Supply Chain and Operations Management - Case Study Example

SUPPLY CHAIN MANAGEMENT by Student’s Name Code + Course Name Professor University City/State Date Supply Chain Management Introduction Empirical studies have led to the conclusion that the activities structure within and among organizations is an imperative foundation of creating unique and superior supply chain performance hence the importance of supply chain management (Wisner, Tan & Leong 2015). Supply Chain Management involves planning, design as well as control of materials, finances, and information along the supply chain to enable delivery of superior value to the end customers in an proficient and effective way (Lambert 2008). It plays the important role of maximizing customer value and achievement of sustainable competitive advantage for many firms. SCM represents the conscious endeavor by firms to implement and manage supply chains in the most efficient and effective means possible. The supply chain involves all activities involved in transforming products from the raw material phase to the final stage, when the goods reach the end customers (Pilbeam, Alvarez, & Wilson 2012). Figure 1: Key Supply Chain Management processes The managing of inter-firm relations with supply chain members includes people, processes, and organizations (Lambert 2008). Physical flows and information flows link the organizations that make up the supply chain. A supply chain is run link-by-link, relationship-by-relationship, and the firms that manage these connections best are very competitive (Lambert 2008). Definition Simchi-Levi, Kaminsky, & Simchi-Levi (2000, p. 2) defined SCM as “a set of approaches used to effectively integrate manufacturers, suppliers, stores, and warehouses so that merchandise is produced and distributed in the right time, at the right quantities, and in the right locations in order to curtail system-wide costs while satisfying service level requirements.” Aitken in Christopher (2005) defined SCM as a network of mutually dependent and connected firms that collaborate and mutually work together to direct, manage and improve materials and information flow from suppliers to end customers. According to Council of Supply Chain Management Professionals (CSCMP) (2007), SCM covers the planning as well as management procurement and sourcing activities, as well as every logistic management activity. Most important, it also encompasses collaboration and coordination with supply chain partners who include end users, intermediaries, third-party service providers, and suppliers. Fundamentally, according to CSCMP, SCM brings together supply and demand management within and amongst firms. Discrepancies exist among the definitions of supply chain management on the number and type of organizations that are part of the supply chain. In addition, authors also differ in the perception of the activities related to SCM. Nonetheless, CSCMP evidently designates the key SCM activities. The process developing a definition of SCM is still on-going (Gibson, Mentzer, & Cook 2005). The notion of SCM has been considered from varied perspectives by many authors. However, the concept of SCM is based on the key idea that practically all products that reach the customers represent collaboration among many organizations. Jointly, these organizations are regarded as the supply chain. Secondly, the main important idea of SCM is to manage integrated flows on products and information in the company and between and amongst firms in order to reduce inventories and to attain optimum use of production resources. SCM as a concept is widely discussed in theory as well as applied in practice. SCM has evolved along two parallel paths: the supply management and purchasing emphasis from industrial buyers and secondly, the customer service and logistics emphasis from retailers and wholesalers (Wisner, Tan & Leong 2015). The growth of SCM has been accompanied by the need to assess the relationship with third-party logistics providers. Relationship building has taken place increasingly with numerous third-party logistics providers to ensure uninterrupted and continuous supply of goods. Firms are facing the challenge of adequately assessing their overall performance in often extremely global and complex chains. Firms have to evaluate the performance of supply chains from numerous perspective including, sustainability, financial, risk and speed. Supply Chain A supply chain denotes the flow of materials through all activities that range from production to delivery and the end users. The supply chain process integrates and coordinates every activity from the suppliers to the manufacturers to the distributors and to the end customers. The supply chain, customer relations, and product development build up three key processes in an organization. The integration and interaction between the three key processes sets the prerequisite for the company competitive advantage and success. The core factor in ensuring successful supply chain is managing integration between all activities within and outside the firm boundaries. In essence, the concept of supply chain tries to make every participant in the chain more efficient. A typical supply chain involves various stages including end users, suppliers of raw material or components, manufacturers, wholesalers/distributors, and retailers as shown in the figure below. Figure 2: Supply Chain Components Efficient and effective supply chains require supply chain management. SCM facilitates supply chain activities to be managed in an active manner in order to get the most out of customer value and to realize a sustainable competitive advantage. The supply chain is a key part of the value chain. SCM links up value streams from different firms and makes the material flow throughout the supply chain (Kerber & Dreckshage 2011). Realizing supply chain objectives and goals is facilitated by