Supply chain management is the coordination of the processes and functions within a business, adopted by most companies in the UK in the late 1990’s. It deals with the internal and external factors that, when dealt with correctly and systematically, can determine a businesses success or failure. A supply chain is the network of activities that delivers a finished product service to the customer. By definition, supply chain management (SCM) is “the management of the flows of materials from suppliers to customers in order to reduce overall cost and increase responsiveness to the customers” (Reid & Sanders). SCM entails the co-ordination of the movement of good through the supply chain from suppliers to manufacturers to distributors to the final customer. The main aim of SCM is to maximise the efficiency of any given process being carried out by a company; by doing this it is allowing them to try to cut their costs and hopefully keep satisfying their customers’ needs, while at the same time maintaining their competitive position within their market.
Supply chain management is seen as more of an “open system” in contrast to the traditional system used by the majority of companies just 20 years ago. The new “open system” allows room for change which is greatly needed with the current financial instability of the economy. SCM has evolved over the years and has moulded to suit the ever changing economy. First adopted by the Japanese, in the form of Geba Kai (A meeting of the minds), the now commonly found process is used by a vast amount of companies in the UK. Nowadays, SCM within a business is responsible for a product from when it’s in its raw state to when it’s a finished product, ready for consumption by customers. The chain management that Comfort Company PLC currently uses is a very traditional system, otherwise known as a “closed system”.
This type of management system isolates itself from the other components in the supply chain and therefore only has communication flowing through the companies own system, this is a negative attribute as it prevents the company from getting important and influential information about the state of the other links in their supply chain. When the dynamics of change happened, it forced the breakthrough of a new approach, the “open system”.
The “open system” made companies a lot more open to operational change and as a result of this it made several managers, whose companies used the closed, more traditional system, view the new approach as a loss of power; this consequently made a lot of companies resist against the change. The new and more flexible “open system” was adopted firstly by the Japanese in the form of “Geba Kai”, they were closely flowed by the British who quickly followed them in adopting it. There are still some nations that, even now, rigidly stick to their old ways and use the “closed system”, two examples of these nations are the Americans and the Germans.
Along with the list of positives the company will gain by changing from a traditional chain system to a more formal supply chain management (SCM) system, there are also a few strategic reasons why a company should change to the newer system, reasons that will help them to stay on par with the other business’ within their industry and within the whole business sector. One of these reasons is globalisation. As stated in “Operations management: Along the supply chain”, Two thirds of today’s businesses operate globally through global markets, global operations, global financing, and global supply chains”. Globalisation means that British companies, such as Comfort Company PLC are going to have to be prepared to compete in markets that are foreign to them and also have foreign competition within their own domestic markets. Companies that adopt, or have already adopted, a formal supply chain management system will have an advantage upon those who haven’t and will be able to benefit from globalisation.
There are many benefits a company would gain from introducing a formal supply chain management system, all fulfilling the wish to supply the customer with good quality products that “Comfort Company plc” posses, while at the same time giving them an opportunity to maximise their customer satisfaction, manage their supply chain effectively and allow flexibility to their supply chain. By maximising customer satisfaction, “Comfort Company plc” could asses how well they are meeting their customers needs, while at the same receiving an indication of how well the business is doing in comparison with their competition; both in their market and foreign markets.
Having a flexible supply chain would mean that the company would be able to react to change in demand quickly to ensure that they level the demand to their output, this would save them a lot of time, waste and resources if a freak change in demand was to happen. If “Comfort company plc” did not adopt the formal supply chain management system they would be at risk of loosing a lot of money if an unforeseeable change was to happen, this would give them a disadvantage upon the competition and would lower their competitive advantage. Effective management of a supply chain could open up opportunities for “Comfort Company plc” to improve many aspects of their production, and potentially save themselves a lot of money. By identifying the unnecessary waste along the supply chain, “Comfort Company plc” could make the process an easier, cheaper and quicker one for themselves and other links in their supply chain; this would make the chain more productive, consequently making the finished product “better value”.
One of the main advantages of a formal supply chain management system, and an excellent attribute a company can have, is an advantage upon your competitors. Defined, competitive advantage is “an advantage over competition gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices”(Tutor2u.net, 2011). The type of competitive advantages a company such as “Comfort Company plc” would achieve from a formal SCM system are advantages such as lower costs and operational flexibility. As there are numerous ways of gaining a competitive advantage, the company in question needs to do some research into their market to see how it could be done, they could research the ways in which their successful competition operate and try to adopt some of their approaches.
