Role of SCM in Corporate Strategy: How Companies are Using SCM to Win Market Shares
| March 14,2011 11:01 am IST
Fierce Competition in today's global markets, the introduction of products with short life cycles, and the heightened expectations of customers have forced business enterprises to invest in, and focus attention on, their supply chains.
In a typical supply chain, raw materials are procured, items are produced at one or more factories, shipped to warehouses for intermediate storage, and then shipped to retailers or customers.
Consequently, to reduce cost and improve service levels, effective supply chain strategies must take into account the interactions at the various levels of the supply chain.
The objective of supply chain management is to be efficient and cost-effective across the entire system; total system wide costs from transportation and distribution to inventories of raw materials, work in process, and finished goods, are to be minimized.
A company's competitive strategy defines the set of customer needs that it seeks to satisfy through its products and services. A supply chain strategy determines the nature of procurement of raw materials, transportation of materials to and from the company, manufacture of the product or operation to follow-up service. Supply chain strategy includes supplier strategy, operations strategy, and logistics strategy.
For any company to be successful, its supply chain strategy and competitive strategy must fit together. A competitive strategy will specify, either explicitly or implicitly, one or more customer segments that a company hopes to satisfy. To achieve strategic fit, a company must ensure that its supply chain capabilities support its ability to satisfy the targeted customer segments.
There are several obstacles like increasing product variety, decreasing product life cycle and increase in the demanding customers, which are making it more difficult for companies to achieve strategic fit. These obstacles also represent a tremendous opportunity in terms of untapped improvement within the supply chain. The increasing impact of these obstacles has led to supply chain management's becoming a major factor in the success or failure of firms.
In a fast-paced, dynamic world, the entire supply chain must operate with maximum speed and pinpoint accuracy. It must be ready to rapidly shift gears to meet the changing tastes and requirements of customers. And also to weave a variety of partners - everybody from contract manufacturers and subcontractors to packagers and transportation providers - into a seamless whole that can keep pace with an always shifting marketplace. Hence, the leading-edge companies have been pursuing revolutionary transformations in their supply chain management. Four strategic imperatives that drive the revolutionary changes taking place in supply chain management are speed, visibility, boundary less supply chain and value for the stakeholders.
One of the successful supply chain management examples in India is Mahindra & Mahindra (M&M). M&M implemented Supply Chain Management to link all its plants and to help decide which plant should make what, when, and for which global market. This enabled a pull-based replenishment system that optimizes logistics and manufacturing operations - which helped M&M improve margins and reduce costs while enabling it to respond quickly to customer needs.
The challenges of today's business environment have underscored the need for expertise in supply chain management. Whether looking for new and innovative ways to meet and exceed the needs of customers, or just trying to survive in the midst of changing business environments, companies are trying to achieve success through application of the principles of supply chain management. Dealing with flows of product, information, and capital both with and between business organizations, expertise in supply chain management is fast becoming recognized as a key to efficiency, effectiveness, and differentiation.
SCM represents an integration of processes both within and between organizations that can lead to significant improvements in efficiency and effectiveness. In addition, a growing number of companies today are seeing ways to use the power of supply chain management to differentiate their product and service offerings from those of the competition. The effectiveness and efficiency of the supply chain can be what makes the difference between the company and the competition. This means supply chains need to be faster, more precise and more adaptable. There is a need to be able to customize the supply chain to one's needs and change it rapidly according to market and economic conditions.
Innovative and successful companies are moving beyond the traditional, linear supply chain. Instead, they are creating communities of networked supply chains in which suppliers, manufacturers, distributors and customers all collaborate.
What is Supply Chain?
A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. Within each organization, such as a manufacturer, the supply chain includes all functions involved in filling a customer request. These functions include, but are not limited to, new product development, marketing, operations, distribution, finance, and customer service.
A typical supply chain may involve a variety of stages. These supply chain stages are shown in Figure 1 and include the following: -
Component/Raw Material suppliers
Each stage in Figure 1 need not be present in a supply chain. The appropriate design of the supply chain will depend on both the customer's needs and roles of the stages involved in filling of those needs.