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Opportunities and Challenges of Supply Chain

Management

Sandeep.S

School of Management Studies


CUSAT, Kochi-22
Email:spsfriends84@gmail.com

Abstract: The main objective of this paper is to understand scm and explore
the various challenges and opportunities evolving day by day. Firms from
established and mature economies are increasingly expanding into emerging
markets. Globalization forced companies to change their competitive
priorities and redesign the supply chain aggressively with a global focus. For
some companies the driving factor is the new market for its products and for
some other it is the access to new suppliers or raw materials from any where
from the world at low cost, for a third it is about lowering the cost of
manufacturing and services through outsourcing . Regardless of a galore of
opportunities there are many common supply chain challenges as they enter
or expand their business in emerging markets: new risk of disruption of
quality, financial uncertainties of the partner, unfamiliar cultures, varied
infrastructure, historical reasons and rapid growth and change. Globalization
,vertical disintegration, outsourcing and off-shoring, shorter product life
cycles, lesser lead time, JIT inventory are also some factors which led to
challenges like information integration, co-ordination and resource sharing,
organisational relationship linkage. Information is the power of modern scm.
A company with modern technology and having and effective supply chain
management system with information integration as its foundation will have a
definite edge over competitors and various scm challenges
Key words: Information Integration, Globalization, Resource Sharing,
Outsourcing, e-supply chain, Real time information challenges

1. INTRODUCTION

1.1 Supply Chain Management

“Supply chain is defined as the network of organisations that are involved, through
upstream and downstream linkages, in the different process and activities that produce
value in the form of products and services delivered to the ultimate consumer”.

“Supply chain management is defined as management of a network of retailers,


distributers, transporters, storage facilities and suppliers that participate in the sale,
delivery and production of a particular product”.

2.0 OPPORTUNITIES IN SCM

2.1 Information Technology in SCM

The internet wave and the emergence of e-business have highly influenced the traditional
supply chains by enhancing co-ordination and communication between the partners. The
enabling technologies like EDI, Intranet, Extranet, Electronic market places, ERP, DRP,
ware house management system, CRM,CPFR etc has tremendously improved the
integration among the buyers and sellers. Information technology has removed the
roadblocks of information sharing making the firm smarter everyday. E-business has
enhanced both supply chain efficiency and responsiveness by sharing real time
information regarding inventory, shipment status and other key information like product
design, product availability and demand between partners. The e-supply chain will have
customers and suppliers seamlessly linked together, through out the world, exchanging
information almost instantly. As a result of e-speed information sharing the companies are
adopting pull strategy instead of push strategy. Fast access to relevant supply chain
information can pay-off handsomely in lower product acquisition costs, lower procurement
transaction, less inventory, higher quality decision making, shorter lead times, profitable
means of disposing unused excess inventory and better customer services. Effective
supply chain management can impact and improve upon virtually all business processes,
such as data accuracy, operational complexity reduction, supplier selection, purchasing,
and warehousing and distribution. Other benefits include
• Quicker customer response and fulfillment rates
• Shorter lead time
• Greater productivity and lower costs
• Reduced inventory throughout the chain
• Improved forecasting precision
• Fewer suppliers and shorter planning cycles
• More reliable and quality information

2.1.1 Supply Chain Management Software

Supply chain management software (SCMS) is a business term which refers to a range of
software tools or modules used in executing supply chain transactions, managing supplier
relationships and controlling associated business processes. Some common features of
these softwares are as follows
• Customer requirement processing
• Purchase order processing
• Inventory management
• Goods receipt and warehouse management
• Supplier management/sourcing
A requirement of many SCMS often includes forecasting. Such tools often attempt to
balance the disparity between supply and demand by improving business processes and
using algorithms and consumption analysis to better plan future needs. SCMS also often
includes integration technology that allows organisations to trade electronically with supply
chain patterns

2.1.2 ERP and SCM

ERP is the battering ram that integrates all that information together in a single application,
and SCM application benefit from having a single major source to go to for up-to-date
information. New initiative in resource planning, electronic commerce and extended supply
chain are fuelling the trend among corporations toward integrating strategic business
applications. ERP systems assist enterprises in automating and integrating corporate
cross functions. SCM systems support information flow from various players in the supply
side, reducing the transaction cost and facilitating supplier-customer interactions. Normally
SCM applications simply automate the logistic aspect of SCM are less dependent upon on
gathering information from around the company and are independent of the ERP decision.
But current trends in the market are such that you will need to have these applications
communicate with ERP in some fashion. It’s important to pay attention to the software’s
ability to integrate with the Internet and with ERP applications because the internet will
drive demand for integrated information.

