SUPPLY CHAIN MANAGEMENT REPORT WRITING ON: THEORIES ON SUPPLY CHAIN MANAGEMENT

1. 1.      Executive Summary:

The main aim of the report is to analyze the concepts, theories and framework of supply chain management. Therefore, to organize the entire report, it has been continued in several parts. Fist part talks about the management of supply chain and its concept. Then, supply-chain process and system have been outlined in order to make further evaluation. Next, performance measures have been delineated which are taken into account to examine the sustainability of supply chain management. In this context, an analysis has been made on performance measures such as perfect order metrics, lead-time metrics, supply-chain link, delivery link, and customer-satisfaction measurements. Additionally, researches and articles have been reviewed in the light of supply chain management theory and performance measures. All the researches taken to highlight the supply chain management sustainability’s performance metrics have been defined by peers and authors on the basis of theories and multiple models. Afterward, concerns regarding standard, its scope and core elements also have been explored in the report. Finally, some decisive points have been drawn out of the entire report to make a conclusion at the end.

1. 2.      Introduction:

Supply chain management is concerned with managing the network of facilities and provides the options for distribution. These options perform the functions of raw-materials procurement, then conversion of these raw materials into transitional or finished products and finally the distribution of these products to the customers. In other words, supply chain management encompasses following four main components:

• First, the supplier who supplies the raw material to the producer
• Second, the manufacturer, who uses the raw-material and convert them into the finished products
• Third, Distribution center, it preserves and ships/distributes the products
• Last, the receiver/end user, who finally receives the product and gets possession.

It is also considered that minimum or optimum cost is used in the entire process. To check and examine it, there are a number of performance measures that assess the sustainability of supply chain management.

Furthermore, it concepts articulates the key element such as customers first, planning, purchasing, inventory, production and lastly transportation. On the other hand, it reduces the distribution cost and risk by coordinating effectively and therefore develops product’s quality and inventory management (US study, 2008).

Moreover, the sustainability of supply chain management is a major issue for the organizations in terms of risk associated, environment and minimization of cost. In simple words, sustainability of supply chain management is considered with the viable results on company’s capital assets. In doing this, it doesn’t not sacrifice both internal and external stakeholder’s justifiable requirements and impact the people and the environment by effective operational activities as well. On the other hand, Performance evaluation methods are used to monitor and evaluate that sustainability. In addition, environmental, social and economic factors are measured under such methods (Presley, Meade & Sarkis, 2007).

The study also talks about the involvement of both supply chain’s members and customers in the process because customers are considered as an integral part linked with the perfect order made in supply chain. Following this, all levels of management, accounting and other related operations, logistics and delivery/distribution    and finally the purchasing where supply chain management’s sustainability is counted and considered for top priority to be checked.

1. 3.      Supply-chain management:

As described in introduction, supply chain refers to those activities which are linked with the manufacturing of finished goods from raw-materials and distribution to end-user. Supply chain managements seek to achieve corporate competitive strategic goals and objectives which are following:

• Diminishing working capital
• Taking assets off the balance sheet
• Hastening cash-to-cash cycles for faster improvement
• Increasing inventory turns and management
• Reducing time for the delivery of products to the customers
• Increasing revenue and higher returns
• Developing customer-service
• Majorly, build competitive strength and advantage (Yakovleva, Sarkis & Sloan, 2008)

Supply chain management

(Source: US study, 2008)

Moreover, supply chain management is completely concerned with the firms that are vertically integrated and where a single firm takes care of overall material flow. On the other hand, various decisions are made with respect to supply chain management such as location decisions, production, inventory, and transportation/distribution decisions.

Supply-chain management is based on a few basic principles. One of the consulting firms has dictated seven principles of supply-chain. It also articulated these principles help bringing the competitive advantage forward and reinforce the management system of supply-chain (Zigiaris, 2000).

