Supply Chain Management Issues

Subject: Logistics
Pages: 12
Words: 2673
Reading time:
12 min
Study level: PhD

Distribution strategies and issues

Distribution is a salient aspect that augments value across the supply chain. The significance of distribution’s function to the supply chain management (SCM) can be illustrated through typical examples of supply chains such as FedEx, Wal-Mart and UPS. The foundations of such operations are deeply embedded in a vast array of transportation infrastructures, information networks as well as warehousing facilities. In spite of the exceptional achievements of the abovementioned examples, new trends are surfacing in the market. These include: new value-adding roles; a transformation from BHS (Buy-Hold-sell) to S3 (Sell-Source-Ship); and the incessant globalization of distribution business.1

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Transformation in distribution model

Distributors have been compelled to transform the manner in which they carry out their business as a result of technological developments, the vibrant nature of markets and demanding customers. Usually, distributors procure goods, store them in warehouses, and sell them to retail customers on demand basis. However, this model is being replaced by a more cost efficient one which minimizes inventory costs and responds more swiftly to customer needs. For example, the BHS model has been replaced by S3 model of distribution in several areas such as fresh distribution (i.e. flower export), e-commerce (i.e. Amazon) and parcel express services (i.e. UPS). Under this model, a distributor procures goods, add value, sort and deliver them to the customers in time. The adoption of S3 distribution model is based on several reasons: it minimizes inventory costs; provides multi-distributor buying groups; reduces delivery time; and works well within e-business. S3 model is also suitable given the highly volatile and dynamic business environment due to supply and demand uncertainties.2

Globalization of distribution industry

There is no doubt that distribution business is a huge and integral part of the global economy. The distribution business has continuously grown in the last decade and at the same rate with that of business globalization. This remarkable growth has not only led to massive volumes of transactions to be processed but also has created new value-adding aspects into distribution centres (DCs) and thus amplified the problems associated with operations at the distribution centres. DCs are currently experiencing a highly volatile, complex and unpredictable environment. As of now, DCs are able to run their logistical operations via a very restricted communication technology, planning and dependence on highly trained field staff. Nonetheless, the monitoring system of yesteryear cannot manage the current distribution channels. As the response time for supply chain system reduces, the number of uncertain events will increase. Nonetheless, a certain degree of flexibility must be observed. Thus, it will be uneconomical to have more staff rely on a (moribund) distribution channel to ensure maximum response. In order to generate a responsive distribution channel, there is a need for internal and external intervention (see Figure 1).3

A good number of DCs are familiar with the internal and external process interventions. Nonetheless, the scope is restricted to optimization process. Activities are usually created in a way that the expected balance between quality, efficiency and costs is realized. Automation is a typical investment for optimization and is used to speed up processing of information or products. However, the synchronization process is usually forgotten. It is worth mentioning that synchronization of the physical process alone will not increase the flexibility of physical distribution to the level desired. Given the high volatility and uncertainties in supply and demand (facing distribution centres), it is thus imperative that logistics, procurement and sales activities are synchronized.4

Distribution issues in Iran automotive industry

Iranian automotive industry is one of the key business sectors in Iran.5 However, the Iranian automotive industry faces a number of distribution issues such as lack of modern technology, inadequate information and lack of expert staff.6 According to the findings of a recent study that sought views from 300 Iranian Automotive organizations, the major problem that prevented these organizations from adopting supply chain management was lack of information. According to this study, an effective distribution strategy is based on the visibility and sharing of accurate information within Iranian automotive industry. What’s more, supply chain management (SCM) depends on the flow of information and material across and within companies in the automotive industry. For example, the tire companies can plan their distribution strategies, determine level of inventory and demand if they have access to timely and accurate information. It appears that Iranian automotive firms lend credence to technological issues as opposed to relational problems during the adoption of supply chain management. The lack of advanced technology and expert personnel were identified as major setbacks in the implementation of SCM. Furthermore, managing inventory and warehouse was ranked as the fourth problem affecting distribution and supply chain management strategies. The participants in the study also reported that their tooling systems, production and distribution channels experienced problems during the adoption of SCM. Even though financial problem was not ranked by these organizations as a major impediment, it appears that most of the issues raised above are as a result of financial incompetence in the Iranian automotive industry. As a result, these companies are more distressed by internal issues (inadequate information, lack of expert staff, increasing production time, distribution time, waste of time, lack of advanced technology) than external ones.7