A good example of a company using its formal SCM system to achieve a good competitive advantage is Dell Computer Corporation. “Quick delivery of customised computers at prices 10-15 percent lower than the industry standard is Dell’s competitive advantage. A customised Dell computer can be en route to the customer within thirty-six hours. This quick response allows Dell to reduce its inventory level to approximately thirteen days of supply. Dell achieves this in part through its warehousing plan. Most of the components Dell uses are warehoused within fifteen minute travel time to an assembly point. Dell does not order components at its Austin, Texas, facility; instead, suppliers restock warehouses as needed, and Dell is only billed for items only after they are shipped. The result is better value for the customer” (Reid & Sanders).
There are a few ways “Comfort Company plc” can gain competitive advantage within their market, such as using tools like business to business (B2B) e-commerce, or adopting one of Dells results gaining approaches and making sure that there components and raw materials for making the products are located a short travel time away from the place of assembly. Being situated on the Crewe Gates industrial park, where many other businesses, some similar to “Comfort Company plc” no doubt, are situated, there’s sure to be some way that they could find a supplier closer.
If this was to succeed they could create a good, strong relationship with the suppliers and build a barrier of trust and communication, this would be a perfect scenario to ensure the links in the supply chain are strong, as the supply chain is “only as weak and its weakest link” and vice versa. A business to business (B2B) e-commerce is when companies sell to other business, it is the largest segment of e-commerce. If “Comfort Company plc” were to use business to business (B2B) e-commerce, they could gain potential benefits such as:
•Lower procurement administrative costs,
•Better quality because if increased cooperation of between buyers and sellers, especially during the product design and development,
•Low-cost access to global suppliers,
•Lower inventory investment due to price transparency and reduced response times (R. Dan Reid, Nada R. Sanders)
The reasons/advantages stated above for changing from a traditional chain system to a formal supply chain management system are in fact more than just small advantages “Comfort Company plc” could gain, but necessary changed that need to be made if they want to survive the current economical crisis and still have customers/revenue at the end of it. With globalisation growing and the need to satisfy the customers becoming more apparent and
diverse, the formal supply chain management system is a necessary system that every business, no matter how small or large, should put into place. The formal SCM system will allow “Comfort Company plc” to integrate their information systems with their suppliers and customers in an effort to meet their goals and objective while still at the same time doing this in a cost-saving way.
With every new system brought into a company, there is the risk of it creating a few problems within the company; this makes the need of a contingency plan much higher. There are a few risks that come along with implementing such a big change to a business so set in its ways like “Comfort Company plc”, a main one being the possible lack of cooperation from the workforce or managers. When change happens in a workplace the employees can feel threatened and scared and will sometimes rebel against the new change, this could be avoided if the company took a few simple procedures to ensure the workforce are happy with the new system.
They should tell the workforce about the new operational plan and get their feedback on it, this will make them feel involved in the change and will hopefully make them feel less alienated. Also, they should sit them down and explain the needs of introducing a formal supply chain management system into the company, and the benefits it would gain by doing so, if they feel it would be benefiting the company, they should feel happier about the change going on. Furthermore, if both of the steps are carried out correctly, it could make them more motivated towards their job as they will feel involved in the company and will hopefully want it to succeed.
Another risk of the formal supply chain management system is the potential loss of jobs within the company; this will be because some members of staff will not be needed as a go between for information between suppliers and so on. The redundancies in the company could possibly cause bad feeling between the workforce and the new system and could de-motivate them, possibly leading to a decrease in the effort put in by the workforce; this could potentially lead to a product being of a lower quality.
Also, the possible redundancies made will be a negative factor for the economy as there will be a few more unemployed people in the country; this is one of the only major downfalls of the introduction of the formal SCM system. However, there may be members of staff who are close to retirement and could benefit from voluntary redundancy and the benefits that go with it. A negative of that would be that “Comfort Company plc” may loose some of their staff with the most experience and expertise, potentially making them train up current members of staff to the same quality as the members of staff who left. However, the operations management team at “Comfort Company plc” will have to put contingency plans in place that cover all of the possible risks, and ways to reduce the risks from happening.
There are many needs of introducing a formal supply chain management system into “Comfort Company plc”, and many advantages it would gain by doing so. While there are also some risks involved, the advantages and needs outweigh them massively as they could potentially provide “Comfort Company plc” with a competitive advantage, while at the same time reducing their costs and use of resources. Like the traditional chain system currently adopted by “Comfort Company plc”, the new, more up to date formal supply chain management system will fulfil their wish to supply the customer with good quality products while at the same time saving them resources and money, making them more profitable. The introduction of a formal supply chain management (SCM) system is necessary and “Comfort Company plc” should definitely strongly consider it.
•Operations Management: An integrated approach (2007) (3rd edition) R. Dan Reid, Nada R. Sanders. Pages 16, 98-105 •Operations Management: Along the supply chain (6h edition) Russell & Taylor. Page 9. •Tutur2u.net (2011) Competitive advantage (WWW) Available from: http://tutor2u.net/business/strategy/competitive_advantage.htm
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