1. 1.      Customer segmentation on the basis of service needs: According to the first principle, customer should be segmented on the basis of service need rather than on industry basis and then service should be tailored to each specific segment.
2. 2.      Customization of supply-chain management: It states that enterprises should designed their supply chain management in a way that the profitability for segment identified for the customers and service requirements can be focused more than anything.
3. 3.      Plan according to the signals of market demand: This principle says that an organization should listen to the signals of demand from market side first and then it should plan accordingly so that early warnings can be detected. It helps forecasting continuously and optimum allocation of resources.
4. 4.      Differentiation of product closer to the customers: From current scenario’s perspective, no company can afford stockpile for unforeseen potential errors. Therefore, they should postpone the differentiation in the production process that is closer to demand of customers.
5. 5.      Strategic management of supply’s sources: Leaders in supply-chain management can enhance the profit margins for themselves and suppliers by working closely with them to lessen the entire cost of acquiring raw-materials.
6. 6.      Build up a supply-chain-wide technology strategy: The organizations must develop information technologies that will support the decision-making levels and on the other hand should also represent the products, services and information flow.
7. 7.      Implement channel-spanning performance measures: The organizations should adopt such performance measures which could not only monitor the internal functions, but also clinch financial metrics like account’s proper profitability.

After embarking on supply-chain management’s concept and principles, it is also required to know its performance measures system. Therefore, forthcoming section of the report will highlight the performance measure standards of supply-chain management.

1. 4.      Performance measures:

Performance measures are used to monitor the supply chain sustainability in terms of return on investment, productivity, overall profitability and output. A good performance measure is quantitative in nature, quite easy to understand, visible and evaluates what is most important. It should also be noticed that performance measures should mainly focus customers’ needs and processes not functions. Likewise, a good performance measure should not only consider the service metrics but also take business handling and other financial metrics into account.

In addition, the metrics and relative measures can be defined in the context of supply chain management processes which are plan, source, production and delivery to the customer (Gunasekaran, Patel & McGaughey, 2004).

4.1  Metrics for order planning:

It involves the order entry method, lead-time for orders which includes the total order cycle time from production to order delivery, and order path system for customers. Appropriate steps can be taken to eliminate the non-value adding activities by evaluating the customer’s order path.

4.2  Supply link estimation:

In this evaluation, suppliers are evaluated in terms of competence, flow, and receptiveness, assimilation and satisfaction of customers of supply chain management. It further consists of strategic level measures that evaluate the level of quality, initiatives of cost savings and pricing from supplier’s end against the current market value. Afterward, measurements of tactical level involve purchase order cycle time’s competency, cash flow of the enterprise, and flexibility for production or distribution capacity. Evaluation of supply link also explores the measurements for operational level which include day to day operations of the supply chain management, stickiness to the schedules that have been developed for proper operational activities and finally achievement of the deliveries that are defect free (Hervani, Helms & Sarkis, 2005).

4.3  Performance evaluation at production level:

Once the order has been planned and goods have been sourced, the next step is to assemble those goods for production. It is the most crucial part of the supply-chain management, as product is manufactured and made ready for the distribution to the customers (Chunguang, Joseph, Xiaopeng & Lenny, 2012).

Product & Services’ range:

At this particular production stage, first products and services’ range is evaluated. Performance measurement reveals that the organizations producing broad range of products introduce new products slowly as compare to the organizations producing narrow range of products. Therefore, it can be observed that category of products in terms of broad or narrow affects the performance of supply chain.

Capacity utilization:

It basically refers to the optimum level of utilization of capital and other human resources. By evaluation, measures demonstrate that it affects the pace of response to the demand of customers. It is through its impact on suppleness, order lead-time and deliverability.

Scheduling techniques’ effectiveness:

Scheduling is concerned with the date or time fixed for running the operational activities so that production and delivery can be made possible on time. Techniques of scheduling such as JIT, MRP and ERP are directly linked and have inferences on purchasing of raw-materials, throughput time and size of batch. As per the supply-chain management, scheduling totally depends on customers demand and performance of the suppliers. Therefore, techniques of scheduling should be noticed in this context (Svensson, 2007).

4.4 Delivery link’s evaluation:

The link which directly affects the customer of an organization is delivery. On the other hand, it is considered as the main link which automatically determines the customer satisfaction.