The findings of the study mentioned above seems to suggest that information sharing within and across the Iranian automotive industry will bring about numerous benefits such as enhancement in forecasting as well as process visibility so as to minimize the bullwhip effect phenomenon. Poor prediction of customers’ orders influences several supply chain management implementation process such as incompetence in production schedule, increase and decrease in inventory and disarray in distribution system. What’s more, the rise in production, product stock and distribution schedule within Iranian automotive industry might be due to poor forecasting about the future order in the industry. An assessment of relevant literature demonstrates that these inefficiencies are caused by absence of relevant information sharing across distribution chains. It appears that the same supply chain management issues affecting Iranian automotive industry are also present in other distribution chains such as Swedish manufacturing companies, New Zealand organizations and United Arab Emirate industries. In nutshell, information sharing is a critical aspect that deserves special consideration by managers during the implementation of supply chain management strategies in their distribution chains.8

Research and Design System

It is important to mention that automobile is a costly and luxurious product. As a result, numerous customers tend to replace some parts of their automobile according to their tastes and preferences. This means that automotive industries must lend credence to Research and Design (R&D) systems in order to satisfy the diverse tastes of their customers. In light of the abovementioned aspect, administering the R&D system is identified as a setback in Iranian automotive industry and deserves special merit when supply chain management is applied. Although the Iranian automotive companies identified several problems affecting their distribution and supply chain management, top management decision was not cited as a setback in the implementation of SCM.9

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Relational issues

No one can dispute the fact that technology is an integral component in any business operations. Nevertheless, they are harmful and inadequate as a replacement for human resources. Even though the Iranian automotive organizations that participated in the abovementioned study did not cite relational problems as a major setback in their distribution chains, it is a fact that lack of expert staff and the lack of information (which were ranked as the major problems across the Iranian automotive distribution chains) are the direct outcome of relational problems. As a matter of fact, trustworthy relationships enable automotive organizations to share their information and knowledge across the distribution chain to bridge the numerous deficiencies in their companies. Iranian automotive firms have asserted that it takes a lot of time and money to implement supply chain management.10 What’s more, financial problems obstructs organizations from preparing suitable requirements for example recruiting expert staff, developing new infrastructure, conducting training programs, and adopting IT for successful implementation of supply chain management. This problem (prevalent in Iranian automotive industry) affects all facets of supply chain management implementation as well as information flow across the distribution channel.11 Thus, it is important for Iranian automotive organizations to address all distribution channel setbacks in order to implement SCM successfully.

Logistical strategies and issues

Given the escalating consumer demand for various types of products and services, business organizations are now compelled to replenish their product in small quantities and at high frequencies. In recent years, suppliers have been able to fulfil their consumer’s needs in an efficient manner. However, for most firms, the individual agility and flexibility has reached a saturation level. Consequently, escalating costs and enormous efforts are now necessary in order to meet consumers’ requirements. Cooperation between manufacturers, suppliers and retailers can increase the number of contented customers via cost reduction, enhanced service levels and reduction in lead-times.12 There are several logistical issues that business organizations must face. These include: the shift in the scope of SCM from a national perspective to a global one; the emergence and impact of new multimedia trends (i.e. IT, internet and mobile communication) on SCM; and the adverse impacts of just-in-time (JIT) deliveries (on costs and environment) implies that firms must devise new logistical models. Logistics restructuring projects now demand enormous time but generate lower savings than anticipated. It can thus be concluded that SCM is not only a trend but also an answer to the issues raised above.

