Minimising Risk using Supply Chain Management

A supply chain is a system which needs a certain amount of control and management. Like any other system, it is prone to outside disturbance that can cause numerous effects to its system. One example of disturbance in the supply chain is the Forrester effect. Forrester effect is the distortion caused by demands from the retailer that causes fluctuation of inventory from the distributors, warehouses up to the factory. Other such distortion that can bring impact to the supply chain is the failure of any parties to deliver its good to other partners in a specific time period that causes major disruption to the overall supply chain process.

In mitigating this disruption, Supply Chain Management allows certain risk to be shared or delegated among its partners. Activities that carry the highest risk can be done by either the buyer itself or outsource to several reliable partners. The activities that hold the lowest risk can be outsource to new partners as to gauge the supplier’s performance before migrating them into a higher level. The strategy of managing this risk should be handled effectively by all partners in the supply chain. Identifying capability of internal and also external processes must be done with thorough risk analysis and mitigation strategy.

As an example of risk allocation at work was the Toyota case that occurred on 3rd February 1997. One of Toyota’s suppliers, Aisin Seki at that time suffered a devastating fire that caused its production to end abruptly. Aisin Seki is the only sole supplier of Brake Master Cylinder to Toyota in Japan. The fire in Aisin Seki causes the imminent collapse of Toyota Supply Chain. Following the incident, around 20 other Toyota suppliers immediately went on a collaborative mode to compensate the missing components. By 7th February 1997, Toyota managed to start back its assembly line and production presume back as normal.

Market Positioning using Supply Chain Management

A company that intends to implement Supply Chain Management does not necessarily increase their competitive edge. Often times, companies fail to identify the key business issues that are closely related to the effective implementation of Supply Chain Management. A company decision in market positioning can be consider as one of the most important key business issues to be dealt with.

Market positioning relates to the core competencies that they have and how they utilize it to get ahead from other competitors. In order to compete, non-core competencies are outsourced in order to give more focus on their core competencies. By stock taking company’s internal strengths and weaknesses, a company can benchmark itself with other similar competitors. Through benchmarking, a company can re-strategise its internal operation to favour the niche expertise that they have. Through re-strategising also, the company can decides which type of suppliers that they want in their supply chain so that they can position themselves in the correct market segment. According to Martin in his book "Logistics and Supply Chain Management: Strategies for Reducing Cost and Improving Service", the benchmarking can be set through these priorities as stated below:-
i) Which processes and entities in the supply chain are of strategic importance?
ii) Which processes and entities in the supply chain have a high relative impact on the
business?
iii) Where there is a choice between ‘make’ or ‘buy’.
iv) Where there is internal readiness to change.

As an example, in the case of Zara, Spain’s most successful apparel companies. Zara’s market positioning is in direct competition with fashion giant such as Benetton, The Gap and The Limited. But since, the fashion industry is a time-based competition; Zara therefore has utilized SCM as a tool for competitive advantage by having a much quicker response systems in the industry. Zara operates effectively through two successful objectives, and those are, working without stocks and respond faster to market demands. Zara not only managed to create competitive edge by positioning itself as the fastest apparel companies to deliver its goods to the customers but also as a leader in the fashion industry.

Applying Mass Customization in Supply Chain Management

“In this new frontier, a wealth of variety and customization is available to consumers and businesses through the flexibility and responsiveness of companies practicing this new system of management.” (B.J. Pine, 1993 in Mass Customization)

The manufacturing industry has now evolved from push manufacturing to demand driven manufacturing. Companies such as Toyota for example, have now transformed its manufacturing system from push to a pull manufacturing system in order to be more flexible with customer demands. This concept of delivering products based on customer’s demands is the basis form of mass customization. Mass customization can only be achieved with efficient supply chain management. Through SCM, companies that often realize the massive potential it can deliver through mass customization will emerge as market leaders eventually.

Mass customization will affect the supply chain in terms of inventory handling. By applying mass customization, suppliers will tend to have fewer inventories as Just-in-time concept being introduced and applied into the supply chain. The speed of which the goods being delivered among the supply chain will also increase and sharing of information is done at a rapid pace.

Supply Chain Creates Faster Response

In the end of 1990s, the trend of speedy delivery of products and services starts to emerge. The trend has become a critical factor of winning new customers and retaining a company as market leader. This emerging trend has created the need for a more effective management approach of quick delivery of products or services to the end users. The supply chain management approach offers the ability of greater flexibility in creating new products at a faster level. Supply Chain Management creates the ability of the company to respond much more quickly to the customers’ fast demand patterns. As Martin states, ‘greater market share and customer loyalty can be gained by quick and reliable response to customers’ changing needs’. The life cycle of product nowadays demands a faster response from the industry. The rapid change demand pattern requires extensive information sharing among the supply chain partners. Companies that are not fast enough to cope with the fast changing demand of end customer will lose a certain amount of market share.

As an example, in 1994, Compaq, a personal computer company has acknowledged their inability to respond faster to a sudden upsurge demands have caused the company a sale lost of $1 billion dollars. This example shows how companies now must adapt fast to changing pattern of consumer demands with effective management and monitoring.

Supply Chain Concept

Supply Chain Management (SCM) as defined by Tom McGuffog is “Maximising added value and reducing total cost across the entire trading process through focusing on speed and certainty of response to the market.”

Effective Management by utilising Supply Chain Management

The peak era of mass manufacturing where all the managing aspect in delivering a product being done in one roof is no longer a trend. Companies who tend to manage internal process only and squeeze the suppliers for cost reduction will lose their competitive edge. As customers demands rapidly change and products life cycle are shortening, companies now not only need to manage their internal process effectively, they now must also manage their external suppliers more effectively. Managing the supply chain as a whole will create the ability of the company to identify weaknesses and strength in the entire supply chain. To compete, it is not enough by just identifying the company’s strength but also identifying what is your supply chain partner’s strength as well. By managing the supply chain and eliminating waste processes, the cost reduction will be significant and at the same time value addition to the product.

Dell for example, has use its supply chain management as a unique advantage over already established PC makers by eliminating process waste in their overall supply chain of producing Personal Computers. Dell identified that by eliminating retailers from their supply chain, the company can response much faster to customer’s demand compared to having a retailer to market their PC. Dell has able to reduce waste by identifying the weaknesses of the entire process and eliminate it as soon as possible.