Use Of SCM As A Method Of Inventory Control

Use Of SCM As A Method Of Inventory Control

Introduction

The ability of any business to compete in its market niche always has a direct relationship with its long-term profitability and sustainability. Recent times have seen changing dynamics as far as the competition in the market is concerned. The need to be competitive and be the best among numerous competitors has made it necessary that companies devise or implement varied strategies so as to enhance their competitiveness. Competition in the global market has resulted in varied changes in the same, including the modifications of demand patterns, a reduction in the product life cycles, as well as varieties of products and environmental standards. It is worth noting that any company or enterprise’s competitiveness in the contemporary market is by, all means, a function of varied features. A company, more often than not, has to improve the varied customer service levels, upgrade the quality of all products, as well as reduce lead times and expenses so as to enhance its competitiveness. The need to undertake these measures has necessitated a reexamination or focus or concentration on the supply chain of the company as a key feature of attaining them. The chain essentially refers to the collection of companies, enterprises and firms that provide varied products and services to the market. It revolves the collection of entities that collaborate in obtaining raw materials, converting them into consumable goods and products, as well as delivering them to retailers. Traditionally, the supply chain would involve acquisition and manufacture of raw materials, and the transportation of finished products to warehouses and storing them to allow retailers and customers to access them. Needless to say, such processes would be likely to involve a lot of wastage both in time and resources. Controlling these processes underlines the importance of supply chain management. It is noteworthy that the varied decisions pertaining to supply chain management is elimination of wastage of both time and resources, as well as allowing for efficiency so as to enhance the profitability.

Supply Chain Management underlines the process where an enterprises manages a network of interconnected entities or businesses that provide services and products packages needed by end users in the supply chain. The process’ scope extends throughout the varied processes involved in availing certain products and services to end-users, in which case it encompasses raw materials storage and movement, inventory of work-in-progress, as well as the finished goods right from their origin to their consumption. Essentially, Supply Chain Management revolves around the planning, designing, execution and control, as well as monitoring of activities pertaining to supply chain with the sole objective of establishing a competitive structure, creating net value, harmonizing supply and demand, leveraging worldwide logistics, as well as measuring global performance (Muller, 2002). It entails considering all factors and events that would be likely to disrupt, affects or change products and services.

Supply chain management makes up a fundamental pillar in the management of inventory in the manufacturing industry. It involves a combination of science of art used in enhancing the manner in which a company obtains the required raw materials necessary for making products or services, as well as delivering them to the end-users (Muller, 2002).

Decisions pertaining to supply chain management are categorized in two groups. There are strategic decisions and operational decisions. Strategic decisions mainly have an extended scope of operation and applicability. They have a close connection to the corporate strategy and are responsible for guiding policies pertaining to the supply chain from a design perspective. Operational decisions, on the other hand, mainly cater for the short term with their focus being on activities on a day-to-day basis (Lee & Chu, 2005). These decisions mainly concentrate on the efficient and effective management of product flow throughout the strategically planned supply chain.

Supply Chain Management mainly revolves around for key areas including location, transportation, inventory and production, all of which incorporate both operational and strategic elements.

In location decisions, the Supply Chain management would be concerned about the geographical placement of the stocking points, production facilities, as well as sourcing points. These make up the initial step in establishing a supply chain. This geographical placement would involve committing resources to long-term plans (Muller, 2002). Possible paths for availing products to the final customers would be determined after ascertaining the number, location and size of the facilities. The significance of these decisions lies on the fact that they underline the fundamental strategy for accessing the market, in which case they determine the level of service, cost and revenue (Lee & Chu, 2005). It is imperative that the decisions are determined by a routine of optimization that considers distribution costs, production costs, duties and drawbacks, taxes, production limitations and local tariffs among other things.

In production decisions, Supply Chain Management is involved with strategic decisions such as what to produce, where the production would take place, allocation of the varied suppliers to certain plants. It goes without saying that the decisions affect the firm’s customer service levels, costs, as well as revenues(Lee & Chu, 2005). The key assumption made in the course of these decisions is that the facilities are already in place, in which case the issue would be the determination of the exact paths of product flow both in and out of the facilities. In addition, they would be concerned about the manufacturing facilities’ capacity. Operational decisions are mainly concerned with the detailed scheduling of production and include the equipment maintenance, the making of master production schedules, as well as scheduling the production in machines (Lee & Chu, 2005). It would also involve considerations such as workload balancing, as well as measures for quality control in the production facility.