collaboration between the supply chain partners (Wisner, Tan & Leong 2015). Current Issues in Supply Chain Management Supply Chain Risk Management Supply chain risk management has become a very important issue for firms; the current financial and economic crisis lays emphasis on this issue. The intricate mix of diverse players in supply chains increases the intricacy of the risk profiles of inter-connected aspects within the networks and proper means of managing information risks in supply chains is thus required (Groznik & Trkman 2012). The aim of Supply chain risk management is to develop strategies for identification, analysis, evaluation and treatment of areas of risk and vulnerability in supply chains. Managing the supply chains entails identifying various risks and planning and responding to disruptions in supply chain. Supply chain risks are becoming more pervasive and hence more firms are paying attention to it. Their management are important to any company and cover risks that are both under the direct control of the firm and outside its circle of direct influence. Wisner, Tan and Leong (2015) noted that supply risk can be the result of quality breakdowns, supply shortages, work stoppages, natural disasters, economic volatility, environmental crisis and numerous other unpleasant surprises. Managing such risks entails understanding and identifying potential risks, determining the potential and consequence of every risk, ranking the risk according to weighted costs, and eventually putting in place risk mitigation strategies for the risks considered unacceptable. Figure 4 below is an example of Dell supply chain risk management program. Figure 4: Supply Chain Risk Management Process Green Supply Chain Management (GSCM) The recent notion of green supply chains is gaining wide recognition in the field of SCM. GSCM has materialized as a key approach for companies endeavoring to ensure that their operations are environmentally sustainable. For the management of most firms, GSCM provides a systematic approach of comprehensively managing their entire firm in a way that meets their corporate social responsibility obligations as well as their profitability goals. Wisner, Tan and Leong (2015) defined GSCM as the goal of a successful supply chain environmental performance system. It extends across the organization as well as its trading associates, and includes the processes involved in manufacturing, purchasing, and materials management, reverse logistics and distribution. Green supply chains address four interconnected areas of supply chains; within the organization, upstream, downstream and the connecting logistics processes. The six main themes of GSCM include: Green Manufacturing and Green Transportation, Green Product Development, Green Process Planning, Green Raw Materials Procurement, Green Design, and Green Purchasing (Sunil, Dixit & Abid 2014). The themes aim to reduce or even eliminate the adverse impact of logistic activities from the involvement of different partners such as distributors, suppliers, users, vendors and service contractors (Cosimato & Troisi 2015). Sheu (2008) noted that several firms have put in place GSCM initiative to reduce pollutant discharge, emissions and/or waste related to production, packaging, distribution, transportation and consumption. Figure 4: Green Supply Chain Management The design of an effective green supply chain performance system should be decided by all the supply chain partners and be compatible with the current performance monitoring system (Wisner, Tan & Leong 2015). Green supply chains are providing cheaper prices, additional profits and cost savings to end-product customers and supply chain players. Performance Measurement in Supply Chain Management Performance measurement focuses on measurement of the entire supply chain and that of every supplier. Improving the performance of supply chain has become a critical issue for gaining competitive advantage for firms (Groznik & Trkman 2012). Performance measurements systems are required for high level performance. The focus on these systems is on value creation for the end customers, as customer satisfaction drives sales for all supply chain partners. According to Braithwaite (2007, p. 253), there are two prerequisites of measuring performance in the supply chains. “Understanding and embedding the value and importance of measurement in a strategic framework for supply chain management and creating a predictive framework of supply chain risk.” Theoretical Framework Various authors have given the theoretical foundations for various concepts that are related to supply chain management. These theories include agency theory (AT), Institutional theory (InT), Knowledge-based view (KBV), Network Perspective, Resource-based view, Transaction Cost Analysis, Strategic Choice Theory, and Systems Theory. These theories explicate why closer connections with chain partners provide strategic benefits that make up for the risks. Agency Theory Agency theory describes the problems that result from information asymmetry between divergent interests of principal and agents. It takes into consideration the uncertainty and complexity of the environment and interest conflicts as well as information asymmetry between supply chain players involved in the business transactions. Jensen & Meckling (1976) defined an agency relationship as “a contract under which one or more persons (the principals) engage another person (the agent) to perform some service on their behalf which involved delegating some decision making authority to the agent.” (p. 30). The principal disposes lesser knowledge and specialization than the agent. As a result, the principals utilize the agent’s lead of knowledge to attain better performance and increase utility for themselves. The agency is offered payment in monetary form due to his services (Jensen & Meckling 1976). The aim in agency relationship