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Supply Chain Management (SCM), as defined by Tom McGuffog, is “maximizing value added and reducing total cost across the entire business process by focusing on speed and certainty of response to market.” Due to globalization and ICT, SCM has become a tool for companies to compete effectively either locally or globally. SCM has become a necessity especially for the manufacturing industry when it comes to delivering products at a competitive cost and with superior quality than its competitors. Here are some of the reasons why SCM has become important to today’s manufacturing industry:
Competitive advantage through core competencies
Today’s business climate has changed rapidly and has become more competitive than ever in nature. Companies now not only need to operate at a lower cost to compete, but they must also develop their own core competencies to distinguish themselves from the competition and stand out in the marketplace. In creating competitive advantage, companies must divert their resources to focus on what they do best and outsource the process and task that is not important to the overall goal of the company. SCM has allowed the company to rethink their entire operation and restructure it so that they can focus on their core competencies and outsource processes that are not within the core competencies of the company. Due to today’s competitive market, it is the only way for a business to survive. The strategy of applying SCM will not only affect your positioning in the market, but also the strategic decision to choose the right partners, resources and manpower. By focusing on core competencies, it will also allow the company to create niches and specializations in core areas. As stated in the Blue Ocean Strategy outlined by Chan Kim, in order to create a niche competitive advantage, companies must look at the big picture of the entire process and figure out which process can be reduced, eliminated, increased, and created.
As an example given by Chan Kim, the Japanese auto industry capitalizes its resources to build small, efficient cars. Japanese auto industries gain a competitive advantage by using their supply chain to maximize their core competencies and position themselves in a niche market. The strategy works and now Toyota Motor Corporation, a Japanese company, is considered the number one automaker in the world, surpassing Ford and General Motors of the United States.
value advantage
SCM has enabled businesses today to not only have a productivity advantage, but a value advantage as well. As Martin Christopher states in his book Logistics and Supply Chain Management: Strategies to Reduce Costs and Improve Service, “The productivity advantage gives a lower cost profile and the value advantage gives the product or offer a ‘plus’ differential over competing offerings.” By maximizing added value and also reducing cost at the same time, more innovation can be added to the product and process. Mass manufacturing offers a productivity advantage, but through effective supply chain management, mass customization can be achieved. With mass customization, customers gain a value advantage through flexible manufacturing and custom fitting. Product life cycles can also be improved through the effective use of SCM. The value advantage also changes the ‘one size fits all’ norm of traditional offerings. Through SCM, the most industry-accepted offerings to consumers would be a variety of products for different market segments and customer preferences.
As an example, the Toyota Production System practiced at Toyota, assesses its supply chain and determines what are value-added activities and what are not value-added activities. Activities without added value are considered ‘Muda’ or waste and therefore must be eliminated. Such non-value-added activities are overproduction, waiting, unnecessary transportation, overprocessing, excess inventory, unnecessary movement, defects, and unused employee creativity. The steps taken to eliminate waste are through Kaizen, Kanban, Just-in-time, and also push-pull production to meet actual customer demands. The Toyota Production System revolutionizes Supply Chain Management to become a more efficient, more agile and flexible supply chain system to meet the demands of end users.