The Importance of Supply Chain Management in Modern Business

Supply Chain Management (SCM), defined by Tom McGuffog, is to “maximize value and reduce total costs throughout the trading process by focusing on the speed and certainty of market response.” Globalization and ICT have made SCM a tool for businesses to effectively compete at the local or global scale. SCM is essential, especially for the manufacturing industry, when it comes to delivering products at a more competitive cost and higher quality than our competitors. Here are some of the reasons why SCM has become so important to today’s manufacturing industry: —

Competitiveness through core competencies

Today’s business environment is changing rapidly and is essentially more competitive than ever. Today, companies need not only to operate at low cost to compete, but also to differentiate themselves from their competitors and develop their own core competencies to stand out in the market. To be competitive, companies need to divert resources to focus on what they are best at and outsource processes and tasks that are not critical to the company’s overall purpose. SCM allows companies to rethink and restructure their entire operations to focus on their core competencies and outsource processes that are not part of their core competencies. Due to the current competitive market, it is the only way for businesses to survive. Strategies for applying SCM affect not only market position, but also strategic decisions regarding the selection of appropriate partners, resources, and talent. By focusing on core competencies, companies can also create niche and core area specializations. To create a niche for competitive advantage, as stated in the Blue Ocean Strategy outlined by Chan Kim, companies look at the overall picture of the process and reduce, eliminate, or raise which process. You need to understand if you can create it.

As an example mentioned by Chan Kim, the Japanese automobile industry is using its resources to manufacture small and efficient automobiles. The Japanese automotive industry is gaining competitiveness by leveraging its supply chain to maximize its core competencies and establish its position in niche markets. The strategy went well and Toyota Motor Co., a Japanese company, is now considered to be the number one car maker in the world, beating Ford and General Motors in the United States.

Value advantage

With SCM, businesses today have not only the benefits of productivity, but also the benefits of value. As Martin Christopher states in his book Logistics and Supply Chain Management: Strategies for Reducing Cost and Improving Service, “Productivity advantages lower cost profiles and value advantages give products or compete. We provide a “plus” that is different from the product. You can add more innovation to your products and processes by maximizing added value and reducing costs at the same time. Mass production offers productivity benefits, but mass customization can be achieved through effective supply chain management. Mass customization gives customers a value advantage through flexible manufacturing and customized adaptation. Effective use of SCM can also improve the product life cycle. Value advantage also changes the norm of traditional products that are “universal.” Through SCM, the industry accepts different products for consumers in different market segments and customer preferences.

As an example, the Toyota Production System practiced at Toyota evaluates its supply chain and determines what value-added activities are and what non-value-added activities are. Non-valued activities are considered “waste” or waste and should be eliminated. Such non-value-added activities are overproduction, waiting, unnecessary transportation, overprocessing, overinventory, unnecessary movement, defects, and unused employee creativity. The steps to eliminate waste are kaizen, kanban, just-in-time, and push-pull production to meet the demands of real customers. The Toyota Production System will revolutionize supply chain management and make it a more agile, flexible and slimmer supply chain system to meet end-user demands.