Supply Chain Management: Scope, Challenges, Risks, Sustainability & E-fulfillment

The process of globalization is vitally important for the economics of the whole world and most of the large companies nowadays develop their international strategies and operate globally. For example companies-producers place their factories in different countries of the world. During the last couples of decades there were evident shorts in various locations for production sources. Mostly these are the shifts from the developed countries, such as America for example, towards China and Asia. Such process has its consequences, as there is reduction of the number of manufacturing jobs in developed countries. The processes of globalization, internalization and outsourcing in business led to the need to reconsider the organization, management and functioning of supply chains along with managing of the potential risks and securing sustainability of their operating.

Supply chain management (SCM) is the organization of the goods’ and services’ flow, which involves storage and movement of raw materials, work-in-process inventory, as well as inventory of the finished goods from the point of origin and to the point of consumption. Usually in order to organize all these processes interconnected networks and channels are used. Supply chain management is generally defined as “design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally.” (Todo, Matous, Inoue 2016). Marketing channels are very important for organization of supply chain management. The major challenges in the sphere of supply chain management are related to sustainability and risk management, ethical issues, internal integration, visibility and human capital.

Supply chain management is characterized as cross-functional approach, related to managing the movement of materials to the organization, some aspects of the internal processing of materials before they are turned into finished goods, and finally the movement of finished goods from the organization to the end consumer. In some cases these functions are partially outsourced to other organizations, which have the potential for perform these functions with higher efficiency and lower costs. Reduction of control and involvement of a greater number of supply chain partners forms the concept of supply chain management.

All organizations aim at focusing upon the core competences and become more flexible, they want to reduce their ownership of raw materials and the number of distribution channels. Via involvement of other companies into the process of performing logistical and other operations, firms aim at organization of their supply chain management is to contribute to trust improving and development of cooperation between supply chain participants and partners, which would lead to improvement of inventory visibility and velocity of the whole process of inventory and logistics.

The importance of the effective supply chains could not be underestimated, as it is meaningful for the companies to remain competitive in the global market and networked economy in the modern world. The concepts of business relations started to go beyond traditionally accepted enterprise boundaries and most of the companies want to organize their business processes without a value chain of various other companies. Those companies, which are now able to consider the processes of globalization, outsourcing and innovative information technologies, continue to operate successfully. Supply chain management is meaningful for organizational learning. “Firms with geographically more extensive supply chains connecting diverse trading cliques tend to become more innovative and productive.” (Todo, Matous, Inoue 2016).

All these conditions leads to the fact that global supply chains become more complex and more and more companies come to realize that supply chain management is one of the critical elements for their functioning. It should not be limited to the work of warehouse managers and logistics manages any more. In addition even those companies, which manage to organize their SCM correctly, they often face difficulties with measuring of their operating and balancing of the trade-offs, which are important for supporting the high level of service and low costs. “The major trends in business right now — low-cost country sourcing, outsourcing, customization, globalization and more — all create tremendous complexities in a supply chain,” says Steve Matthesen, vice president and global leader for supply chain at BCG. “In most cases, however, companies have not changed how they manage this critical part of the business.” (‘You Can’t Manage What You Can’t Measure’: Maximizing Supply Chain Value, 2006). This could be explained by the lack of the supply chain background by many company executives and thus they treat it as a kind of “black box”, because they are not able to pip into it. They realize that the cost is higher, than it is desired and the efficiency is lower, than it is needed and still have no idea how to change this. In order to have clearer idea abut the SCM, it is important to consider the three main factors, which have impact upon increase of the stress on supply chains:

  • Fragmenting customer needs, which is the result of a wide choice in stock keeping units, created for specific consumer categories, various price points and reduced life-cycles of many products along with non-predictable demand patterns.
  • Appearance of most complex distribution models led to the new level of complexity in general, which demands organization of outsourcing and involvement of innovative technologies for the increase of efficiency
  • The global competitive environment demands significant reduction of costs.

Cost reduction is the aspect, which makes the supply chains even more difficult to manage. “In such an environment, successful SCM “means getting better results with the same, or fewer, resources,” according to Gerald P. Cachon, Wharton associate professor of operations and information management. “It’s like squeezing more juice from a lemon, or maybe blood from a stone.” (You Can’t Manage What You Can’t Measure’: Maximizing Supply Chain Value, 2006).

Most of the experts nowadays state that companies in most industries’ types strive towards supply chain excellence, which they consider to be an integral part of their competitive strategy. This is the reason, why they focus upon maximizing of the effective functioning of their supply chain networks and positive business results. These processes could be considered on the basis of real life examples. Thus in retail business, in such categories as food or fashion, retailers are to manage relatively small quantities and in some cases there is a need to consider individual prices also. In the traditional scheme moving of one item from the vendor to the store takes approximately six physical operations. In case there are multiple vendors and several product categories involved, then the system should become more complicated. “Food retail, for instance, has to deal with issues of freshness and perishable products. Apparel, in contrast, has to operate within a limited fashion time cycle. Household items tend to be either bulky or fragile, and so on.” (How Can Your Company Build an Excellent Supply Chain? Let Us Count the Ways… 2007).  In such countries as India for example most of the retail stores are situated in the center of the city, there the rents are higher and there is almost no space for storage, there are even more serious business implications.

SCM should also consider that fact that a two-speed world is appearing. In the regions including Europe and North America there is slow rate of growth and high per capita income, whereas in China or Brazil the growth is faster and the income per capita is lower. Such divergent growth patterns play their roles for operating of global economy.

In those countries, where an average consumer is not able to purchase expensive products, which is usually the situation in the developing countries, cost and value should be thoroughly considered. Any company, which would build its supply chain for such countries, should certainly consider this reality. “Multinationals also face a growing threat from ambitious local companies, creating even more urgent pressure to tailor systems to local markets, Mercier says. Many of the factories that companies set up in low-cost countries were replicas of their high-cost domestic plants. By not capitalizing on local conditions and capabilities, they never achieved all of the potential savings.” (Winning in Two Worlds: Supply Chain Flexibility 2011).

So, in order to create and manage the “correct” supply chain, it is important to consider a lot of factors inside and outside the company. The best response to the supply chain management problems is to find the correct supply chain for each product. The roots for the major problems lie in misbalance between the types of the products and the types of the supply chains. Fisher subdivided all products into two broad categories: primarily functional and primarily innovative. (Avoiding the Cost of Inefficiency: Coordination and Collaboration in Supply Chain Management 2006). The first category of products could be characterized by predictable demand and their supply could be easily matched. Innovative products belong rather to fashion trends and thus it is difficult to predict demand for them.

Overall, the SCM is one of the biggest challenges in the modern business world in all countries and for all kinds of companies; taking into consideration the current globalized environment, correct organization of SCM provides a number of serious challenges, and only correctly formulated and applied strategies could help to secure their efficiency increase.

Works cited:

Avoiding the Cost of Inefficiency: Coordination and Collaboration in Supply Chain Management. Management,  2006

How Can Your Company Build an Excellent Supply Chain? Let Us Count the Ways…Management, 2007

In the Changing Global Supply Chain, There’s No ‘Shore’ Thing. Management, 2016

Todo, Y., Matous, P., Inoue, H. “The strength of long ties and the weakness of strong ties: Knowledge diffusion through supply chain networks”. Research Policy, 2016

Winning in Two Worlds: Supply Chain Flexibility. Management, 2011

You Can’t Manage What You Can’t Measure: Maximizing Supply Chain Value. Management, 2006

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[Accessed: June 1, 2020]

"The terms offer and acceptance.", 17 May 2016

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"The terms offer and acceptance.", 17 May 2016

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