Collaboration in supply chain

Dekker and Goor (2000) assert that integrated SCM is now acknowledged as a core competitive strategy. As companies continuously attempt to offer superior products and service to consumers at cheaper price and faster than their rivals, managers have come to learn that they cannot achieve these goals on their own. They need to form alliances with the best companies in their supply chains in order to realize their goals.13 It goes without saying that various functional areas attempt to meet customer requirement in an efficient way. The marketing-function, in particular, builds a decent reputation in this regard. This consumer oriented viewpoint is also manifested from the consumer service theory in the logistics function.14

Stages in supply chain logistics

Consumer service is a procedure that rises above organizational frontiers, including those of a firm. The consumer distribution procedure usually comprises of third-party logistics suppliers that conduct a number of activities in the supply chain: storage; transportation; overhaul; testing; and assembly. It is against this backdrop that firms within the supply chain endeavour to attain strong collaboration in the supply chain management. SCM entails synchronizing logistical processes within the individual connections of the logistics chain in a manner that the logistical activities can be supervised and function as an assimilated unit, with the aid of an incorporated information system. The crucial objective is to optimize the logistical performance of the entire supply chain.15 Integration can take place at various levels within the framework of supply chain logistics.

Physical integration

The main objective of this phase relates to the enhancement of the performance of the primary process. Examples of physical integration include: standardization of customer and transportation packaging, roll-containers and pallets. It is worthy to note that over 44% of the packaged merchandizes in Europe are distributed on standard boxes and standard pallets. As of now, multiple transportation systems (plastic boxes) have replaced corrugated board. It appears that the organization of a pool-system for this multi trip packaging system is a key success factor.16

Information integration

In the second phase of integration, the flow of information with regard to the primary process is fine-tuned between suppliers and vendors. However, one key challenge faced at this stage is the breakdown of information flow between suppliers and vendors. Nonetheless, this dilemma can be alleviated using electronic data interchange (EDI). The standardization of barcodes and messages are vital but not adequate to facilitate information integration.17 Chain partners should be willing to share information that is required to run the chain as a single unit.18 Although logisticians are usually in concurrence with this statement, marketers are however confined on the basis competitive advantages. In essence, supply chain management is perceived as an instrument for alleviating obstacles between functional specialism in every firm.19

Control integration

During this phase, the physical flow is concurrently controlled at different levels in a logistics chain. The adoption of distribution resources planning methods is made possible by time phased information. Swift reactions as well as vendor managed inventory are thus salient concepts within the control-stage of supply chain management.20 They are used to enhance consumer services and sales in retail outlets by swiftly responding to emerging trends in sales as well as enhancing in-store stock levels, while decreasing replenishment and inventory time along the supply chain. Thus, in the absence of an EDI-link, it is unfeasible to achieve the control-integration prospects.21

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Structure integration

Under this phase, logistics duties and planning tasks are assigned to another chain partner. In nutshell, one chain partner assumes the logistics roles within the area of the other chain partner. This form of integration is quite prevalent in office supply industries as well as health care institutions. Conventional wholesalers manage the logistics activities within the health care institutions and banking/insurance firms. To put it another way, the management of the facility is done by the trade partners. The four phases of supply chain management are illustrated in figure 6.22 Several similarities can be made between the phases in supply chain integration and the aspects of the logistics concept.