Measures for performance evaluation of delivery:

Measure for delivery performance evaluation is regarded with on-time delivery of the products to the customers. In this case, there are a lot of aspects which can influence the delivery performance like transport speed, reliability from driver’s end, delivery’s rate of recurrence and the location where product is to be delivered. Following this, numbers of faultless invoice notes are also examined to check whether the delivery has been made perfectly or not and further discrepancies are identified in order to make changes in delivery system.

Furthermore, the flexibility of delivery system also affects the future order placement by customers. The flexibility refers to the requirement of customer delivery at an approved place, by accepted mode of delivery and along with agreed personalized packaging of the product. If delivery is done perfectly and in accordance with customer’s requirement, it helps retaining the customers (Corbièr-Nicolliere, Ferrari, Jemelin & Jolliet, 2003).

Performance measurement

(Source: Bozarth, 2011)

Total distribution cost:

On the basis of supply-chain management analysis, it is viewed that transportation covers more than half of the entire logistics cost. Therefore, it is required to estimate each constituent of individual cost which will lead to the successful and efficient distribution system.

4.5  Performance evaluation of customer service and satisfaction:

For any organization, pleasant and satisfied customer with the service is of greatest importance. Hence, performance measures should be customer satisfaction centric. For that, following metrics should be evaluated:

Flexibility:

Represent flexibility is to have the adequate capacity to provide the products according to the customers’ demands. It is regarded one of the critical parts of the supply chain sustainability and metrics for performance evaluation. A few measures for flexibility comprise time in product development cycle, equipment setting up time and number of inventory turns (Presley, Meade & Sarkis, 2007).

Customer query time:

It is the time which a firm takes in responding to the order of customer with the proper information. Moreover, it is not easy for the customers to know about the status of their order, availability of stock or delivery. Therefore, a quick response to such queries of customers is necessary to keep the customer satisfied.

Customer’ service post transaction measures:

It is not an ending of supply-chain management functions after they distribute and deliver the product to the customer. They are required to evaluate post transaction activities which play an important role in overall process. In this way, the feedback from the customers helps improving the performance of supply-chain management (Craig, Dale & Rogers, 2008).

4.6  Supply chain and logistics cost:

It is essential to financially measure the overall logistics cost of a supply-chain system because its efficiency can be evaluated and rated on that basis for effectiveness. Therefore, financial impact of strategies and processes is measured to know their contribution to the products’ flow in a supply chain.

Cost linked with assets and return on investment:

The assets in supply chain are account receivables, plant, machines/equipments, inventories and plant. To deal with increasing inflation and decreasing liquidity, it is required to estimate the cost linked with each asset of the supply chain affects total time of cash flow that is combined with company’s turnover. Additionally, return on investment should also be estimated in order to know the profitability of the firm. This helps determining the cost associated with risk, inventory management, opportunity cost and insurance (Jacobs, Smith & Goddard, 2004).

5        Supply chain management sustainability:

The term sustainability is concerned with meeting the present requirements without compromising with the future generations’ ability to meet their own requirements. Besides, sustainability takes three main broad factors into account which are environmental, social and economic factors. Environmental factors involve both of the living and non-living creations on earth such as land, water, trees, animals, etc. In this context, to improve the sustainability from environmental perspective means lessening of supply chain’s ecological footprints (New Zealand business council for sustainable development, 2003).

On the other hand, social dimension of supply chain sustainability indicates toward human capital of the chain. It considers that to improve sustainability from societal perspective, it requires developing and managing business practices in such a manner so that fair environment could be offered to the labor, regions and associated communities. Therefore, three following categories are structured in this context:

• First, internal human capital working within supply chain,
• People who are directly or indirectly affected by the performance of supply chain
• Finally, the internal and external frameworks, processes and other linked values that are attached with social factor (Labuschagne, Brent & van Erck, 2005b).

