Use of SCM as a Method of Inventory Control

The ability of any business to compete in its market niche always has a
direct relationship with its long-term profitability and sustainability.
Recent times have seen changing dynamics as far as the competition in
the market is concerned. The need to be competitive and be the best
among numerous competitors has made it necessary that companies devise
or implement varied strategies so as to enhance their competitiveness.
Competition in the global market has resulted in varied changes in the
same, including the modifications of demand patterns, a reduction in the
product life cycles, as well as varieties of products and environmental
standards. It is worth noting that any company or enterprise’s
competitiveness in the contemporary market is by, all means, a function
of varied features. A company, more often than not, has to improve the
varied customer service levels, upgrade the quality of all products, as
well as reduce lead times and expenses so as to enhance its
competitiveness. The need to undertake these measures has necessitated a
reexamination or focus or concentration on the supply chain of the
company as a key feature of attaining them. The chain essentially refers
to the collection of companies, enterprises and firms that provide
varied products and services to the market. It revolves the collection
of entities that collaborate in obtaining raw materials, converting them
into consumable goods and products, as well as delivering them to
retailers. Traditionally, the supply chain would involve acquisition and
manufacture of raw materials, and the transportation of finished
products to warehouses and storing them to allow retailers and customers
to access them. Needless to say, such processes would be likely to
involve a lot of wastage both in time and resources. Controlling these
processes underlines the importance of supply chain management. It is
noteworthy that the varied decisions pertaining to supply chain
management is elimination of wastage of both time and resources, as well
as allowing for efficiency so as to enhance the profitability.
Supply Chain Management underlines the process where an enterprises
manages a network of interconnected entities or businesses that provide
services and products packages needed by end users in the supply
chain. The process’ scope extends throughout the varied processes
involved in availing certain products and services to end-users, in
which case it encompasses raw materials storage and movement, inventory
of work-in-progress, as well as the finished goods right from their
origin to their consumption. Essentially, Supply Chain Management
revolves around the planning, designing, execution and control, as well
as monitoring of activities pertaining to supply chain with the sole
objective of establishing a competitive structure, creating net value,
harmonizing supply and demand, leveraging worldwide logistics, as well
as measuring global performance (Muller, 2002). It entails considering
all factors and events that would be likely to disrupt, affects or
change products and services.
Supply chain management makes up a fundamental pillar in the management
of inventory in the manufacturing industry. It involves a combination of
science of art used in enhancing the manner in which a company obtains
the required raw materials necessary for making products or services, as
well as delivering them to the end-users (Muller, 2002).
Decisions pertaining to supply chain management are categorized in two
groups. There are strategic decisions and operational decisions.
Strategic decisions mainly have an extended scope of operation and
applicability. They have a close connection to the corporate strategy
and are responsible for guiding policies pertaining to the supply chain
from a design perspective. Operational decisions, on the other hand,
mainly cater for the short term with their focus being on activities on
a day-to-day basis (Lee & Chu, 2005). These decisions mainly concentrate
on the efficient and effective management of product flow throughout the
strategically planned supply chain.
Supply Chain Management mainly revolves around for key areas including
location, transportation, inventory and production, all of which
incorporate both operational and strategic elements.
In location decisions, the Supply Chain management would be concerned
about the geographical placement of the stocking points, production
facilities, as well as sourcing points. These make up the initial step
in establishing a supply chain. This geographical placement would
involve committing resources to long-term plans (Muller, 2002). Possible
paths for availing products to the final customers would be determined
after ascertaining the number, location and size of the facilities. The
significance of these decisions lies on the fact that they underline the
fundamental strategy for accessing the market, in which case they
determine the level of service, cost and revenue (Lee & Chu, 2005). It
is imperative that the decisions are determined by a routine of
optimization that considers distribution costs, production costs, duties
and drawbacks, taxes, production limitations and local tariffs among
other things.
In production decisions, Supply Chain Management is involved with
strategic decisions such as what to produce, where the production would
take place, allocation of the varied suppliers to certain plants. It
goes without saying that the decisions affect the firm’s customer
service levels, costs, as well as revenues(Lee & Chu, 2005). The key
assumption made in the course of these decisions is that the facilities
are already in place, in which case the issue would be the determination
of the exact paths of product flow both in and out of the facilities. In
addition, they would be concerned about the manufacturing facilities’
capacity. Operational decisions are mainly concerned with the detailed
scheduling of production and include the equipment maintenance, the
making of master production schedules, as well as scheduling the
production in machines (Lee & Chu, 2005). It would also involve
considerations such as workload balancing, as well as measures for
quality control in the production facility.