2.1.3 RFID and SCM

It is one of the most notable is Radio Frequency Identification, or RFID. RFID tags are
essentially barcodes on steroids. Whereas barcodes only identify the product, RFID tags
can tell where the product is, where it has been, when it expires, what ever information
someone wishes to programme with it. RFID technology is going to generate mountains of
data about the location of pallets, cases, cartons, totes, and individual products in the
supply chain. It will be able to produce piles of information about when and where
merchandise is manufactured, picked, packed and shipped. Its is also be able to tell
retailers about the expiration dates of their perishable items-numbers that will have to be
stored, transmitted in real-time and shared with warehouse management, inventory
management, financial and other enterprise systems. Another benefit of RFID is that,
unlike barcodes, RFID tags can be read automatically by electronic readers.
2.1.4 E-Choupal- Virtual Vertical Integration Model of SCM

E-Choupal links the Indian farmer with consumers in local and global markets, by
leveraging ITC’s time-tested and proven competencies in marketing and distribution. E-
Choupal leverages the seamless workflow capabilities of IT to virtually integrate several
best in class players along the chain and offer the service on a single platform to every
farmer. E-Choupal empowers the farmer’s decision–making with information. In the
process many overheads like multiple transportation and handling, bagging etc are
erased. Thus through V2I model of SCM,E-Choupal secures benefits for country’s
economy without displacing the small farmer. From the conception of the model, an IT-
based solution was recognised as fundamental to optimizing effectiveness, scalability, and
cost.

2.2 Supply Chain in Food Sector

The food supply chain consists of various players. Logistics is thread which connects the
different components of the supply chain. The supply chain is consists of farmers who sell
produce directly into consumers or to traders or manufacturers, cold storage units, food
processing entities, packaging units, wholesalers or distributors, retail chain or other form
of retailers, hotels, restaurants, caterers and consumers. Supply chain in the case of food
sector varies from product to product in terms of no of players and value addition at the
level of each player. The efficiency of a supply chain depend upon the way in which the
relative activities or processes are conducted such that cost, time and efforts are saved
and productivity increases. These cover forecasting supply of and demand for products,
sourcing of raw materials and intermediaries, production, inventory, orders, distribution and
making the products available to customers. A connecting thread in these cases is the
level of technology used, technology-backed information systems and logistics which
integrate the various players in the supply chain.

2.3 E-Financial Supply Chain Systems

Cross border transactions, decreasing cost of technology, speed of transaction and a 24


hour 365 day facility has lead to development of e-financial supply chain. Though e-
financial supply chain has been growing it needs to accelerate at a much faster pace to
keep up with global business demands. Comprehensive laws and mitigation of risk of
fraud would enhance its use and acceptance. Proper financial supply chain management
using e-payment mechanism can reduce the cost of working capital and improve supplier
relationship management by providing speedy payment.

2.4 SCM in Pharmaceutical industry

Outsourcing- the current mantra of pharmaceutical industry is being used more


strategically as on going part of a company’s overall business strategy. Outsourced
activities can be in various field right from “drug discovery” till manufacturing of the
product. Pharmaceutical companies have a long outsourced function such as
manufacturing, packaging, clinical trials and sales force mobilisation. Bio-technology
companies which have almost doubled in number during the past five years, also
contributed to this trend as they seek ways of bringing their products to markets without
making capital investment in their own manufacturing facilities, the major benefits of
outsourcing are given below
• Outsourcing reduces the overall cost by 30 to 35 percent
• Reduces problems faced during the regulatory process
• Improve manufacturing efficiencies
• Reduces excess production capacity by divesting facilities
• Improve net earnings and cash flow
• Fast and cheaper to have discovery work outsourced as it reduces the drug
development cost

