Introduction to Supply Chain Management - E-Commerce | E-Commerce - B Com PDF Download

Background to Supply Chain Management

Over recent years, the phenomenon of the supply chain has generated enormous interest. The roots of this preoccupation may be traced to the early 1980s and an increasingly lack-lustre performance from many of the West’s blue chip corporations. Suddenly the inefficiencies of the very corporations that had both spearheaded and epitomized postwar capitalist development were exposed: corporations such as Ford, General Motors and IBM were found seriously wanting as they were comprehensively out-manoeuvred by an emerging group of Asian rivals. The surrounding economic malaise across western Europe and North America was bad enough. However what was particularly alarming for corporations and governments alike was that the ground rules of industrial organisation appeared to be shifting. Specifically, the underlying premise that vertically integrated corporations constituted the elemental unit of dynamic and prosperous economies was shown to be erroneous. This fallacy had important implications. It is therefore important to understand its origin and arguably this may be traced to two largely misunderstood 
relationships.

Changes in the Social Division of Labour The first concerns the link between the production system and the social division of labour which may be defined as the allocation of people to different firms or units of production. From the industrial revolution until the 1960s, there was an apparently inexorable growth in the size of lead firms. This trend was seen across many parameters: market share, levels of employment, physical assets, and so on. For this reason, lead  firms were increasingly equated with the production system. In practical terms, this was largely correct. However it was conceptually flawed. Considerable importance was therefore focused on large firms.

Changes in the Technical Division of Labour But herein lies the second misconception. Firms - whether large or small - are effectively only vessels for different elements of the technical division of labour and it is these, rather than firms, that define the production process; firms are merely organising units. A vertically integrated giant corporation that is apparently coincident with the production system - (A) in Figure 10.1 - actually encompasses a number of discrete tasks or units in the technical division of labour. The underlying fallacy was that these tasks would necessarily be completed within a single enterprise.

Figure 10.1: The Changing Premises of Industrial Organisation

In fact, tasks can potentially be distributed across the social division of labour in many different permutations; the vertically integrated giant corporation was just one of the myriad possibilities. Nevertheless, until the mid-1980s, it increasingly dominated every facet of the production process. While in one sense entirely arbitrary, the vertically integrated corporation provided a wholly appropriate vessel for production at a certain stage in the development of the technical division of labour; it did for example create the scope for substantial economies of scale. Such an arrangement was not however without its drawbacks. Specifically, sizeable costs surrounded the coordination of different tasks. These derived from many sources: inventories, unavoidable down time, the management of a diverse skills base, and so on. Particularly during the 1970s, the balance between the costs and benefits of production within the context of the giant corporation shifted. 
Increasing

Complexity of Production Processes :

Underlying this transformation were important developments within the technical  division of labour. Simply put, the number of identifiable tasks within many production processes increased exponentially. Products became ever more complex and, for the most part, they came to depend upon an increasing range of technologies and competencies. For instance, in constructing motor vehicles, there is now a requirement to draw  heavily upon the computer electronics industry and those with the wherewithal to design state-ofthe-art air conditioning systems. Add to this the new disciplines of ergonomics, high level safety and digitalized sound, and the growing complexity of the production process surrounding the motor car becomes apparent. This rapid increase in the number of tasks  is mirrored across the majority of product lines and it amounts to a significant elaboration of the technical division of labour. For the vertically integrated corporations however,  this process created enormous challenges. Concomitantly, the fixed costs associated with integrated production processes have risen to prohibitive levels. For these reasons alone, the viability of the vertically integrated corporation was called into question.

The Changing Nature of Demand :

However, to this must be added a further set of processes relating to the changing nature of demand. The vertically integrated corporation was manifestly ill-equipped to respond flexibly and efficiently to an emerging corpus of highly demanding consumers. With an elaborate technical division of labour, the costs of co-ordination were in any case high. Compounding this with a need for flexibility and responsiveness revealed further inherent weaknesses within this organisational form.

The Emergence of Novel Organisational Forms :

For all of these reasons, by the early 1980s, many structural flaws within the fabric of the giant corporation were being exposed. In addition, the implicit rules underpinning the post-war economic order were both violated and overturned. And conceptually, the fallacy of conflating the production system - the technical division of labour and the social division of labour - was revealed. It is in this context that the full and radical implications of novel organisational forms must be understood. Suddenly loose groupings of - mostly Asian - firms comprehensively out-performed the corporations that had spearheaded the post-war economic revival. And the reason why Japanese ‘Keiretsu’ groupings and the like were able to achieve this feat lay less in their technologies or specific workforce skills than in the apparently mundane question of industrial organisation. In short, in the context of a far more elaborate technical division of labour, the Asian industrial groupings were able to succeed because the technical and social divisions of labour were far more closely aligned and rather than co-ordination by the visible hand of management (with all the implications for inventories, down-time, etc.), there was scope for near-market forms of governance. Thus the production system was far closer to that of (B) in Figure 10.1. It could therefore draw upon an elaborate technical division of labour without the gross inefficiencies that would have surrounded full  vertical integration. Moreover, because it was able to use effectively the full range of potential inputs, end products tended to be highly innovative. On the basis of both cost and new product development (NPD), the new production system therefore outperformed the established order.

