Three Impacts of Poor Supply Chain Management
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There is a general consensus that supply chain management plays an effective role in corporate efficiency. It’s a topic regularly discussed by academics and businesses, particularly within manufacturing, and is regarded as an effective method of improving service, reducing inventory and streamline lead times (McCarter, 2008).
There is also a debate on the definition of Supply Chain Management with academia differentiating this from ‘Supply Chain’. Beamon (1998) defines the supply chain as “a structured manufacturing process wherein raw materials are transformed into finished goods, then delivered to the end customer”.
Alternatively, Bridgefield Group (2006) describes the supply chain as “a connected set of resources and processes that starts with the raw materials sourcing and expands through the delivery of finished goods to the end consumer”.
The determinants of an effective supply chain is highlighted in both definitions. The need for provenance and a direction for which goods will flow is apparent within a supply chain. In addition, all supply chains start with raw materials, transformed with value adding activities i.e. Metal Forming, and ends with the goods delivered to the end consumer.
Overtime, an extended view of the Supply Chain was defined, which consolidates additional activities to its function. Chow, D. and Heaver, T. (1999) point towards a Supply Chain as a “group of manufacturers, suppliers, distributors, retailers and transportation, information and other logistics management service providers that are engaged in providing goods to consumers. A Supply Chain comprises both the external and internal associates for the corporate.”
The Definition of Supply Chain Management
Within a supply chain consists a series of connections used to achieve various functions. When combined, they contribute to the value of the goods being transported through the supply chain until the its completion (Janvier-James, 2011). Any connection that proves inefficient will have an overall impact on the effectiveness of said supply chain, therefore making management vital for its continued success.
Supply Chain Management is heavily connected to the globalization of supply, with manufacturers often sourcing raw materials or components from across the globe. Not only is the focus of managing the supply chain between goods, it also considers the delivery of goods. It is therefore paramount that careful coordination and planning is made as international markets are often reliant on effective delivery and quality goods. A crucial benchmark for effective supply chain management is of course customer satisfaction (Trkman, P., Stemberger, M. and Jaklic, J., 2005).
Effective supply chain management also ensures flexibility due to uncertainty within the market. Due to how volatile markets can be, especially in recent events of COVID 19, the war in Ukraine and other global events, it’s proven the importance of flexibility to manage different situations of trade.
Janvier-James (2011) highlights the aim of supply chain management examining and managing networks that form the supply chain. By doing so, an opportunity for cost savings and improved customer service is presented. Academic literature presents multiple definitions of Supply Chain management that follows a similar rationale.
Poor supply chain management can lead to increased uncertainty resulting in increased risk and vulnerability. Wang and Jie (2019) define uncertainty in respect of duration, continuance, liability to chance or accident.
The development of risk is associated with the unknown, caused by the unpredictability of internal or external factors. The impacts of COVID 19 for example, an unpredictable event that was hard to plan for, was particularly hard for businesses whose supply chains were disrupted when it first hit. Failure to plan for worst case scenario situations, or failing to fix faults within the production process may lead to breakdowns within the supply chain. This will ultimately result in delays, increased costs and poor customer satisfaction.
If uncertainty levels are high, customers may lose confidence in their supplier increasing the likelihood of competitors winning the business of said customer. It also makes promotional activities difficult to support with little evidence of a reliable service, which can stunt organisational growth.
Waste can occur financially and in time due to the investments made to improve the supply chain. If the implementation is mismanaged, this can result in significant costs associated with missed deadlines, wasted labour and redundancy in services.
A similar instance occurred for Hershey Foods Corporation in 1999 with the introduction of IT systems from three different providers. The intention was to enable automation and modernisation to ease shipping and logistics from taking orders to loading pallets on trucks. Instead, it created unforeseen delays and produced complications with its implementation costing Hershey $115 million to install. They lost up to $150 million in lost sales, losing shelf space in retailers who also routed their orders to Mars Inc. and Nestle, two of its biggest competitors. Hershey had plenty of stock but were unable to shift products to retailers.
In hindsight, Hershey made the crucial mistake of implementing the systems all at once. It was also implemented during one of their busiest times of year, Halloween. Poor implementation of the system even saw problems with fulfilment and order taking in the build up to Christmas the same year. It resulted in lower than expected sales for the Chocolate manufacturer.
Poor Customer Service
A mismanagement of the supply chain can be problematic for the overall relationship between a business and its customers. The myriad of issues manufacturers face, internal and external, can make supply chain management a complex task. Forbes Magazine highlighted an increase in the number of consumers concerned about receiving their purchases, with 30% of consumers contacting customer support more often this year than last year.
By not adhering to promised deadlines, businesses risk tarnishing their reputation as a reliable supplier and subsequently damage the relationship they have with their customers. Transparency is key in the management of the supply chain all the way through to the customer. Shoppers want customer service that is fast, informative and available when needed.
Poor customer service can also lead to a rise in stress levels amongst both customer and staff, leading to higher burnout rates. If employee numbers drop, more strain is added to other members of staff making management of the supply chain even more difficult.
Lack of preparation and management will likely see competitors benefit from consumers switching suppliers which can be disastrous in the long term.
Poor Supply Chain management can be extremely detrimental for the performance of a business and the relationship it maintains with its customers. When implementing new systems, processes or machinery, it should be done so in a carefully planned, timely manner with the least amount of disruption to the supply chain. Likewise, customers should be given a transparent service, to give them confidence and allow them to adjust for any delays or early arrivals.
Its paramount that when opting for a supplier, particularly a manufacture, that the supplier is competent with supply chain management. A supplier that can provide a good level of communication and transparency will be ultimately one that can establish a strong chain of supply for your business. It is worth looking out for case studies and testimonials as evidence of this and keeping a log should there be any faults over time. If a supplier poses serious concerns for your supply, it may require an alternative source.
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