3.0 CHALLENGES OF SCM

The demands made to a manufacturer by a client are dependent upon demands made by
client’s customers. In a supply chain all suppliers, manufacturers, distributors and retailers
have the same end customer. All of them will be successful, if they collaborate with each
other in satisfying the demand. The competition is no longer between the organisations but
between supply chains. If one supply chain fails to meet the demand another supply chain
will overtake and satisfy that customer. Contemporary issues in SCM can be briefed as
• Expanding distribution systems transcending the national boundaries and becoming
global
• Reduced inventory goals require flexible, high velocity manufacturing strategies that
can enable a quick response when unexpected changes in demand occur
• Many new SCM technologies like RFID are in the nascent stage and for them ROI is
not yet identified
• Increased demand responsiveness requires a “demand driven supply
network”(transformation from push to pull operations) collaboration and closed-loop
planning environment requires clean synchronized n data
• Information disintegration-disconnected demand, supply and financial plan make it
difficult to reconcile plans with reality and re-plan accordingly
• Complexity- increasingly complex supply chain processes impede best practice
decision making and management of data transfers.
• JIT inventory- cant afford to have errors or supply chain disruption that will cause
manufacturing to halt
• Short product lifecycles-one has to constantly set up new supply chains. Each product
has its own supply chain; the more finished product and inventory are lying dead in
your supply chain the faster you will get obsolete.
• Faster order cycle time-less margin for error or delay in the supply chain

3.1 Information Integration

It means getting to the point where supply chain partners share information I real time. The
kind of information shared is production plans, designs, promotions and sales, orders,
production schedules etc. This information sharing as a tangible advantage can counter so
called “Bull whip effect”, which is the problem of demand distortion in a supply chain as it
moves back through the supply chain. It starts with a shift in consumer demand, which
drives a response by retailers, then wholesalers then manufactures, the component
suppliers, then raw materials suppliers. The effect is that variations are amplified the
further you get from the end customer. It is obvious that if all the informations were
transparent across the whole supply chain, there would be no “Bull whip effect”

3.2 Co-Ordination and Resource Sharing

Here it is not just information we are sharing, but rather we are shifting “decision rights”
and “actual work” across firm boundaries. Traditionally decisions and work are located with
owner of resources but now it is better to locate decision and work with those people who
have the most knowledge and have incentives to make the right decisions, that not
necessarily be owners. Wal-Mart’s vendor managed inventory is the best example for this
practice

3.3 Organisational Relationship Linkage

This one of the most difficult problems in SCM. Here we are entwining two organisation
together i.e. exchanging accountability, exchanging risks, costs gain. The vendor managed
inventory is a partial application of this. Dell’s sharing of forecasts with suppliers is also an
example of this. At Dell suppliers co locate near Dell plants and they commit to fulfill 25%
of Dell demand. This is purely based upon extended communication, performance
measures and incentive realignment

4.0 CONCLUSION

Supply chain management is about getting the right stuff to the right place at the right time,
efficiently and effectively. Some of this stuff is physical stuff but just as important as
information and financial flows. Technology plays a crucial role in modern SCM. An
effective supply chain management has information integration as its foundation. So to
maximize efficiency and responsiveness across the supply chain firms have to move
towards virtual integration strategy, where decisions, work, accountability, risks, costs and
gains are moved to the position in the supply chain where the best knowledge and
incentives resides.

5.0 REFERENCES

1. Jayashree Dubey, M.L Sai Kumar,2007,”Supply Chain Management”


New Century Publications, Second edition
2. Sunil chopra, Peter Miendel, 2005, “Supply Chain Management
Planning, Strategy And Operations”, Pearson Education, Third
edition
3. Anonymous, 2006, “ABC: An introduction to SCM”,

http//www.cio.com/abc.html