These are challenging times for organizations. It is apparent that they are operating in an increasingly turbulent business environment due to global economic downturn and reduced demand. The trend is likely to remain for sometimes and continue to impact the industry, both in the volatility of commodity prices and in particular, rising supply chain costs. Companies are under pressure to cut staff, production and investment to face the daunting economic realities but in the longer run theses measures will have a negative impact on well governed business.

As with every competitive challenge, some companies will respond effectively. Improving the efficiency of supply chains could be one of the methods left to reduce costs, turning this time of challenge into an opportunity to benefit from an eventual upturn.

In Europe, U.S.A. and Japan supply chain management is recognized as an integral part of business, working with Production, Marketing, Sales and Finance, making a valuable contribution to the company competitive game plan. But, local companies in general have failed to follow a comprehensive strategy in that direction. This is particularly evident in the way most organizations are structured where the responsibility is downgraded and added to the job description of Operations, Finance, Marketing or IT. This may be due to shortage of supply chain management professionals and lack of understanding and interest into the organization wider application of the concept over the years of neglect. Hence, it is apparent that companies need to concentrate on commercial imperatives and put in place an effective supply chain mechanism that make them efficient and competitive in the market place.

But first, it is essential to have a clear understanding about supply chains, its importance, how it works and which model effectively deliver the desired business objectives.

Understanding the broader concept

So, what does the term "supply chain" mean?

The term has emerged in the business scene in the 80’s as "value for money" in a well planned business process and since then the concept has taken root. It is a multi-functional, end to end process where the whole organization has to make appropriate contribution which is fundamental to the commercial management of the business.

There are conflicting views on what the concept entails. Some companies have even taken to calling their operations a "supply chain" but measured against most credible definitions, they don’t really have a supply chain at all, but networks. This has created confusion, in particular, its relationship with logistics & transport. Is logistics a sub-set of SCM or SCM and logistics are complementary? Analyzing the following CIPS definition will help companies to identify where they fall on the supply chain spectrum.

Defining Supply Chain Management

"The integrated business procedures and partners that manage the flow of goods and information from the point of design to delivery of a product/service to the end user. The management of materials and services whilst upstream in the hands of suppliers and downstream in distribution or the possession of customers. It is also about movement of goods and services through the chain and process them to support manufacturing and sales" The Chartered Institute of Purchasing & Supply UK

The view is that supply chain management is at the centre of the business as it involves responsibility for the end customers’ demand right through the organization to the suppliers, Procurement & Logistics, Distribution and beyond in Production, Sales, Marketing and Finance.

Why is it important?

Supply chain management is evolving and becoming more complicated in manufacturing and trading process moving the resources from the point of "design to delivery" (D2D).

"When you put a limit on what is a supply chain or how it moves the product or resources through to consumption, there is nothing much left" John Gattorna- Professor of supply chain management at Sydney Business School.

Hans Lewinski, managing partner at Accenture agree. In many industries, he says, supply chain management has a major impact on performance, accounting for as much as 70% of operating costs, and comprising at least half of company assets.

So, keeping a tight control of up to70% of the annual expenditure in a given period representing buying materials, holding inventory and managing the logistics is not a matter of choice but a matter of survival, especially, companies hit by margins to gain a competitive edge in order to capture a fair share of the market.

How the supply chain works

It works in different levels based on the extent of integration and co-ordination between planning, sourcing, make/buy and deliver goods/services. It is also concerned with information as well as physical flows and seeks to add value and reduce costs in achieving overall company objectives. Level One, for instance consist of internal integration where operations, marketing, purchasing, distribution and after-sales within the organization are involved. Level Tow relates to external collaboration where planning and operational information is shared with suppliers and customers. The ultimate goal is to synchronize the activities of all supply chain participants to meet the demand of the consumer. For an example, in the automotive industry, car makers now depend on suppliers to deliver entire assemblies rather than individual components. Some leading car makers do not manufacture very much, except the engines and body panels. Everything else is purchased. So, the suppliers become critical in deciding the technological and quality level of the car and as such, much of the innovation, value and support coming from supply base making supply chain the business selling point.

Achieving business objectives

An organization has to determine the right approach to meet its own objectives.

There is a need for broader understanding among the senior managers on how to deploy available supply chain resources more effectively in achieving business objectives. In the private sector, boards want to hear about competitive advantage, returns to shareholders, contribution to the social responsibility, improved cash flow, market value, profit and growth. In the public sector, they want to hear about improved quality of public service, value for tax payer’s money and involvement of SME’s. Supply chain management has a strategic role within the organization and if the senior managers want to adopt that role in their work environment, then they have got be able to relate much more closely to the strategic needs of the business.

Purchasing & supply can play an increasingly productive role by shaping up departmental alliances enabling innovative approach such as quality-stock-price management through buyer-supplier-customer integration, forecasting seasonal variation, market intelligence where cross functional teams working together to enhance productivity and maximizing the competitive position through efficient commercial management.

Skills development

The success of formulating and implementing a strategic policy mainly depend on the development of the people involved. An organization may have the right procedures, technology, and tools to carry out the supply chain tasks but the shortage of high level competence in the work place will undoubtedly hamper the progress. The pressure tend to have a big impact on performance and therefore, having the right people with relevant qualifications, skills and training is a "bread and butter issue" and has to be addressed adequately.

Primarily, genuine personal development is valued with education and depth of training available in this area of management. Although there are some programs and course available locally they are not taken seriously and lack recognition. In Europe and U.S.A. courses leading to post graduate qualifications in supply chain logistics are readily available and in the U.K. the whole business development process is integrated between the Chartered Institute of Purchasing & Supply and universities with the support of the big corporate names.

The higher education curriculum in this country will have to change with areas relevant to modern day business. The aim is to develop flexible and focused education and training programs covering areas such as supplier appraisal, performance measurement, contract management, negotiation skills, value analysis, sourcing, Materials Requirement Planning, Distribution Resources Planning and Project Management.

Public sector procurement and logistics

Corrupt practices and kick backs is the norm in the public sector business deals in the absence of professional ethics. One way to establish some credibility in this area is to try and put in place a system which closely scrutinize the structure, people and the operational matters involved, with a twin track approach toward "value for money" This will minimize the waste and improve the accountability. The government tender boards must be properly balanced to avoid undue concentration of politically motivated bureaucrats interfering in the decision making process.

Conclusion

Supply chain management profession may not have all the solutions to corporate problems, but faced with pressure to improve competitiveness, profitability and growth, more thoughtful companies may put renewed emphasis on supply chain. For many, it is now directly linked into their business strategies. The best option is probably to follow the trend.