Importance of supply chain management in modern companies
Supply Chain Management (SCM), as defined by Tom McGuffog, is “maximizing added value and reducing total cost throughout the business process by focusing on speed and certainty of response to market.” Due to globalization and ICT, SCM has become a tool for companies to compete effectively either locally or globally. SCM has become a necessity especially for the manufacturing industry when it comes to delivering products at a competitive cost and with a quality superior to that of its competitors. Here are some of the reasons why SCM has become important to today’s manufacturing industry:
Competitive advantage through basic skills
Today’s business climate has changed rapidly and has become more competitive than ever. Companies now not only need to operate at a lower cost to compete, they must also develop their own core competencies to distinguish themselves from their competitors and stand out in the marketplace. When creating competitive advantage, companies must divert their resources to focus on what they do best and outsource the process and task that is not important to the overall objective of the company. SCM has allowed the company to rethink their entire operation and restructure it so that they can focus on their core competencies and outsource processes that are not within the core competencies of the company. Due to today’s competitive market, it is the only way for a business to survive. Your strategy on implementing SCM will not only affect your market positioning, but also your strategic decision on choosing the right partners, resources, and manpower. By focusing on core competencies it will also allow the company to create niches and specialization of core areas. As stated in the Blue Ocean Strategy outlined by Chan Kim, to create a competitive advantage niche, companies must consider the big picture of the entire process and determine which process can be reduced, eliminated, augmented and created.
As an example expressed by Chan Kim, the Japanese auto industry capitalizes on its resources to build small, efficient cars. The Japanese auto industries gain a competitive advantage by using their supply chain to maximize their core competencies and position themselves in a niche market. The strategy works and now Toyota Motor Corporation, a Japanese company, is considered the number one automobile manufacturer in the world, surpassing Ford and General Motors of the United States.
Value advantage
SCM has enabled today’s businesses to not only have a productivity advantage, but also a value advantage. As Martin Christopher states in his book, Supply Chain Management and Logistics: Strategies to Reduce Costs and Improve Service ‘,’ the productivity advantage gives a lower cost profile and the value advantage gives the product or the offering a ‘plus’ differential over competitive offers’. By maximizing added value and also reducing cost at the same time, more innovation can be added to the product and process. Mass manufacturing offers a productivity advantage, but through effective supply chain management, mass customization can be achieved. With mass customization, customers gain the value advantage through flexible manufacturing and custom tailoring. Product lifecycles can also be improved through the effective use of SCM. The value advantage also changes the norm for traditional ‘one size fits all’ offerings. Through SCM, the industry’s most accepted offerings to consumers would be a variety of products targeting different market segments and customer preferences.
As an example, the Toyota Production System that is practiced at Toyota, assesses its supply chain and determines what are value-added activities and which are not value-added activities. Non-value-added activities are considered ‘Muda’ or waste and therefore should be eliminated. Such non-value-added activities are overproduction, waiting, unnecessary transportation, over-processing, excess inventory, unnecessary movement, defects, and unused creativity of employees. The steps that are taken to eliminate waste are through Kaizen, Kanban, Just-in-time and also push-pull production to meet the real demands of the customers. Toyota’s production system revolutionizes supply chain management to become a more agile and flexible supply chain system to meet end-user demands.