Supply chain management refers to the process of systematically coordinating, controlling and planning various business activities relating to the supply chains of the business, with the aim of achieving improved business performances in distribution and supply of its products, across different borders. Supply chains of a business play a key role in ensuring that the customers are satisfied on utilization of the product. Secondly, it is through the application of appropriate supply chain processes that a company like Pep Stores Limited can achieve efficiency in operation, eventually reducing the costs of operation and making more profits. In addition to that, effective supply chains of a product help in achieving better resource allocation of the company. Mostly, supply chain management involves proper sourcing and purchasing of the products, making of good logistical management decisions, quick and adequate co-ordinations of the channels involved and the third party service providers, government, customers and even suppliers. To facilitate the process, the suppliers follow several principles in order to achieve cost reduction.
Additionally, there are various tools, which help the suppliers in facilitating the supply transactions. These tools include various supply chain software and transport tools such as Supply Chain Event Management (SCEM) and mapping tools. Several models are also fundamental in supply chain management to help in solving various problems that companies in the distribution of raw materials or even finished goods face. These problems include; desire of the company to reduce distribution costs, minimize delayment and time wastage, disseminate the inventory information at the right time, ensure formal distribution of the products, reduce damages of the products while in transit and lastly achieve an effective administration of the business activities.
Principles of the Supply Chain Management.
Most of the companies in recent years have found it hard to manage well and achieve customer satisfaction, reduction of costs, high profits and better resource utilization without effective supply chain management. The well-informed managers have opted to follow the seven key principles of supply chain management as a way of achieving customers satisfaction .These principles are; First, segmenting the customer based on their needs or the product sixes, shape and even color. This grouping of the customers ease the work of the company of creating a strong portfolio of products that are of high quality and size, hence, when distributed, the company achieves high customers’ satisfaction. After grouping the customers, the supply chain manager can apply any distribution channel of the product to meet the customers’ quick delivery of the products without any delay. Through this process, the company can be in position to achieve a trade of the customer satisfaction and maximum profit gains. Moreover, the companies need to set their priorities in ranks as a way of measuring the trade off well. This will help to eliminate a conflict of interest between the company and the other stakeholders such as the shareholders.
Secondly, the company should achieve the principle of customizing all the logistical networks in order to meet the customer requirements and high profit levels. With the hubs and necessary transports tools, the company can achieve a good logistic network with the customers. The presence of goods networks enable the company not to meet just a single standard but to achieve others that could not have been found before. Moreover, through the networks, the company meets the customers and out of the facial discussion, the company managers can find out what is being offered by the competitors.
Thirdly, the supply chain management must implement the principle of listening carefully to the market signals and aligning them to the demand of the chain to achieve consistent forecasts of the profits and the sales of the company. The market signals help the company to know some of the weaknesses and strength of the products. They also help the company to get a leak of what its competitors are offering in the market peculiar to their product. The information collected help the company in achieving structural changes in the supply chain management, hence, finally solving the problem of customers’ satisfaction. The third party service providers and the a suppliers can help the company in collecting all Sales and other operations planning demands and forecasts, hence, provide the most efficient supply chain management services.
Fourthly, the principle of ensuring product differentiation and speeding up the conversion of the products supply chain will help the company meet the demand on time and avoid improper sales forecasting and errors that can lead to future wrong decisions. Additionally, this principle can also make the company allocate the inventory products well to avoid delay and damages. Some models such as Just In Time (JIT) have greatly helped in eliminating delays as the inventory stock produced is immediately supplied to the customers whenever received from the manufacturers. As a result, the storage cost is minimized to manageable levels and the company suppliers and third party flexibility is greatly improved.
Furthermore, the company management, must ensure that there is strategic management of the sources of supply, in manner as to minimize the total Costs incurred in the material and service delivery. Cost minimization is a vital issue to achieve in distribution of products to the customers. It is necessary to ensure that the supplying channels used are cost effective and meet the customer premises at the least time possible, at the lowest cost ever. The lead time taken to transport the product from the store to the customer’s premises determine the amount of transport cost likely to be incurred, for example, it’s better to supply at a lead time of 30 days to 90 days. Activities like regular quality inspection will help to lower the transportation costs while the goods are in transit. Besides, the suppliers must be paid on time to avoid those charging higher costs on the products. This principle is fundamental to all other business activities as with the help of low cost a company can achieve high profitability.
