Supply Chain Management
Supply chain management is the control of all the processes involved in the production of goods and services to ensure that the end consumers meet their expectation. It starts from the raw material, work in progress, storage, and finally the delivery of the finished products. It is a management tool. It is aimed at ensuring that quality goods are produced and delivered to the customer whenever needed. The more efficient the system is, the better the quality and services to the customers. It is not one department’s work but it involves the entire team to be able to join hands and satisfy the customers. The purchase department, for instance, makes orders according to the demand of goods by the internal customer. This enables the employees to effectively engage in the production process. The marketing and research departments are constantly advising the company on the demands as wells as the complaints that they get from the customers. With this, they align their processes to ensure that there is efficiency and satisfaction in doing business. This operates as a total quality management where each department is addressed to ensure that the processes are to the expected standard. An example of supply chain management is inventory management system. Under this system, there is the supply of raw materials at any stage. The quality and the quantity of the raw material is the starting point. The reorder level is maintained to ensure that at all times there is the required level of raw materials. (Mentzer, DeWitt, Keebler, Min, Nix, Smith & Zacharia, 2001). One of the strategy that has been adopted as a policy of best practice in inventory is the use of multiple supplies; here the contract for the provision is not given to one person but to at least two. This is to mitigate any risk that may be as a result of failure by one contractor. On the other hand, the reorder level is maintained at a level that the company can still continue producing even when a supply has failed. For an effective supply chain management inventory system, the company should have the following;
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- Computerization of the inventory system
- Track inventory level
- Create an ordering system
General Motors Company operates an inventory management system that has enabled the company to satisfy 96% of the parts needed. The web based system which is centralized, operates by analyzing the daily usage of various parts in the workshops. It collects data as ebXML from all the system and assist in making relevant decisions. If the parts fall below a set level of five, the system alerts the inventory manager and forwards an order to the national suppliers. It forwards 16 orders each to a distributor. In total there are 500,000 GM parts that are supplied from 4,000 suppliers. The system operates 5000 parts of dealership stocks on average (Babcorp, 2006).
The following is the inventory record of the company as reported in the financial reports;
- Inventory in $millions
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Advantages of Inventory Management System
It ensures that there is a continuous production at all times. Any risk that can make production stop as a result of lack of material is reduced. A well planned management system is the one that ensures that there is a continuous supply of materials to the factory. By doing this, it ensures that all the machinery has been effectively utilized and they are employed to their maximum. The laborers do not stay idle because at any one time they have something to do. The above advantages bring with them efficiency in the system. This leads to increased customer satisfaction. The stock reorder level is well maintained to ensure that raw materials are ordered and delivered at the right time. Maximizing the assets and human resources can be attained when the company is operating at all times.
If the system is well administered it ensures that the quality of goods is maintained. Quality of the end product is a product of the quality of the raw materials that was used in the production. The procurement will ensure that the materials are of the right quality and thus the quality of the final products. When the company is providing quality products the relationship with the customer is enhanced. A strong brand name can only be made as a result of the quality of the products availed. Customer satisfaction is another resultant advantage of quality products.
The system saves money in terms of costs and time. In most cases, when a company needs an urgent supply as a result of lack of management, then the company will need to pay an extra cost for the urgent supply. When there is a good system, then there is no time that urgent supply will be needed. There is also adequate time to advertise for tenders and choosing the best quotation since the company is not under pressure to procure. There is enough time for the process. The employees that are required to operate the system are not as many as the ones required to operate the traditional inventory system. This reduces the cost in terms of employee’s salaries. In terms of time, it follows that there is no waiting time for a supply since the supply is made when an alongside production is taking place. The system will assist in Track inventory turnover. The flow of inventory is a good indicator of the general performance of the business.
Dependency level;- the system is set in such a way it generates/ advises the company on what should be done and when. One can be assured that this will happen at all times and not like a human being who can forget or even not attend to work at a particular day (Kontopoulos, 2009).
The system comes with a cost. This is because the adoption of a new system will require computer devises. The short term initial stage capital investment may injure the business financially in terms of the hard ware and software that will need to be bought. The employees will have to be trained or rather recruited to ensure that there is someone who will understand the technological operation of the system. The other disadvantage of an inventory system is that it is subject to system failures. If the system fails, then the business may be hampered. This is because of its dependency such that there is no one who can make an informed decision regarding any purchase. The system is started using a set of past records data. This limits the system to changes in the market situation since it works on an average basis approach. In the time of boom, a company should increase its production capacity to benefit from the boom; however, the system cannot detect this time and thus will facilitate production at the normal rate. The same happens in the time of low demand, it will be assuming normal level of production; this may lead to a loss. The system only recommends the supplier but does not guarantee quality from the supplier; this makes it dependent on the outside environment (Ward & Glass, 2008).
- Babcorp, (2006). GM Implements New Parts Inventory Management System Information week GIO.
- Kontopoulos, G., (2009). Online Inventory Management Systems Advantages. Web.
- Mentzer, J. T., DeWitt, W., Keebler, J. S., Min, S., Nix, N. W., Smith, C. D., & Zacharia, Z. G., (2001). Defining supply chain management. Journal of Business Logistics, 22(2), 1–26.
- Ward Jr., M., & Glass, L., (2008). Inventory Management Systems. National Petroleum News, 100(1), 24. Retrieved from MasterFILE Premier database.