Afterward, economic factors relates to the profit which have been earned by the supply chain members and economic advantages realized by the nations, communities, and areas of those members. It has been categorized in four following key dimensions:

• First is the economic performance of the firm which refers to its capability to conduct its operations and to carry out the firm’s market value as well.
• Second dimension is related to the firm’s financial health which demonstrates its well-being and long-term feasibility in terms of financial resources.
• Next economic dimension is related with the market’s health and supply chain arrangement.
• Last factor refers to the firm’s internal and external frameworks, procedures and values with respect to the economic dimension (Kleindorfer, Singhal & Van Wassenhove, 2005).

6        Performance measures in supply chain sustainability:

There are a number of performance metrics for diverse dimensions of supply chain management sustainability. Each has been defined one by one to understand it in an effective way (Gunasekaran, Patel & Tirtiroglu, 2001).

Environmental factors:

Social factors:

Economic factors:

7        Balanced scorecard approach:

Balanced scorecard is an effective device to measure the performance and in this context it mainly concentrates on the metric that basically derives the employee’s performance. In addition, it represents a well balanced set of measures which are based on four key perspectives of balanced scorecard.

• First, financial perspective that is linked with the interests of shareholders and evaluates that how their interest is served and protected. The indicators selected for this is current ration, sales & stock turnover ratio, debtor’s velocity ratio. Therefore, it reveals the future cash flows’ current value which points out the amount up to which value has been created for shareholders.
• Second perspective is customer perspective that states that how customers perceive the business and answer of this question lies in their satisfaction evaluation and the effectiveness of offering that satisfaction. This perspective mainly aims at strategy construction of creating value for the customers by diminishing order lead-time, enhancing product’s quality and by setting most competent and cost effective price for the product.
• Next, it focuses on internal business perspective that at what level an organizational should have excel like priorities for value creation to the business. Fir that, they should focus on strategies and their effective implementation in order to satisfy all the stakeholders- shareholders, customers, investors, employees and creditors. This perspective talks about both customer satisfaction and shareholders’ value creation interests. The company should identify its key competencies and go right in that way to make their efforts successful, sustainable and consistent (New Zealand business council for sustainable development, 2003).
• Finally, innovative and learning perspective comes forward as one of the major perspectives of balanced scorecard approach. It is required to innovate and execute new process in organizational context in today’s fast changing environment so that high-value quality and revenue could be generated. This suggests a firm to extend the business by adopting new processes, launching new products, extending market share for the business, creating brand value and enhancing the short and long-term profitability for the firm.

The balanced scorecard represents a clear picture of both the employees and the organizational performance. On the other hand, it plays a role of guider for user to estimate the main success factors and indicators for performance.

1. 8.      Strategic issues with supply chain sustainability:

When supply chain management is considered, it is required to measure the performance done throughout the process. It becomes necessary to monitor the performance because the loop holes are found out in between the process which can be taken care for further improvement. Moreover, it becomes helpful for the management to make the supply chain process continuous and effective by eliminating the defaults before manufacturing the product. On the other hand, it also reduces cost for a firm and makes it more efficient for satisfying the customers with overall high-class and non-defective quality products (Hoffman, 2002).

Alternatively, there are a few strategic issues, challenges and barrier to supply chain management sustainability. It includes internal & external barriers and enablers that create issues for the supply chain to remain sustainable.

Internal barriers: Internal barriers take place from inside the company. Therefore, the main challenge can be with the employees’ and management’s commitment to the process. There can be high possible chances for lack of management’s commitment which can create an issue for supply chain management’s sustainability (Min & Galle, 2001). Next, the major issues also include cost, resources, appropriate performance measurement, nature and size of the organization. All these problems are interrelated with one another. For an instance, if a small sized firm’s supply chain management is having limited cost and cannot take suitable and best quality performance metrics into account for measurement; it can have more chances of get failed in producing the products according to the customer’s demand (Walker & Preuss, 2008).

Similarly, some functional issues related to buying and supply chain function such as lack of proper training, lack of knowledge in purchasing integration, lack of firm’s supply chain’s processes and frameworks can be principal parts for barrier (Tummala, Philips & Johnson, 2006).

(Source: Walker & Jones, 2012)

Internal enablers: Internal enablers for these barriers are commitment from all level of management but mainly top management, involvement of employees in supply chain processes. Besides, corporate culture also plays a crucial role in making several issues to the sustainability of supply chain management. Apart from this, if there is no proper alignment of firm’s strategy with supply chain sustainable strategy or purchasing, it will create an obstacle for supply chain to be effective.