Moreover, the principle of developing a well connected supply chain to modern technology so as to meet proper and quick information dissemination to the customers, suppliers and even the third party providers will ensure that the company’s products are marketed well to the southern Africa region. The system must be well served via the Internet and website, which are vital in meeting customers on-line. The existence of the Internet connection will enable the managers and other customers chat online making day-to-day business transactions easier to handle. Lastly, the company can use e-commerce, which involves no transport cost in the delivery of the products. An example of a supply chain system is to use business re-engineering in the distribution of the product.
Lastly, the company can apply the principle of adopting channel spanning, where successful performance are carried out to measure how efficiently and effectively the supply chain process helped the organization in achieving the designated end-user satisfaction. An intelligent manager ensures that they not only achieve the satisfactions, but also high profits of the company. The results obtained must be compared to those of the previous years and of the other companies still supplying products before the management gives a decision on the matter. Note that the above principles must be collectively applied to obtained consistent results of minimized cost and high consumer satisfaction.
Theories of the Supply Chain Management.
Various theories have been put forward to explain the supply chain management. These theories narrate key issues of proper planning of inventories in order to reduce cost and damages. The theories can help a manager greatly solve any supply chain problem as outlined below in the theories. They include:
a) Just in Time Theory.
JIT theory is one of the recently introduced theories that were invented to solve the problem of congestion of inventories in the store. The theory advocates that products should be produced from the manufacturing company and transported directly to the consumers. This means that the goods have no warehouse for storage. Those companies who have adopted the JIT approach in their supply chain management department enjoy several advantages. The company’s cost remains low as there is no need to construct a warehouse for storage. Secondly, no goods obsolescence or perishability as the goods are immediately ferried to the point of consumption. In addition, the system saves time, hence, no delayment especially for quick-use products. However, the theory suffers the disadvantage of making the transport process relatively expensive as compared to other method. It also found to contribute to theft of the goods while in transit as the vehicles’ can be hijacked. Lastly, the company can incur damages if the goods are ferried in hurry.
b) Material Requirement Planning (MRP) Theory.
MRP theory advocates that a company should have adequate planning measures of the raw materials before they are transported from one area to another. The management of the supplier must communicate with the third party providers or the customers in advance, before sending the good to avoid time wasting and occurrence of unnecessary costs. The main advantage of this inventory theory is to ensure no perishability, time wastage and lastly, avoidance of high costs. MRP theory is highly applicable to those companies that deal with raw material of a given product.
c) Total Quality Management Theory (TQM).
This theory was formulated in 1990s and it advocates that the inventory kept in the company sore or even the products being produced must be of high quality. It operates in a competitive environment where it is vital for any company intending to possess a share in the market. Such company must adequately produce quality goods for the customer satisfaction. The developers of the theory offer that a company can use Information Technology skills to harness new methods of production, which can help in improving the quality of its product. The main advantage of this theory is that the company eventually achieves the customer’s satisfaction. In addition to that, the company makes more sales.
Tools of Supply Chain Management.
There are several tools that supply chain management staff can use to promote the distribution of their products in various regions of the world. These tools include; transportation tools, good decision-making tools among others. These tools can improve the supply chains in the following ways:
1. Transportation Tools.
It is very essential for the transport and the supply managers to critically analyze and weigh the time taken by the transport facilities before delivering the product to the customers (Weele, 2010). The transport facilities must be mapped well across all the boarders. Besides, they must be well integrated to other sectors such as IT department. The existence of well-integrated transport tools such as IT Els tools help to diagnose any delay of the product to the customers. As a result, effective measures are taken in advance to minimize the risk, thus, eventually promoting performances.
2. Mapping Assessment Tools.
Mapping entails that the company makes a thorough analysis of the location of the customers to ensure that the service providers do not miss them out (Coyle, 2009). There are several mapping methods that can be used in the supply chain process. They include; big picture mapping, demand amplication mapping and lastly process activity mapping.
3. Decision Making Tools.
These entail the management making proper and sound decision on matters relating to the supply chains used in the transportation of the product from the store to the consumption point (Burt, 2003). The decision should align to the satisfaction of the consumer’s needs and improvement of the profit level of the company.