In addition, there are the transportation decisions, which are mainly strategic in nature. They bear a close connection with the inventory decisions, especially considering that the best mode of transport would be arrived at through a trade-off of the cost associated with the mode of transport with the indirect costs pertaining to the inventory that comes with the mode. For example, air transport comes as more reliable, faster and has lesser safety stocks. However, there is the high cost with which it is associated (Lee & Chu, 2005). The converse applies to rail or sea shipping, which would be way cheaper than air transport but has high inherent uncertainty. These decisions would involve considerations of the geographical locations, as well as the levels of customer service. The importance of efficient operation in transport is underlined by the fact that transportation accounts for over 30% of the logistical costs, in which case efficient operation would make economic sense and would be directly tied to a firm’s profitability (Muller, 2002). In essence, the transport strategy would involve considerations about the sizes of shipments, equipment routing and scheduling.

Inventory decisions, on the other hand, underline the strategies used in the management of inventories present at every stage of the firm’s supply chain, or even in-process between locations. The key objective of inventory decisions is buffering the organization against uncertainties that may be present in the supply chain. The importance or significance of safeguarding efficiency in the management of inventories is underlined by the fact that their costs lies between 20 and 40% of their value (Lee & Chu, 2005). While inventory control is considered strategic since it is made by the top management, it is also an operational strategy as it incorporates deployment strategies, as well as control policies. It is mainly concerned with examining the optimal order quantities levels and reorder points, as well as the safety stock levels that should be set in every location (Muller, 2002). They determine profitability in that the levels have a direct relationship with the levels of customer service, in which case their optimization leads to improvement of a firm’s profitability.

Needless to say, decisions pertaining to supply chain management as a technique of inventory control are aimed at eliminating wastages of time and resources, as well as enhancing the profitability of the company. Supply Chain Management has been widely incorporated in the current workplace and promises to still make up a fundamental part of the future workplaces, thanks to technological advancement. The pay-off of supply chain management in inventory control comes in numerous forms (Muller, 2002). These may include reduced transaction costs through the elimination of unnecessary stages of availing products to the market, or even improving customer service through closer coordination between the vendors and sources, or the distributors, carriers and end-users. It may also revolve around enhanced market share flowing from lower costs or improved customer service. One of the areas of application is the Electronic Data Interchange, which enables firms instantly place their orders with suppliers. This not only improves efficiency but also reduces the time required to undertake the final products’ delivery to end-users, in which case it would require the firm to retain a low level of inventory. In addition, supply chain management has been applied through Enterprise Resource Planning, which not only enables firms to track their transactions but also enhances global visibility of information within the firm, as well as throughout the supply chain. It tracks the available inventories or stocks, as well as the corresponding orders (Muller, 2002). In addition, Supply Chain Management has also been applied in cross-docking, where goods are received and processed for reshipping within the shortest time possible, as well as with limited handling coupled with no storage. This increases the savings thanks to the eliminated costs of storage and handling. On the same note, supply chain management involves the use of scanners and bar coding, which allows firm to analyze the available products, as well as the market demand, thereby managing the levels of stock in their facilities (Lee & Chu, 2005). It is easier for managers to make predictions on market demand as the customers’ awareness about the available choices would be increased by enhanced internet usage.

In conclusion, Supply chain management has been increasingly adopted by firms in an effort to enhance their competitiveness. It is worth noting that its processes and application in the current workplace allows for enhanced effectiveness through elimination of wastage and increased efficiency, which increases profitability. This can be seen in the four decisions making up supply chain management. Transport decisions allow for determination of the most appropriate routes, while inventory decisions match the amount of stock in the company warehouse with the demand. Location decisions allow for determination of the places where certain amounts of inventory would be stored depending on client demographics, production decisions determine the most optimum path for production flow. All these are aimed at enhancing profitability and eliminating wastage of both time and resources.

References

Muller, M (2002), “Essentials of Inventory Management”, American Management Association.

Lee, C. C. & Chu, W. H. J (2005), “Who Should Control Inventory in a Supply Chain?’, European Journal of Operational Research, 164