Page 294 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes The largest barrier to successfully managing a supply chain is perhaps the human element.
Failure to correctly manage the issues of trust and communication will abort any attempt to
manage the supply chain. When there is a lack of trust and communication, the supply chain's
members will soon succumb to greed or suspicion that other members of the supply chain are
profiting at their expense. When the communication is not adequate, the supply chain will not
improve its response enough to increase profits for its members.
Without an increase in profits, the efforts to manage the supply chain will be reduced, because
there will be no reward for actively managing it.
Supply chain management requires an unprecedented level of cooperation between the members
of the supply chain. It requires an open sharing of information so that all members know they
are receiving their full share of the profits. Since many of the firms in a supply chain do not have
a history of cooperation, achieving the trust necessary for supply chain management is a time-
intensive task.
Another way that the firms in the supply chain can save money is by ensuring that their marketing
strategies correspond to the supply chain's capabilities – i.e., from their position in the supply
chain they can actually provide what the customer wants. They are also able to gain money by
improving the supply chain's capabilities to match the market demand with a decreased level of
inventory. Firms are able to do this because they have additional information to forecast needs
and as the lead time is reduced, their need to forecast is reduced. This reduced need to forecast
reduces the need to carry inventory stocks for the just-in-case scenario.

13.6.1 Implementing Supply Chain Management

A firm in the supply chain must initiate the attempt to form partnerships and actively manage
the supply chain. Often a firm that has a large amount of market power in the chain will become
the leader of the supply chain. This firm needs to justify the effort to manage the supply chain by
explaining the benefits that will accrue to each member in the supply chain and to itself. To do
this, the supply chain leader must show the partners where the improvements in the supply
chain will arise and how these will lead to a gain for everyone. To establish trust among the
members of the supply chain, the lead firm must also suggest how communication can be
opened up and how every member will be ensured that it is receiving its fair share of profits.

Example: Wal-Mart is a good example to showcase this. For years it has gathered extensive
data on customer buying patterns. Wal-Mart has used this data internally to manage its own
layouts and inventory. Now it is beginning to share all of this data with its most trusted suppliers.
This will allow the supplier who knows how to take advantage of this data an opportunity to
improve service to Wal-Mart while decreasing its own costs.
Managing a supply chain is more complex and difficult than managing an individual firm. But,
the principles of management used to integrate a firm's own internal functions also apply to
managing the entire supply chain.

Example: A well-understood phenomenon in the management of a firm is that there is
always a bottleneck that constrains sales.

This bottleneck may be internal to the firm (a process that cannot produce enough to meet
demand) or it may be external to the firm (market demand that is less than the capacity of the
firm). This principle applies to the entire supply chain. While the supply chain is driven by
customer demand, it is constrained by its own internal resources.

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