A New Focus on the Supply Chain : 

The giant corporations have not however been slow to respond. Over the last decade, many have sought to down-size, to focus on their core competencies and then to outsource all other elements of the production process. In so doing they have reduced their overhead costs. They have also shed much of the risk surrounding NPD while retaining -if not enhancing - their ability to innovate. By drawing on specialist expertise from within the supply chain, the parameters for innovation have broadened considerably: the immense possibilities that surround hybrid technologies and processes have  become clear. In addition, the duration of product development processes has been cut: lead firms and their supply chains have learned both to respond to and provoke rapid changes in market conditions.

Radical Restructuring :

The restructuring that has occurred has been truly radical. Apart from anything else, it has compelled firms to engage proactively in both the creation and management of viable supply chains. This in itself has engendered a whole new set of challenges: it is wrong to assume either that suitable supply chain partners simply exist or that managing relationships so as to effect cost savings and innovation is straightforward. Supply chain relations may be managed in innumerable ways depending on the nature of the production process and the underlying competitive position: thus the form and nature of buyer-supplier  relationships  in  the  food  industry  differ  substantially  from  those    in defence. Nevertheless the rationale for developing such an organisational matrix invariably reflects the developments in the technical division of labour described above. In terms of orchestrating supply chains, many developments have been premised on advances within the arena of information technology: the internet, electronic data interchange (EDI), ISDN networks, and so on have all facilitated the spatial and organisational separation of different elements of the production system. While it is important not to over-state the role of IT within the restructuring process, advances in this domain have certainly rendered novel organisational possibilities feasible.

Definition of Supply chain management (SCM) 

It is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.

Some experts distinguish supply chain management and logistics management, while others consider the terms to be interchangeable. From the point of view of an enterprise, the scope of supply chain management is usually bounded on the supply side by your supplier’s suppliers and on the customer side by your customer’s customers. Supply  chain management is also a category of software products.

Supply chain management must address the following problems:

• Distribution Network Configuration: Number and location of suppliers, production facilities, distribution centers, warehouses and customers.
• Distribution Strategy: Centralized versus decentralized, direct shipment, cross docking, pull or push strategies, third party logistics.
• Information: Integrate systems and processes through the supply chain to share valuable information, including demand signals, forecasts, inventory and transportation.
• Inventory Management: Quantity and location of inventory including raw materials, work-in-process and finished goods.

Supply Chain Management Business-To-Business (B2B) : 

Few business fads have peaked and plummeted with the rapidity of Internet technology, in general, and B2B e-commerce and e-marketplaces, more specifically. Energized by the success of consumer auction sites and by savings from early e-procurement efforts, industry exchanges took off in mid-1998. By the end of the year 2000 more than 1,500 emarketplaces had been announced. They ranged from independent, multi-industry exchanges to vertical consortia led by industry giants, and most were aimed at direct, strategic materials. Business plans for these e-marketplaces often consisted of nothing more than a press release, but the visions were grandiose. Then reality hit. As early as 1999, analysts began to warn that even the largest industries could support only a handful of e-marketplaces. It increasingly became clear that the path to value would be measured in years, not months. Helped along by the bursting of the Internet bubble and a suspicion of all things B2B, the creation of e-marketplaces slowed. Announcements of failures and consolidations replaced notices of new launches. However, research firms that closely watch this sector are far from writing off e-marketplaces or the B2B revolution. There is one significant change in the new projections—today, analysts are saying that much of this business, perhaps as much as 85%, will not go through public marketplaces but instead will be conducted over private marketplaces that cross a wide range of applications. Many say that there is little difference between the basic technology employed in public and private marketplaces. The only real distinction appears to be the model of participation. That model is one reason that private marketplaces offer a faster path to value. One-to-many (1:M) networks are easier to make work than the many-tomany (M:M) model of consortia exchanges that are predicted to offer no more than auction, spot-buy, and excess inventory services for at least the next two years. The real power of the private exchanges lies in streamlining existing relationships, including those with resellers, distributors, and logistics providers.

The Changing Face of Business

Following the traditional approach, no matter how good the product, the first step is to  get the supply chain in order. Next, a business must hire a seasoned purchasing manager to aggressively deal with material and service providers so that costs can be brought in line. Then the enterprise must find dynamic sales and marketing personnel to drive finished product into the hands of the consumer. Tweak the system every now and then and watch while product flows out and profits flow in. That is basically how things have worked in the past; businesses maintain heavily push-driven, sequential supply chains, based on fundamentally adversarial relationships with their suppliers. Success hinges on out manoeuvring, outperforming, and outwitting everyone perceived as competition. Although this may be the traditional approach, it’s not the only way. A lot of forwardthinking companies are beginning to look at an approach that defies convention. The new approach involves making allies of suppliers and customers alike, embracing them in value nets instead of coercing them into precarious supply chains. Many consider this the next evolution in the supply chain. This emerging value net business model starts from  the premise that a better product is no longer your ticket to success, but merely your entry fee into the game. In fact, if a business puts a better product at the centre of its efforts,  this strategy demonstrates that the company has missed the point of the value net approach altogether. The idea is to put customer priorities at the centre and design the value net around them. Moreover, it is important to recognize that customer priorities stem not from some amorphous group called the customers, but from individuals that have unique needs and wants. Where the traditional supply chain would push out a fixed line of one-size-fits-all items, hoping that customers would buy them, the value net in contrast allows unique customers to choose product or service attributes that they value the most; in effect, to design their own product. Then the value net configures itself, its suppliers, its manufacturing services, and its delivery capabilities to meet the needs of each customer or at least of each customer segment. It differentiates itself to supply onesize-fits one or customized products for each customer or customer grouping. It leverages operations and customer choice to drive strategic advantage.