The Concept of Supply Chain Management

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What is the Supply Chain?

A system in which people, organizations, technology or any sort of activities are involved in the movement of goods or services from the producer to the customer who is in dire need of them is defined as a supply chain. The activities which take place within the supply chain system are numerous and are all aimed at transforming raw materials into final products which can be used by the customer.

During instances where the supply chain involves multiple parties, used products can enter or even leave the supply chain system as long as the residue value is recyclable (Stevens 1989). Experts define the supply chain simply as a complex network of facilities dispersed over large areas (geographically) all over the globe.

Components of the Supply Chain

The supply chain usually contains three components which ensure that the system remains complete and fully functioning: The first component is the upstream supply chain which usually includes the organization first tier suppliers and their suppliers. The component focuses on the raw materials and how they can be distributed to the manufacturing channels. As a result, this makes manufacturing or the internal supply chain the second component of the supply chain.

It involves materials needed to transform the inputs to outputs and it is mainly concerned with how the raw materials can be transformed into final products ready to be used by the customers. The last component is the customers to whom the products are supposed to reach. The customers component of the chain is also referred to as down stream supply chain since it involves all the activities which makes it possible for the goods to reach consumers downstream (Keah-Choon, Vijay, Handfield& Ghosh 1999).

When the three components are combined they makes it easier to define supply chain as a network where parties are involved from the initial production to the final processing of the goods or services and these parties include among others the retailers, distributors, manufacturers, warehouses for storage and even the suppliers who distributes the goods and services to the customers (Fox, Barbuceanu & Teigen 2000).

Why Managing the Supply Chain Is a Very Complex Process

Managing the supply chain particularly the modern supply chain is a job that involves specialists in all the three components of the supply chain. With the dynamism of the supply chain, the changes have been revolutionary and there are no signs yet that the pace of change is going to slow down.

With the world becoming very much interconnected and the interdependence among the world economies increasing even more, the process of delivering goods from the manufacturing location to the customers’ location is being achieved by means of mind boggling technological innovations.

To manage this problem, all the players within the supply chain should be more innovative and open minded and they should be able to design the supply chain in such a way that it can be modified according to the changes taking place around the world.

Another factor that makes it very complex to manage supply chains is the fact that though the integration of the supply provides many opportunities especially to improve what the customers get at the end and reduce unnecessary cost, most firms are not able to determine all the costs involved in moving the goods and services from the manufacturers to the final users who are the customers.

It is therefore important to note supply chain costing provides an approach which can be used in measuring the cost of all activities involved in the value chain whether transaction costs or other forms of hidden costs.

Most of the players in the value chain system fail to use the appropriate costing system due to the implications that may arise of which no one wants to be responsible of. The lack of capabilities to assess and enact new measures is the major problem (Lalonde & Pohlen 1996). The players within the supply chain must make efforts to learn all techniques in their disposal to ensure they are able to manage all the extra costs that are incurred and in the system thus making the system more operational and easier to manage.

Another factor that makes managing of supply chains complex is brought about by the different players within the chain and their different objectives. For example, the suppliers would want the manufacturers to commit themselves to purchasing large quantities in stable volumes while the manufacturers would like to implement long production runs, be flexible to their customers’ demands and changing needs.

As a result, the suppliers’ goals come into direct conflict with the manufacturers’ desire for flexibility consequently it becomes very complex to manage the supply chain (Harland 1996). To achieve similar objectives for all the parties in the supply chain is hard due to the fact that everybody enters into the supply chain with different objectives.

Lastly, managing uncertainties is another factor that makes management of the supply chain quite complex. The global optimization has in the past made it difficult to design supply chains which can be operated during uncertain times. A number of factors which lead to this complexity include matching the supply and demand.

The problems of matching are brought by the fact months before the real demand for the products can be realized, the manufacturer has to commit and invest their production to certain levels. These advance commitments require both capital and supply risks which might arise during the period.

The other fact is that inventory and back order levels often fluctuate considerably across the supply chain even when the customer demand is well known and changing in predictable manner. Demand is not the only uncertain thing but other activities within the supply chain such as the delivery lead, manufacturing yields, transportation times and the availability of the components also affects the supply chain significantly.

The problem of inventories is another problem with modern supply chain which makes its management quite complex since the cost of maintaining the inventory can sometimes be very high. Finally, it is important to note that as the supply chain becomes large and more geographically dispersed, natural and human made disasters such as the just recent earthquake in Japan can have adverse effects on the supply chain (Simchi-Levi, D, Kaminsky & Simchi-Levi, E 2004).

Refer to the case study, Dell Inc: Improving the Flexibility of the Desktop PC Supply Chain

The Dell computers have managed to establish a quite extraordinary model within the computers industry. The firm is a market leader (i.e. in the e-commerce computer hardware). It’s ahead in the making of personal computers (both in the US and in the general online trade). Its trademark method of selling products to shoppers, businesses, and individual consumers emanates from the (Dell Direct) model.

