistic networks (Geoffrion and Powers, 1995). The first tool for designing the distribution network was created in the year 1971, but it was not beneficial to the user because it did not provide any assistance in the preparation of problem files required in optimization (Geoffrion and Powers, 1995). Other management tools were created later to help in the preparation of problem file components such as demand data and transportation links. A more comprehensive preprocessor was created two years later to help in detecting and reporting errors in the date file. Other modules or tools created in this era included DATA-1 and the SHIPCONS. Since the year 1984, all management functions were enhanced in a more integrated package known as Strategic Analysis of Integrated Logistics Systems (SAILS). Now included in the management functions are standard databases like Yellow Freight System and the inventory reports of network structures (Geoffrion and Powers, 1995). Model features, software capabilities and how companies use distribution system design software Software used for designing the distribution network evolved rapidly due to the advancement of communications technology. To describe the transformation of software capabilities, researchers have turned their attention to the relationship between desktop computing and the user expectation for the logistic software. It is evident that desktop applications are cheaper than the mainframe software, have simpler graphic user interface and are well packaged. Reasons that led to the evolution of software capabilities include radical change of user expectations, influence of the algorithmic progress, need for expanding software coverage and the desire to respond to customer requests regarding model features. Some of the requests implemented so far include easy scaling, selection of transportation links, import facilities and arbitrary monetary units. Experts uphold that the demand for model features derive from the evolution of logistics. Research shows that companies and other users have changed the way they use distribution system software in their business operations. About two decades ago, most companies had implemented the SAILS package to solve problems related to classic warehouse-location (Sodhi and Tang, 2012) but eventually developed new applications for designing the distribution system (Geoffrion and Powers, 1995). Meeting future challenges Having reviewed the status of the distribution system over the last two decades, it is then easier to anticipate the future on the same. Indeed, the evolution of the supply chain strategies has prepared organizations to meet future challenges in business. With regard to logistics, the integration of the management and physical distribution of materials sets the basis of modeling applications related to trade-offs and choices faced by the logistics executives. This integration has also facilitated the creation or designing of distribution systems. Since more challenges will arise in the future, OR and MS practitioners ought to embrace comprehensive logistics models (Geoffrion and Powers, 1995). Experts believe that the advancement of computer technology will continue to have significant influence on logistic systems (Geoffrion and Powers, 1995; Yang, Ma and Liu, 2013). More development in the price/performance ratio will enable companies create even more larger and complex logistic models. It is also important not to ignore the fact that the advancement and prevalent use of the internet in doing business will definitely have an influence on how companies build and use logistics models. Further on this point is that, modeling teams will become more dispersed, communication will improve greatly, the quality of logistics models will increase and modeling costs will reduce significantly due to enhanced productivity and project completion (Geoffrion and Powers, 1995). There has been little advancement in algorithms since the 1970s: key among them is the development of the primal network simplex method. According to experts, this situation is likely to remain the same until the current computing paradigm improves. Practitioners, however, will have to face more challenges in the future regardless the slow growth rate of algorithms. With respect to development of data and management tools, problems associated with logistics design require more effort than the one needed in building optimizers. The truth is, the already developed data for logistic models have proven to be more valuable to clients even without optimization. Improvement in data visualization will increase the value of the modeling data. To overcome future challenges, companies will have to design more comprehensive logistical models in order to improve managerial accounting as well as their information systems. With the growth of the internet, companies are expected to have more database services, public domains and processing tools (Geoffrion and Powers, 1995). It is now clear that the evolution of the model features and the software capabilities was due to client requests, advancement of computer technology, algorithmic progress and expansion of software coverage. In the future, we expect the software for distribution system design to provide more support to modeling of data (Geoffrion and Powers, 1995). Presently, logistics analysts have already identified resourceful ways of using the models of ware-house location. These models are today, been used to facilitate logistics partnerships and solve problems related to packaging materials. We expect the application of software tools to increase as they become widely used and accessible through desktop computers (Geoffrion and Powers, 1995). References Ayers, J. B. (2001). Handbook of supply chain management. Boca Raton, Fla: St. Lucie Press. Cohen, S., & Roussel, J. (2013). Strategic supply chain management: The five disciplines for top performance. New York: McGraw-Hill Education. Gattorna, J. (2008). Gower handbook of supply chain management. Aldershot: Gower. Geoffrion, A.M. and Powers, R.F., 1995, Twenty Years of Strategic Distribution System Design: An Evolutionary Perspective, Interfaces, 25, 5 September-October, 105-127. Gudehus, T., & Kotzab, H. (2012). Comprehensive logistics. Heidelberg: Springer. Hines, T. (2004). Supply chain strategies: Customer driven and customer focused. Oxford: Butterworth-Heinemann. Institute of Management Sciences., & Operations Research Society of America. (1971). Interfaces. Providence: Institute of Management Sciences. Kersten, W. 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