Other reputational and environmental risks are also amounted to the sustainable supply chain management. Lastly, type of metrics used for performance measurement, adoption of EMS, and quality perspective are the major challenges for the firms (Hughes, 2005).

External barriers: Government, powerful competitors, customers wanting low prices, suppliers’ commitment, media and other regulations are the external barrier creators for an enterprise. If regulations impose policies against the supply chain and restrictions are made fixed for the organizations on the basis of their previous records, size or performance, this create a challenge to the organization for manufacturing the actual demanded products (Zhu & Sarkis, 2005). Next, competitors making competitive pressure in the industry are a big challenge to any organization to compete with. Apart from this, customers who have the strong desire for lower prices and the suppliers who have poor relationship and commitment with the organization form big issues and affect the company’s supply chain management (Orsato, 2006).

In this context, the firms which are less regulated and do not have adequate authority and permissions become less concentrated and effective in the industry and face huge challenges in terms of processes, purchasing and distribution.

External enablers: On the basis of external barriers’ description, some of the external enablers can be illustrated. They include government policies, regulations, acts, powerful image of competitors, customers desiring shift, collaboration with various suppliers, and pressure from the side of investors, etc.

1. 9.      Conclusion:

On the basis of overall study of the report, it can be said that supply chain management is about sourcing the raw material from suppliers, converting it into the finished products, keeping it safe and finally distribution to the customer. After it, seven principles of supply chain management also have been defined as a part of the entire discussion. Further, the report talks about the performance measure of supply chain sustainability which is generally in terms of flexibility, order-link, order lead-time, supply link, delivery link and supply chain & logistics cost. It is understood that from sustainability perspective of supply chain, there are various performance metrics for environmental, social and economic dimensions. Like, in case of environmental factors there are metrics for air, water, land, materials and use of energy, etc. For social factors there are internal workplace, external community and other related institutions. And for economic factors, there are economic performance, market structure and other measurements.

Next segment of the report talks about the balanced scorecard approach for performance measurement which is considered as one of the best among all. This approach is utilized by any organization to align the corporate strategic objectives with tactical activities to be performed accordingly. With the help of balanced scorecard, strategies are deployed and implemented properly on a consistent basis. By approaching it, organization can get the feedbacks to further guide the efforts they make for planning of supply chain’s sustainability. Moreover, this approach takes main aspects into consideration and thus best practices can be identified and their usage can be expanded.

In addition, the strategic issues have been defined in context of supply chain’s sustainability. The issues are with reference to both internal and external barriers such as strategic, operational, functional & people issues, customers, suppliers, government and competitors. All such issues affect a firm’s supply chain process and its sustainability.

1. 10.  Future directions:

Some recommendations can be made for future growth and supply-chain sustainability. First, employee involvement and top level management’s commitment should be ensured in order to make the process effective from long-term perspective. Next, alignment of strategies with operational and strategic activities should be checked before beginning the process so that steps could be taken for prior improvements. Then, organization’s culture plays an integral role that also should be maintained. Appropriate methods should be there in business’ practice to reduce the cost through cost analysis periodically (Zinn, Mentzer & Croxton, 2002).

Subsequently, a firm processing supply chain management should make sure that all protocols related to quality and safety framework have been identified. A dedicated management and department’s responsibility is to consider all social, environmental, economic and ethical factors throughout the supply chain process. In addition, they should also assure the proper integration of perfect order system and customers’ satisfaction (Cox & Michael, 2005).

 Next, suitable performance indicators should be infused in supply chain management system so that possible errors could be found out and eliminated from the chain. To lessen the barriers and issues, a firm should ensure the best quality and affordable satisfactory price for the customers and should keep government and external support in mind. For that, they need to make good and healthy relationship with the suppliers in order to keep the chain sustainable and flexible. Finally, review from sourcing of raw-material to distribution of production should be guaranteed so as to make the sustainability certain (Cooke, 2001).

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