Supply Chain Management Models
Various models have been devised to address the issue of supply chain management. The models can help the company to create ways of solving various problems facing the inventory management and delivery. These models include:
1. Single Period Model.
Under the single period model, the supplier tries to address the amount of good to order, given that the demand is not certain and in addition to that, there are penalty costs likely to be incurred if no proper deliveries are made. Moreover, several problems are found to exist which includes high inventory costs. The ordering of the goods is appropriate at the beginning of the year. For the company to use this model in supply management it is essential to remember that set up costs and accurate assumptions are made to achieve consistency in delivery.
2. Multiple Period Inventory Model.
This model is applied where single period model that is applicable to products of short seasons or even highly perishable fails to work (Ross, 2011). This model can last for a span of a long period and hence, it is highly preferable than the single period model. The model can be classified into two: finite and infinite horizon model. It saves time and reduces perishability of the inventories in transit. This model is also applicable where the supplier wants to reduce the damages of the products.
Case Study –Pep Stores.
Pep Store Limited had been in the textile retail and design business for many years but in the mid 1990s, the company faced several problems in its supply chain management, rendering its profits to reduce significantly. Additionally, the company faced a reduction in the level of customer satisfaction. The problem that were hampering its growth include; uncertainty regarding the existence of their third parties services, delayment in transit of the goods to the customers, high amount of losses in transits, inconsistency on the delivery of the goods. Poor administrations of the claims making some take more than 6 months. In addition to that, there was a problem of inadequate documentation of the products in Southern Africa boarders, damages of the products during delivery from the store to the consumption point; third parties had little capacity of handling resources effectively and there was stiff competition from other service providers.
In order to solve the problem, PEP limited must follow the principles explained above chronologically, together with the above-mentioned tools and models in making a given approach. This will facilitate the redesignment and reengineering of the peps distribution system in phase forms. In the approach, the Peps Store management should carry out the following steps. On July 1999, the management should undertake several measures such as developing a fully computerized information management system, introduction of new providers in the boarders and lastly, enhancement of administrative controls of the hubs. The SCS administrators coordinate this.
On May 2000, the SCS designers completed the redesignment process and the information presented to the pep boards, which accepted to implement the changes recommended in the proposal before the commencement of the peak period scheduled to kick off at the beginning of October 2000. The proposal suggests that the production of the five docks should be improved and spread over all the regions. Three months prior the commencement of the peak period, the service providers and staff should ensure the following activities are performed effectively. This will help to ensure that the above problems mentioned solved. They include:
Ensuring that all the regions are connected with high quality material-handling equipments, ready for production and transport of goods. The equipments should be well tested to ensure that they work well.
Ensure that the service providers and all other staffs are connected with computers for quick communication in case of any delay or damage.
To ensure that the company employs competent service providers and there is need to have the service providers evaluated regularly and the best one selected and rewarded.
In this step, the other members of staff are also interviewed and evaluated, based on the level of competence before being appointed to serve the company. This ensures that the company has skilled personnel capable of performing any duty.
Lastly, it is vital to ensure that the crossings docks get leased to the five major towns on time, to avoid unnecessary delayment in future. All these steps if followed to the letter will ensure that the company obtains everlasting solutions to the problem mentioned above.
Due to proper implementation of the supply chain management processes given above, the Pep Store Limited got solutions to the problems. First, the management information system improved greatly making the coordination of the activities easier. Secondly, distribution cost greatly reduced and the delayment of the goods in the transits minimized. Moreover, the losses of the volume of goods ferried from the stores to the consumption sites reduced by 50%. To add on that, the redesignment of the system helped the management to create an environment of distributing costs hence the cost reduced to manageable level (Jacobs, 2010). The system was more reliable to an extent of ensuring that goods are transported to the various destinations with certainty.
Any company that possess supply chain management problem either in Australia or in other part of the world and have same problem as those of the Pep Store should use the above case study evaluation of the Pep Store Limited to solve the problems. The company in Australia will greatly benefit by obtaining the solutions summarized in the case study above as they experience similar problems to Pep Store Limited. However, it is very essential to consider making some changes in the implementation process as the company cannot be similar in all the aspects.