Logistical issues in Iranian automotive industry

Following the demise of Iraq war, the Iranian automotive industry experienced enormous demand for automobile. Nevertheless, car manufacturer were unable to augment their production capacity to satisfy this demand due to financial constraint and other technical issues such as logistical setbacks. As a result, the Iranian automotive industry opted to outsource some of its production activities to industrial SMEs. For example, Iran-Khodro (one of the largest automotive companies in Iran) sub-contracted its production activities to about 100 small and medium enterprises (SMEs). There are several reasons to explain this development. First, the rise in demand for automobile surpassed the production capacity of automotive manufacturers. Second, inadequate supply of foreign currency was a major setback which prevented automotive manufacturers to procure car parts from overseas. Thus, they were compelled to concentrate on domestic production. Third, lack of information sharing and logistical challenges in the supply chain compelled manufacturers to collaborate with other firms in order to meet customer demands and survive in the competitive environment.23 According to a survey conducted in Iran by IDRO (Industries Development and Renewal Organization), about 2000 SME have enough capacity to act as suppliers for large-scale automotive companies in the country. This implies that there is an urgent need for a close collaboration between SMEs and large scale automotive industries in areas such as outsourcing and subcontracting services. Such a partnership will alleviate the numerous logistics setbacks encountered by automotive industry within the supply chain.24

It is important to note that the competitiveness of manufacturers in the automotive industry is subject to their supply chain.25 Incompetence such as logistical shortages and long cycle periods across the chain can compromise the competitive edge of the entire automotive supply chain. Some managers in Iranian automotive industry have adopted lean philosophy in order to enhance and maintain the stability of their supply chain systems in the ever-changing business environment. For example, Kanban cards are commonly used by manufacturers in Iran automotive industry as inventory management instruments in lean supply chains to regulate their suppliers. It is quite a complex task to study and analyze inefficiencies of suppliers in relation to manufacturers because logistical procurements and production related processes must be considered simultaneously.26

The significance of supply chain can only be discerned if companies link their competitive existence to supply chain management.27 As note earlier, SCM refers to a set of strategies that incorporate manufacturers, suppliers, warehouses and markets. This type of integration facilitates the production of good in bets time, cost and location. What’s more, it decreases supply chain costs and satisfy customers’ requirements.

Bibliography

  1. Agarwal, A and Shankar, R., ‘On-line trust building in e-enabled supply chain’, An International Journal of Supply Chain Management, 8/4 (2003), 324-334.
  2. Ashayeri, J, and Kampstra, R.P., Demand Driven Distribution: The Logistical Challenges and Opportunities (Tilburg: Tilburg University, 2004).
  3. Cao, M. and Zhang, Q., ‘Supply chain collaboration: Impact on collaborative advantage and firm performance’. Journal of Operations Management, 29/3 (2011), 163 180.
  4. Dekker, H.C. and Goor, A.R., ‘Supply Chain Management and Management Accounting: A case study of Activity Based Costing,’ International Journal of Logistics, 3/1(2000), 41-52.
  5. De Kok, A.G., ‘Push en pull in supply chain management’, Bedrijfskunde, 73 (2001), 94-100.
  6. Girard G., ‘The e-Changing Face of Wholesale Distribution”, Supply Chain Management Review, (1999), 19-21.
  7. Gholamian, Maziar., Karimi, Behrooz, and Darayi, Mohamad., A Simulation study of Logistics and Manufacturing Activities in an Automobile Supply Chain (Tehran: Amirkabir University of Technology, 2010).
  8. Goor, A.R., Demand & Supply Chain Management: A Logistical Challenge (Amsterdam: Amsterdam University, 2001).
  9. Hobohm, Sarwar. Small and Medium-Sized Enterprise Sector: To Industrial and Economic Development in the Islamic Republic of Iran (Vienna: United Nations Industrial Development Organization, 2003).
  10. Manzouri, Malihe and Arshad, Haslina., ‘Problematic Issues in Implementation of supply Chain Management in Iranian Automotive Industries,’ IPCBEE, 8 (2011), 304 307.
  11. Mohaghar, Ali and Ghasemi, Roholla., ‘A Conceptual Model for Cooperative Strategy and Supply Chain Performance by structural Equation Modeling: a Case study in the Iranian Automotive Industry’, European journal of Social Science, 22/4(2011), 519-530.
  12. Meehan, J and Muir, L., ‘SCM in Merseyside SMEs: benefits and barriers’, The TQM Journal, 20/3 (2008), 223-232
  13. Prahinski, C and Benton, W.C., ‘Supplier evaluations: communication strategies to improve supplier performance’, Journal of Operations Management, 22/1 (2004), 39-62.
  14. Su, Q and Dang, J., ‘The impact of supply chain relationship quality on cooperative strategy’, Journal of Purchasing and Supply Management, 14/4 (2008), 263-272.
  15. Terzi, S and Cavalieri, S., ‘Simulation in the supply chain context: a survey,’ Computers in Industry, 53 (2004), 3-16.