is to reduce complexity and uncertainty in business dealings and hence reduce costs. Agency problems arise due to the agent failing to always put the best interests of the principal first (Jensen & Meckling 1976). This theory puts forward solution to these challenges by either monitoring incentive or efforts that reduce difference of interests. This theory provides an analytical framework for analyzing relationships in supply chain management. Various mechanisms such as trust and control help to break the vicious circle of interest conflicts and information asymmetries to solve agency issues. Institutional Theory According to institutional theory, the environment shapes firms as they try to follow the norm created by the society (Meyer & Rowan1977). Organizations are driven towards homogeneity by coercive isomorphism (for instance, regulative pressure), mimetic isomorphism (imitation) and/or normative isomorphism (for instance, social pressure). Knowledge Based View Under this the Knowledge based view, knowledge is regarded as a resource with the utmost strategic significance that can be obtained, generated as well as put into practice in and between organizations. This theory build on the resource based view theory (Barney 1991) by proposing that knowledge leads to competitive advantage since knowledge has aspects that are in line with either developing abilities that are important, exceptional, imperfectly imitable and non-substitutable (Barney 1991); in addition they are large intangible resources compatible with having these characteristics. This viewpoint of the company suggests that partnership provides access to tactical knowhow (Grant & Baden-Fuller 2004). The performance of organization is directly connected to building abilities by relating with varied sources of knowledge. Transaction Cost Analysis This theory is founded on the concept of bounded rationality or cognitive limitation that restricts the management when choosing trading partners whom they can trust. This contributes to the postulation that each association with the trading partners go through the risk of opportunistic behavior, for instant being dishonest and deceptive due to individual interests, placing individual interests before the relationship. This occurs especially if partners interests are not inconsistent (Williamson 1985). Kaufmall, Wood and Theyel (2000) noted that this approach to suppliers’ relationship is largely backed as acceptable practice. Strategic Choice Theory This theory suggests that companies work together in pursuit of either growth by increasing efficiency through economies of scale and shared risk or increasing market power (Harbison & Pekar 1998). Resource Based View This theory frames the relationship between trade partners as being run by one company in quest of controlling the resources of through cultivating partnership with the goal of acquiring access to the resources (Fisher 1996). Network Theory This theory argues that companies depend on their relation with direct partners and also the extensive network of links with supply chain companies. It also argues that firms can only attain competitive advantage through effectively and efficiently orchestrating supply chains. As a result, the focus of this theory is development of trust based, long term relationships between supply chain companies. Systems Theory In SCM perspective, this theory brings together various aspects of an intricate supply chain( including capital, people, financial and materials resources) to create a subsystem that is them a component of a larger system of supply network or chains. Systems theory argues that for a holistic viewpoint, this theory has to be used to understand the external and internal aspects which shape the supply chain performance of a firm. SCM Case Study: WalMart Walmart is one of the largest multinational retail companies that operate a chain of warehouse stores, and discount department stores. It operates in 11,488 locations worldwide and manages an average of over $ 32 billion in inventory. With these large numbers, the company has realized the importance of an efficient and effective SCM system and strategy. The company operates a business model that drives costs out of supply chain in order for the customers to save money and live better. The company has become synonymous with the notion of a winning supply chain management (University of San Francisco 2013). SCM has largely contributed to the company success. The company supply chain innovation started with removal of a few of the chain connections. In 1980, the company started working with the manufacturers directly in order to reduce costs and run the supply chain in an efficient manner (Walmart 2012). Manufacturers would manage their products in the company warehouse using a Vendor Managed Inventory (VMI); this was one of Walmart supply chain initiative. This ensured that the companies closed about close to 100% order fulfillment on products. Strategic vendor partnership promote strategic sourcing which enable sourcing of products at the best prices from partners who are able to facilitate meeting of demand(Walmart 2012). Strategic alliances with most of the vendors offer the potential of high volume and long term purchases at very lower prices. In addition, to improve materials flows and lower the inventories, the company has streamlined SCM by building relationship and communication networks. The company network of warehouses, worldwide suppliers, as well as retail stores is like a single firm. This collaboration has largely contributed to the company success. Cross docking is an importance inventory strategy, which replenishes inventory efficiently (Walmart 2012). Products are directly transferred from outbound and inbound truck trailers without extra storage. There is no storage of items in between. Suppliers deliver products to the company distribution centers; the