Describe about the Supply Chain Management for Chain Relation Management.
The Bullwhip effect and Management related to Supply Chain relation with Example.
The bullwhip effect can be defined as supply chain problem whereby there is variance detected between order made to producer and supplier and sales made to final customers. In context to supply chain the irregularity in the lower level lead to more critical issue in the higher level and impact the smooth flow of the process. The bullwhip effect lead to either over estimation or under estimation in the demand of product and the end is fluctuation.
This effect of bullwhip may be as towards occurrence detected with supply chain explained wherein the orders provided to manufacturers and that of the supplier creates the variance larger as compared to end customer sales. The lower level problem identified in the supply chain process hint at more critical problem in the higher level related with demand and supply (Carranza Torres and Villegas MoraÌn, 2006). The variance thus may interrupt the process of supply chain smoothness as every link that are existing in supply chain shall either underestimate or overestimate the demand of the product that happens to result in the fluctuations those are exaggerated.
Factors contributing towards bullwhip effect
There are various factors contributing towards supply chain process relating to bullwhip effect. The factors such as disorganization in every link in supply chain process with either smaller or larger ordering of production amounts than required. The additional factors like communication lack, policies related to free return, the order batching, variations in price and demand information also contribute to this bullwhip effect.
Example of Bullwhip effect
The customer actual demand for product is 8 units, then the retailer from distributor might order 10 units to ensure these 2 units extra for not running stock out in the floor. The supplier from manufacturer then order the 20 units towards allowing for bulk buy to endure enough stock while shipment to retailer. The manufacturer order 40 units to ensure in meeting demand of product the economies of scale. These 40 units produced for 8 units demand means retailer to increase demand requires price lowering or finding with advertising and marketing more of customers.
Integration of SCM with SAP helping to eliminate the bullwhip effect
SAP is an enterprise resource planning (ERP) software that helps to integrate the various function of the company like production, material management, sales and distribution, finance and costing, human resource, customer relationship management (CRM) and supply chain management (SCM). Thus, real time information can be shared and exchanged between various function. In context to SCM the integration leads to demand signal of consumer that enable supply chain management driven by demand (Tarn, Yen, and Beaumont, 2002). It helps in enhancing the network visibility of demand by optimizing the short term forecast of demand. With regard to the perspective of demand planning it is now possible for SCM planners to make a comparison of the traditional demand forecast consensus against the statistical point of sale forecast and it facilitate the true demand of consumer supported by real time correction.
With regard to the perspective of demand network it is now possible for the managers forecasting the demand to visualize the demand network completely now. This is possible as the manager is able to get real time information from stores inventory management, distribution centre of retailer and point of consumption (Tarn, Yen, and Beaumont, 2002). This integrated real time information related with the supply chain management (SCM) supported with SAP enhance the visibility and help to eliminate the bullwhip effect.
Thus by using the integration of SCM with SAP helps to eliminate the bullwhip effect and provide the below benefits that will flow through the entire supply chain management of the company (Piccoli, 2012).
This SAP enabled supply chain extends the network visibility of demand beyond the SCM of the company and thereby leads to inventory optimization.
Minimize the sakes opportunities loss related with the out of stock common in the traditional system.
This efficiency in operation of SCM enhances the profitability.
Power and Trust in Supply Chain Management
Trust is dependability between the partners by being reliable to the words fostered by management. The relationship between manufacturer and retailer has to be supported by shelf positions linked with the product. When a partner crosses the line of faith the relationship broke as the action is impacting both. For instance Japanese manufacturers generate high level of trust than European companies (Kumar, 1996). An important situation governing their relationship is benefits generated from both the parties by being committed to each other. When conducting survey the result suggested that retailers who trust manufacturers produce around 78% of sales at higher level in comparison to others. In simple terms it acts as reservoir that helps in preserving a relationship by building goodwill.
The retailers who trust manufacturer retaliate on not looking into the product line of manufacturer. Alternatively, it helps in realizing the individuals their potential by sharing confidential information related to business. At last trust is capturing both minds and heart by channeling the partners for believing in each other for long-term (Bigne and Blesa, 2003). Similarly, as the industries are expanding the power between retailer and manufacturer are shifting by its virtue and nature. Companies use their strength for being powerful but, the fear is on how they will manage relationships. When organizations are established huge or small investments are required so exploiting power is not a good option for long term sustenance. The power changes its position so attracting unfair concession is not right in case of big companies like Procter and Gamble.
The organizations might exploit others like retailers may form an association or group, acquisition etc. for counteracting with power. Hence, the game of trust and power is different as per nature. Power develops fear and trust builds interdependence so both have to be used as per the condition (Kumar, 1996).
Trust based or the power based relationship leading to better outcomes
With the industries that are diverse like the consumer-packaged goods, the pharmaceuticals, the apparel, the hardware, the power balance is shifting among the retailers and the manufacturers. This specialty superstores rise with the buying alliances formation along with consolidation wave related to acquisitions and mergers makes the retailers in small numbers that presently controls the larger consumer numbers. Thus with the trust and the power relationship in the area with manufacturers who earlier controlled the retailers find in present times the mega retailers holding upper hand.
Yes, it is believed that trust and power are important for managing a relationship effectively for a better outcome. The communication between the parties should be of bilateral nature that works in two ways just like Marks and Spencer. The company encourages its suppliers to be frank and active by helping in finding weakness as it builds healthy relationship. When a party is powerful the way of handling its channel partners is identical in nature. The companies are moving their relationships by transforming it to channel partnership base for making transition. In trust game attitude, management system, people and culture are different than in power game (Bigne and Blesa, 2003).
With respect to the YouTube video of Wal-Mart it is established that the trust based relationship lead to better outcomes compared to the power based relationship. The company achieved the trust of customers by providing the best product at the cheapest price and created a retail revolution in the US market. Similarly its acquisition of ASDA in the UK market was under the same concept (Davenport, 2006). The major benefits of this trust based relationship with regard to Wal- Mart are
Cheapest price from supplier based on the size of the retail chain that is the largest in the world.
Multiple suppliers providing different products.
Lowest price promise to customers.
Brand awareness of Wal-Mart in the domestic and global market.
Bigne, E. and Blesa, A. (2003). Market orientation, trust and satisfaction in dyadic relationships:a manufacturerâ€retailer analysis. Intl J of Retail & Distrib Mgt, 31(11), pp.574-590.
Carranza Torres, O. and Villegas MoraÌn, F. (2006). The bullwhip effect in supply chains. Basingstoke [England]: Palgrave Macmillan.
Davenport, T.H., 2006. Competing on analytics. harvard business review, 84(1), p.98.
Kumar, N. (1996). The Power of Trust in Manufacturer-Retailer Relationships. [online] hbr.org. Available at: https://hbr.org/1996/11/the-power-of-trust-in-manufacturer-retailer-relationships [Accessed 19 Sep. 2016].
Piccoli, G., 2012. Essentials of Information Systems for Managers: Text Only. Wiley Publishing.
Tarn, J.M., Yen, D.C. and Beaumont, M., 2002. Exploring the rationales for ERP and SCM integration. Industrial Management & Data Systems, 102(1), pp.26-34.