: Supply Chain Management Is Primarily of Interest to Manufacturing Firms
Overview Supply chains are networks of organisations, information, technologies, activities and resources involved in the movement and conversion of physical goods or services from suppliers to end consumers.These different organisations are interlinked by physical, information and monetary flows.Organisations create value by transforming raw products into finished goods or repositioning of resources thru space and time, which is based on networks of supply chains.
Both ways, it involves the movement and conversion of physical goods and information throughout supply chains across the world.
Therefore organisations and supply chains are closely interlinked in the creation of value for its customers. Manufacturing firms produce goods for use or sale using labour, machines, technology and other materials usually on a large scale. Processing of materials into products takes place in a factory or manufacturing plant where the organisation’s labour and machines work in unison to transform raw material into a usable product, or using many components and process it into a finished product for the end consumer, just like how a baker is able to transform flour to bread thru labour, skill, machinery and tools.
Supply chain management for manufacturing firms To achieve economies of scale, manufacturing firms needs to produce their products on a large scale. Generally the higher the production output of the firm, the lower the unit cost of their product will be. Besides output volume, the speed of production will determine the lead time from manufacture to delivery. High productivity will enable manufacturing firms to achieve shorter production cycles which equates to better competitiveness in their respective markets.
Capacity management will determine how efficient the manufacturer will be in producing its goods. Over capacity will result in increased wastage and costs while under capacity will see the firm lose certain profits that it should gain. Thus manufacturers needs to carefully consider the type and amount of capacity needed for its production when doing its supply chain planning. The timing of capacity changes also needs to be taken into consideration to achieve maximum efficenty given that demands of their products varies with seasonal changes.
The ability to react to market demand changes quickly will determine manufacturers flexibility in keeping up with these demands. Manufacturers needs facilities to produce, whether warehouses to store its raw materials or finished goods, or manufacturing plants to produce their products. Services facilities are needed by certain manufacturing industries such as consumer electronics to cater for returns. Distribution centres also determine the efficenty of production distribution and un-nesessary inventory holding will result in higher holding cost.
Such facilities require large investments and are integral of the manufacturer’s supply chain strategy and thus proper planning is needed when making these decisions regardong the size, location which affect the overall operations. How manufacturers run their productions also determine how successful will they be in terms of productivity and quality levels. Different types of equipment and processes also affect the cost and output of the manufacturing plant.
Information systems that flow both upstream and downstream affects the forecasting, planning, inventory and production levels, they must be robust to ensure the manufacturing firm is able to react accordingly to changing demands and variations. In addition to their internal environment, manufacturing firms needs to consider procurement as an integral part of their supply chain strategy, supplier selection will affect the cost and how the manufacturer will run its production and ultimately affects the whole supply chain. Transportation systems as part of the supply chain plays an equally important role for manufacturing firm’s success.
To reduce inventory holding levels many manufacturing firms are running on a lean basis where they practice Just-In-Time delivery to meet production schedules. Transportation networks to customers have to be equally efficient to reduce lead time in accordance to lean manufacturing. Many manufacturing firms leverage supply chains to achieve competitive advantages in their markets. the case study on Procter & Gamble (Bozarth & Handfield, 2006: Pg 91-92) is a good example of how a manufacturing firm leverages on their supply chain to improve on their effectiveness and lowering cost.
Procter & Gamble used to operate under five different business sectors according to different product lines such as paper goods and healthcare products in the mid 1990s. Originally this makes good sense to Procter & Gamble to better manage its’ diverse business. However for the retailers and customers of Procter & Gamble who is purchasing with all the different five entities, it also meant different order processing, invoicing and deliveries when at the core the five entities are all under the same company.
For Procter & Gamble it also a logistical nightmare as they faced issues with high volume of orders which resulted in errors, inefficient deliveries with many trucks delivering to the same customer with less than truckload full and inefficient invoicing by the different entities to the same customer. After Procter & Gamble redesigned the information and physical flows across their five entities, their customers only need to deal with one entity for all its product range and logistical process.
The end result is a win-win situation where Procter & Gamble increased its profitability through cost savings and increased customer satisfaction. Their customers also gained with the efficient processes and they are also able to enjoy volume discounts from consolidated orders across their product range. Summary In order to excel, manufacturers might need to produce high variations of products, produce in large volumes to meet economies of scale, be flexible enough to meet the volatile markets demands and run a lean and efficient supply chain to save costs and reduce wastages.
In view of such, supply chain management to manufacturing firms are of utmost importance if they wish to compete in today’s ferociously competitive markets. Besides making and selling a product, manufacturing firms need to manage and leverage on supply chain strategically in order to gain competitive advantages. As a result of globalisation and rapid technological changes, manufacturing firms needs to constantly focus on supply chain management to align their internal operations with their external environments.