Footnotes

  1. J. Ashayeri and R.P. Kampstra, Demand Driven Distribution: The Logistical Challenges and Opportunities (Tilburg: Tilburg University, 2004), 2.
  2. G. Girard, ‘The e-Changing Face of Wholesale Distribution’, Supply Chain Review, (1999), 19-21.
  3. Ashayeri, op. cit. 3
  4. A.G. De Kok, ‘Push en pull in supply chain management’, Bedrijfskunde, 73 (2001), 94-100.
  5. Ali Mohaghar and Roholla Ghasemi, ‘A Conceptual Model for Cooperative Strategy and Supply Chain Performance by structural Equation Modeling: a Case study in the Iranian Automotive Industry’, European journal of Social Science, 22/4(2011), 519-530.
  6. Malihe manzouri and Haslina Arshad, ‘Problematic Issues in Implementation of supply Chain Management in Iranian Automotive Industries,’ IPCBEE, 8 (2011), 304-307.
  7. Ibid., 305.
  8. A. Agarwal and R. Shankar, ‘On-line trust building in e-enabled supply chain’, An International Journal of Supply Chain Management, 8/4 (2003), 324-334.
  9. Manzouri, op. cit. 306
  10. Ibid., 307
  11. J. Meehan and L. Muir, ‘SCM in Merseyside SMEs: benefits and barriers’, The TQM Journal, 20/3 (2008), 223-232
  12. A.R. Goor., Demand & Supply Chain Management: A Logistical Challenge (Amsterdam: Amsterdam University, 2001), 2.
  13. H.C. Dekker and A.R. Goor., ‘Supply Chain Management and Management Accounting: A case study of Activity Based Costing,’ International Journal of Logistics, 3/1(2000), 41-52.
  14. Goor, op. cit. 2
  15. Dekker, op. cit. 43
  16. Goor, op. cit. 7
  17. Ashayeri, op. cit. 3
  18. Q. Su, and J. Dang., ‘The impact of supply chain relationship quality on cooperative strategy’, Journal of Purchasing and Supply Management, 14/4 (2008), 263-272.
  19. Goor, op cit.7
  20. M. Cao and Q. Zhang., ‘Supply chain collaboration: Impact on collaborative advantage and firm performance’. Journal of Operations Management, 29/3 (2011), 163-180.
  21. Goor, op cit.7
  22. Goor, op.cit.8
  23. Sarwar. Hobohm., Small and Medium-Sized Enterprise Sector: To Industrial and Economic Development in the Islamic Republic of Iran (Vienna: United Nations Industrial Development Organization, 2003), 56.
  24. Ibid, 57.
  25. S. Terzi and S. Cavalieri., ‘Simulation in the supply chain context: a survey,’ Computers in Industry, 53 (2004), 3-16.
  26. Maziar. Gholamian, Behrooz Karimi and Mohamad. Darayi, A Simulation study of Logistics and Manufacturing Activities in an Automobile Supply Chain (Tehran: Amirkabir University of Technology, 2010), 176.
  27. C. Prahinski and W.C. Benton., ‘Supplier evaluations: communication strategies to improve supplier performance’, Journal of Operations Management, 22/1 (2004), 39-62.