Should Supply Chain Management further be neglected, at the strategic level?
View(s):In simple terms supply chain management is to identify, plan, implement and control the activities from the point where an organization receives raw materials to the point where it dispatches the finished goods to the market. It can be different in manufacturing organizations and services organization depending on the scope of their business activities. However, in spite of the differences among the individual organizations in terms of the scale and scope of the activities they carry out, there is a supply chain in every organization. Any organization should be careful to design its supply chain in a manner that it will correctly address the value expected by its customers. Supply chain activities can also be viewed as the back-end operations to deliver the customers’ value identified through its Marketing function. T
Renuka Herath (PhD, MBA, BBMgt, CLSSBB, CMILT) Senior Lecturer Department of Marketing Management University of Kelaniya
herefore value creation throughout a supply chain of any firm is paramount important as through any business operation either cost will be generated, if not value. Value should be identified for the different market segments separately as what customers value is also different from one product family to another. The functional quality of a product, which is largely defined by the raw materials been used and the manufacturing operations is one of the expectations of any customer segment through consuming a product. No matter how effectively the product or service is being advertised or how innovative the market approach is, unless the expectations of the customers are not met in terms of the functionality of product and when and where utilities.
When and where utilities of a product are created through the logistics operations that is again a sub-division of broad supply chain activities. Logistics is just a part of supply chain activities that support the physical movement of goods and services along the entire supply chain so it ensures the when and where utilities of a product or service. Logistics must provide customers with timely and accurate product delivery so that when (time) and where (place) utilities are fulfilled by logistics. Unlike in Marketing the customer for logistics is any delivery destination that can be internal or external of the supply chain. When Marketing function identifies the opportunities in the marketplace, they should be utilized economically by delivering the products, when and where customers need them and in where logistics is essential.
Supply Chain Management is relatively a new discipline when compared with some other subjects such as General Management, Marketing Management, Human Resources Management, etc. When the origin and evolution of Supply Chain Management is concerned, it is interesting to mention that before Business Logistics, Military Logistics had been emerged during the Second World War period in 1940s and as a business practice, began only in 1950s. That was also initially only within the four walls of the factory and was not practiced across the supply chain. Then Logistics was gradually expanded to Supply Chain Management in late 1980s. However, until late 1990s the business community was unable to grasp the strategic importance of Supply Chain Management so at the end of 1990s only Supply Chain Management was taken into consideration in strategic decision making of the businesses. The novelty of the subject itself may be a fact behind the less prominence of Supply Chain Management in the strategic decision making of the most of business organization. Not only in Sri Lanka even in Global Scenario there are many evidences where business giants had gone wrong merely due to the negligence of Supply Chain function. The best example is when year 2000 came, number of systems crashed due to the failures to take necessary measures to roll over the dates to the year 2000. Although the “millennium bug” was, a “known Unknown” business organizations failed to anticipate disruptions it could occur in the supply chains. The inability take the proactive measures to improve organizations’ supply chain resilience is well demonstrated here. A similar event encountered by Sony Ericsson when one of its supplier’s factory went on fire. The robustness and resilience of Sony Ericsson’s supply chain was minimal that it could not continue to carry out its operations where Nokia reflected their opportunistic behavior over the market collapse of Sony. Nokia was also sourcing from the same supplier but its supply chain was steadier than Sony Ericson’s so easily recovered. Boeing’s supply chain was converted merely to a disaster when they introduced their evolutionary aircraft of the “Boeing 787 Dreamliner”. This was entirely due to their careless supply chain decisions to outsource core-activities of manufacturing and engineering too, which delayed their test flight from 2007 to 2010.
When in 2002, the strategic importance of Supply Chain Management function was discussed by Paul Cousins, a renowned author in the Supply Chain Management fraternity provided a way of analyzing the behavior and preferences that organizations should exhibit as they approach the need of strategic purchasing and supply. As a result of rigorous and comprehensive secondary (literature based) and primary research (1991, 2001 and 2005 in Europe, USA and Australia from over 500 organizations) Paul Cousins developed the “Strategic Supply Wheel” and there he acknowledged six strategic elements an organization must hold together in connecting its supply strategy with the overall corporate strategy. The elements should be highly interrelated and if each of them is planned in isolation, it is highly unlikely to deliver the purpose of strategic purchasing and supply.
Corporate and supply strategy sits in the middle of the wheel and it mirrors that all other elements must be designed, to be aligned with the corporate strategy, which is actually the competitive priority of any organization. All other five strategic elements are interrelated and they collectively should be linked to the organizational policy.
Organizational structure – The supply division of organization can be centralized, decentralized, atomized, federal or hybrid. The right structure for the supply division should be designed to go with the competitive priority of the organization.
Portfolio of relationships- The relationship with the suppliers can be adversarial, transaction based and highly collaborative and partnership relationships (some relationships are economically focused while others behaviourally focused). The nature of the relationship with the suppliers, affects on the link between the corporate and supply strategy.
Total cost/benefit analysis- There must be a business case to support any strategy as every business is driven by incomes or budget constraints. Therefore, the purchasing activities contributing to total cost ownership must correctly be identified.
Performance measures- Performance measures are the signals and motivation systems of the organisations as they keep organizations alert on to work in a particular way that can be internal or external of the supply chain. Therefore, the correct performance measures must be designed and applied that would reflect both efficiency and effectiveness.
Skills and competencies- No matter how logical and innovative the strategies are , if the capable people are unavailable to implement them in the supply function, and the variety of skills and competencies needed are also different at tactical and strategic level of the supply function.
In conclusion as these elements in the strategic wheel are highly interrelated, when complex outcomes are needed, complex processes must be in place so the relationships must be complex, highly skilled people are needed and the measurement systems must also be designed accordingly to reflect effectiveness rather efficiency.
In the face of market uncertainties and supply chain disruptions of a VUCA world, being able to link the supply strategy with the corporate strategy at least will ensure its strategic contribution to the overall goal achievement of any organization by minimizing the supply chain disasters as opposed to a supply function that is totally neglected at the board level.