In addition, there are the transportation decisions, which are mainly
strategic in nature. They bear a close connection with the inventory
decisions, especially considering that the best mode of transport would
be arrived at through a trade-off of the cost associated with the mode
of transport with the indirect costs pertaining to the inventory that
comes with the mode. For example, air transport comes as more reliable,
faster and has lesser safety stocks. However, there is the high cost
with which it is associated (Lee & Chu, 2005). The converse applies to
rail or sea shipping, which would be way cheaper than air transport but
has high inherent uncertainty. These decisions would involve
considerations of the geographical locations, as well as the levels of
customer service. The importance of efficient operation in transport is
underlined by the fact that transportation accounts for over 30% of the
logistical costs, in which case efficient operation would make economic
sense and would be directly tied to a firm’s profitability (Muller,
2002). In essence, the transport strategy would involve considerations
about the sizes of shipments, equipment routing and scheduling.
Inventory decisions, on the other hand, underline the strategies used
in the management of inventories present at every stage of the firm’s
supply chain, or even in-process between locations. The key objective of
inventory decisions is buffering the organization against uncertainties
that may be present in the supply chain. The importance or significance
of safeguarding efficiency in the management of inventories is
underlined by the fact that their costs lies between 20 and 40% of their
value (Lee & Chu, 2005). While inventory control is considered strategic
since it is made by the top management, it is also an operational
strategy as it incorporates deployment strategies, as well as control
policies. It is mainly concerned with examining the optimal order
quantities levels and reorder points, as well as the safety stock levels
that should be set in every location (Muller, 2002). They determine
profitability in that the levels have a direct relationship with the
levels of customer service, in which case their optimization leads to
improvement of a firm’s profitability.
Needless to say, decisions pertaining to supply chain management as a
technique of inventory control are aimed at eliminating wastages of time
and resources, as well as enhancing the profitability of the company.
Supply Chain Management has been widely incorporated in the current
workplace and promises to still make up a fundamental part of the future
workplaces, thanks to technological advancement. The pay-off of supply
chain management in inventory control comes in numerous forms (Muller,
2002). These may include reduced transaction costs through the
elimination of unnecessary stages of availing products to the market, or
even improving customer service through closer coordination between the
vendors and sources, or the distributors, carriers and end-users. It may
also revolve around enhanced market share flowing from lower costs or
improved customer service. One of the areas of application is the
Electronic Data Interchange, which enables firms instantly place their
orders with suppliers. This not only improves efficiency but also
reduces the time required to undertake the final products’ delivery to
end-users, in which case it would require the firm to retain a low level
of inventory. In addition, supply chain management has been applied
through Enterprise Resource Planning, which not only enables firms to
track their transactions but also enhances global visibility of
information within the firm, as well as throughout the supply chain. It
tracks the available inventories or stocks, as well as the corresponding
orders (Muller, 2002). In addition, Supply Chain Management has also
been applied in cross-docking, where goods are received and processed
for reshipping within the shortest time possible, as well as with
limited handling coupled with no storage. This increases the savings
thanks to the eliminated costs of storage and handling. On the same
note, supply chain management involves the use of scanners and bar
coding, which allows firm to analyze the available products, as well as
the market demand, thereby managing the levels of stock in their
facilities (Lee & Chu, 2005). It is easier for managers to make
predictions on market demand as the customers’ awareness about the
available choices would be increased by enhanced internet usage.
In conclusion, Supply chain management has been increasingly adopted by
firms in an effort to enhance their competitiveness. It is worth noting
that its processes and application in the current workplace allows for
enhanced effectiveness through elimination of wastage and increased
efficiency, which increases profitability. This can be seen in the four
decisions making up supply chain management. Transport decisions allow
for determination of the most appropriate routes, while inventory
decisions match the amount of stock in the company warehouse with the
demand. Location decisions allow for determination of the places where
certain amounts of inventory would be stored depending on client
demographics, production decisions determine the most optimum path for
production flow. All these are aimed at enhancing profitability and
eliminating wastage of both time and resources.
Muller, M (2002), “Essentials of Inventory Management”, American
Management Association.
Lee, C. C. & Chu, W. H. J (2005), “Who Should Control Inventory in a
Supply Chain?’, European Journal of Operational Research, 164