In its efforts to administer the supply chain, Dell as a firm has been employing the direct model and the company usually owns a number of relationships with contract manufacturers. For example, in the production of computers, the contract manufacturers produce semi-completed products from areas such as china where labour is readily available and at low costs and then the products are transported to the factories both in the United States of America and Northern Ireland for the assembly.

It is after these parts are delivered that the Dell factory workforce completes the remainder of the (Personal Computer) desktop assembly by mounting all those other constituents as demanded by the purchaser.

For the company to maintain low operation costs and also be able to make the products according to the customers requests, the suppliers for the company maintains a minimum amount of semi completed goods inventory in places near each of the Dell’s manufacturing facilities.

With Dell bypassing the distributors and retail dealers, the company has been able to eliminate the mark ups of resellers and this has reduced the costs and the risks, which are usually associated with huge stocks (Schnetzler, Nobs & Sennheiser 2004).

Evidence of Conflicting Objectives in the Supply Chain

With the company communicating directly with the customers, the issue of contract manufacturing makes it hard for the original equipment manufacturers to make the item or easily acquire the capability of the supplier manufacturing competitiveness.

In the case of Dell, since customers customize components of their personal computers, if the contract manufacturer had to process everything, it would be time consuming since the goods have to be shipped all the way from China to America and the customer would have started complaining thus Dell is forced to make some of the products within the United States of America.

The company also utilizes the integration of two manufacturing levels, level 5 and level 6 with level 5 being more reliant on third parties for manufacture. In this procedure, there are two different manufacturing processes of assembling and this conflict the company objectives for having the customer loyalty since the preferred customer configurations when sent to the company are then sent to the contract manufacturer who is usually the party that generates the more needed reliable and satisfying customer experience.

What Are The Unexpected Risks Or Events Posed In This Supply Chain?

The firm shares a scheme with Foxconn of upholding least level of record while checking it with the supply continuity. The only problem with this system is that in the past, the inventory management system has been disrupted by the continuous shortage of chips supply from Dell’s chipset manufacturer.

Consequently, this has generated uncalled for demand. There have also been value engineering issues which in the past have resulted in dysfunctional (or problematic) keyboards that necessitate repairs by fresh supplies consequently this creates unanticipated demand. The demand for new motherboards means the contract manufacturer has to process extra motherboards.

The supply chain can also lead to the company suffering from risks of poor forecasting. In the past, there have been some instances when the demand has often surpassed the supply of some of the components such as chipsets. As a result this has led to the risks of not satisfying the customer demands.

Finally, there is a risk of demand for new production introductions. Sometimes the demand for new released products can be high and unless the company was prepared, it would lead to creation of unnecessary shortage considering the fact that lead time from the USA to China and delivering of products can take as long as one month. The forecast uncertainty would thus create a need to air freight extra motherboards normally not required as the shortage, which would result in customer dissatisfaction.

Conclusion

The supply chain of Dell Company is quite unique since it eliminates the relevance of intermediaries a factor that has led to reduction of operation costs involved and realization of higher profits by the company.

Its trademark method of selling products directly to the customers emanating from the Dell Direct Model which enables customers to request customized products has helped Dell in creating loyal customers and also attracting a large market pool compared to her rivals a situation that has led to the company’s continuous growth and its recognition as a leader in personal computer production.

Reference List

Fox, M.R., Barbuceanu, M., and Teigen, R. 2000. Agent-Oriented Supply-Chain Management, International Journal of Flexible Manufacturing Systems

Volume 12, Numbers 2-3, 165-188, DOI: 10.1023/A: 1008195614074

Harland, C.M. 2005. Supply Chain Management: Relationships, Chains and Networks, British Journal of Management. Volume 7, Issue Supplement s1, pp63–80.

Keah-Choon Tan, Vijay R.K., Handfield, R.B., Ghosh, S .1999. Supply Chain Management: An Empirical Study Of Its Impact On Performance, International Journal of Operations & Production Management, Vol. 19 Iss: 10, pp.1034 – 1052

LaLonde, J.B., and Pohlen, T.R. 1996. Issues in Supply Chain Costing, International Journal of Logistics Management, the, Vol. 7 Iss: 1, pp.1 – 12.

Schnetzler, M., Nobs, A., and Sennheiser, A. 2004. Decision Support and Strategy Formulation in Supply Chain Management. Web.

Simchi-Levi, D., Kaminsky, P., and Simchi-Levi, E. 2004. Managing the Supply Chain: The Definitive Guide for the Business Professional. New York, McGraw-Hill Professional.

Stevens, G.C.1989. Integrating the Supply Chain, International Journal of Physical Distribution & Logistics Management, Vol. 19 Iss: 8, pp.3 – 8

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