products are cross docked and then taken to the company stores. This keeps transportation and inventory costs down, reduce inefficiencies and reduces transportation time. Cross docking enables products to be routed to the company warehouses from the suppliers. Walmart also utilizes technology in tracking inventory and restocking the shelves; this allows the company to reduce costs. Technology plays a critical role in Walmart supply chain and serves as its basis (University of San Francisco 2013). The network design and modern technology enables the company to forecast demand in an accurate manner, predict and track inventory levels, manage service response logistics and customer relationships, and build highly effective transportation routes. It also means informal and frequent collaboration amongst suppliers, distribution centers, and stores as well as less centralized control. In addition, the company is able to track the customer demand and purchases allowing the customers to pull products to stores effectively. The radio frequency identification tags (RFID) technology and smart tags enables shelves to be consistently stocked and inventory to be closely monitored. The company has also networked its suppliers using computers. SCM in Walmart has offered the company various sustainable advantages that include highly competitive prices for customers, reduced inventory costs, lower product costs, and improved in-store selection and variety (University of San Francisco 2013). It has enabled it to become the best retail stores chain in a competitive worldwide market. Walmart continuously improve its supply chain to attain more effectiveness by employing innovative processes and systems. Recommendation In the current business environment, SCM plays an important role in ensuring profitability and competitiveness of a firm, as a result there is need to ensure that the supply chain operates more efficiently. The efficiency of the supply chain should be improved by choosing the right supply chain software and developing strategies for identification, analysis, evaluation and treatment of areas of risk and vulnerability in supply chains. Supply chain operations should be environmentally sustainable. Firms should also use performance measurement systems for measuring performance in supply chain and ensuring high level performance. Strategic vendor partnership or alliances cross docking, and using modern technology such as (RFID) technology and smart tags in forecasting demand has led to Walmart competitive advantage in the competitive market. Like Walmart, firms should employ innovative processes and systems in SCM. Reference List Barney, J 1991, ‘Firm resources and sustained competitive advantage’, Journal of Management, 17, 1, pp. 99-120. Braithwaite, A 2007, ‘Global Logistics: New Directions in Supply Chain Management’, 5ed, Kogan Page Ltd, London. Christopher, M 2005, ‘Logistics and Supply Chain Management’, Prentice Hall, Harlow. Cosimato, S & Troisi, O 2015, ‘Green supply chain management: Practices and tools for logistics competitiveness and sustainability’, The DHL case study, The TQM Journal, vol. 27, no.2, pp.256 – 276 CSCMP 2007, ‘Supply Chain Management and Logistics Management Definition’, Available From: http://cscmp.org/AboutCSCMP/Definitions/Definitions.asp [June 19, 2015] Fisher, L 1996, ‘How strategic alliances work in biotech’, Strategy and Business, no. 1, pp. 1-7. Gibson, B, Mentzer, J & Cook, R 2005, ‘Supply Chain Management: the Pursuit of a Consensus Definition’, Journal of Business Logistics, vol.26, no.2, pp. 17-25 Grant, R & Baden-Fuller, C 2004, ‘A Knowledge Assessing Theory of Strategic Alliances’, The Journal of Management Studies, vol.41, no.1, pp. 61. Groznik, A & Trkman, P 2012, ‘Current Issues and Challenges of Supply Chain Management’, Economic Research, vol.24, no.4, pp. 1101-1112 Harbison, J & Pekar, P 1998, ‘Smart Alliances’, Jossey-Bass, San Francisco. Jensen, M. & Meckling, W 1976, ‘Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure’, Journal of Financial Economics, vol.3, no.4, pp. 305-360. Kaufman, A,Wood, H & Theyel, G 2000, ‘Collaboration and technology linkages: A strategic supplier typology’, Strategic Management Journal, vol.21, no.6, pp. 649-663. Kerber, B & Dreckshage, B 2011, ‘Lean Supply Chain Management Essentials: A Framework for Materials Managers’, CRC Press, Boca Raton, FL. Lambert, D 2008, ‘Supply Chain Management, Processes, Partnerships, Performance’, Supply Chain Management Institute, Sarasota, FL. Meyer, J & Rowan, B 1977, ‘Institutional organizations: formal structure as myth and ceremony’, American Journal of Sociology, no.83, pp. 340-63. Pilbeam, C, Alvarez, G & Wilson, H 2012, ‘The governance of supply networks: a systematic literature review’, Supply Chain Management: An International Journal, 17, 4, pp. 358-376. Sheu, J 2008, ‘Green supply chain management, reverse logistics and nuclear power generation, Transportation Research Part E’, 44, 1, pp. 19-46 Simchi-Levi, D, Kaminsky, P & Simchi-Levi E 2000, ‘Designing and Managing the Supply Chain: Concepts, Strategies and Case Studies’, McGraw-Hill Sunil, L, Dixit, G & Abid, H 2014, ‘Green supply chain management: Implementation and performance – a literature review and some issues’, Journal of Advances in Management Research, vol.11, no.1, pp.20 – 46 University of San Francisco 2013, ‘Walmart’s Keys to Successful Supply Chain Management’, Available From: http://www.usanfranonline.com/resources/supply-chain management/walmart-keys-to-successful-supply-chain management/#.PDG76bf9nMw [June 19, 2015] Walmart 2012, ‘50 years of helping customers save money and live better’, 2012 Annual Report, Walmart, Bentoville. Williamson, O 1985, ‘The economic institution of capitalism’, Free Press, New York. Wisner, J, Tan, K & Leong, G 2015, ‘Principles of Supply Chain Management: A Balanced Approach’, Cengage Learning, Boston, MA. Read More