The powers of integrative management, responsiveness, financial maturity, and globalization, aided by explosive information technology, have combined to place supply chain issues on the radar screens of most firms. Although companies are bursting with boundless excitement for supply chain management’s potential, little attention is paid to the challenging problems and risks associated with the supply chain.
Supply chain management’s capacity depends on the ability to change traditional functional practices to emphasize integrated process efficiency. Such a shift in conduct requires the adoption of new practices for organizational integration and the direction of supply chain operations. These implementation issues must be considered as an attempt for integrated supply chain activities to become a reality.
To gain the promised benefits, a supply chain must operate as a managed process. This form of integrative management requires leadership.
Power determines which business in a potential supply chain partnership can take the lead. Equally critical is the ability of other supply chain participants to recognize a particular firm as the collaborative leader. A supply chain that seeks to connect manufacturers of branded consumer goods to a retailer with considerable consumer store loyalty can create significant power conflicts. The issue of which firm takes the lead and the ability of other firms to partner under such leadership is critical in forming an ideal supply chain. Risks associated with supply chain interaction essentially revolve around who stands to benefit or lose the most from the partnership. Clearly, a trucking company that offers transportation services within a supply chain has far fewer stakes than the retailer or mass distributor.
Almost always, companies involved in a particular supply chain are very often involved in other related structures. However, it is more common for companies to be involved in direct competitor supply chains.
Procter & Gamble, for instance, is a supplier to almost every major food retailer. Thus, when Kroger, Farmer Jack, Meijer, and many other supermarket chains operating in the same cities enter into joint agreements with Procter & Gamble, the possibility of conflict is genuine.
Collaborative projects must be introduced, nurtured, and maintained within this network of competitive interactions if the potential of interconnected supply chains is to be realized. Businesses that operate competitive supply chains must build systems to promote loyalty and protect confidentiality. Partitioning is the term used to describe such arrangements. Partitioning involves the development of proprietary organizational structures and knowledge collaborations to meet the needs of particular relationships. Where the focus is on manufacturer-branded goods and collaboration with retailers, partitioning is often administered with the use of dedicated customer teams. When developing new products, it may be appropriate to create distinct organizational units to deal with specific suppliers.
Supply chains, in comparison to individual businesses, lack traditional measuring instruments. Whereas a particular business’s income statement and balance sheet are prepared under generally accepted accounting standards, there are no such universal documents or procedures for measuring supply chain performance. The issue of supply chain efficiency is complicated further by the fact that processes that favour the supply chain as a whole can result in cost savings for one firm while growing costs for other participating firms.
It is self-evident that measuring supply chain operations requires a distinct collection of metrics that identify and exchange performance and cost data among participants. Integrating multiple businesses into a coordinated supply chain effort requires the development of metrics that capture the collective synthesis while isolating and defining individual contributions.
The rapid adoption of the supply chain paradigm has aided in the identification of measurement challenges. The invention of useful metrics, on the other hand, is still in its infancy.
4. Antitrust concerns
During the early days of the industrial revolution, it became apparent that business cooperation among large companies could be harmful to customers and other less powerful business organizations. Businesses that successfully gained near-monopoly status were observed using their competitive and monetary power to restrain trade and leverage excessive profits. As a result, a series of antitrust laws were enacted and refined, all of which specified acceptable conduct between business and pricing practices.
It is obvious that a disproportionate balance of power in a supply chain system may be used against certain participating firms. Critics refer to the vast number of former “suppliers of the year” who were pushed into bankruptcy in subsequent years as indicators of power abuse in supply chain partnerships. In a free-market economy, any kind of partnership raises concerns about the possible misuse of power in the general public or business partners. Most people believe that the potential for cross-enterprise synergies outweighs the threats and dangers of collaboration.
5. Consumer value concerns
To begin, the argument is that operational efficiency does not always imply or guarantee lower consumer prices. Collaborating firms may produce higher income, either individually or collectively, and thereby generate significant shareholder capital. However, there are no processes in place to ensure that cost savings are passed on to customers in the form of lower retail prices. Indeed, the underlying logic is that as supply chains become successful competition units, the market structure will shift away from numerous competing firms toward a few large supply chains. Critics believe that this transition toward a more monopolistic system has the potential to excessively inflate the prices rather than reduce them.
The second argument aimed at supply chain arrangements is that operational productivity is not always socially fair. To demonstrate, if a certain amount of dresses is sold at the highest retail price, there are no surplus garments available for the discount during the process that typically ranges from clearance sales to low priced sales. The lady who purchases a garment at a discount benefit from the system’s inefficiency. Such value opportunities can be eliminated or greatly reduced by improved supply chain cooperation. Assuming that low-end consumers realize superior values, the general consumer public is better off when inefficiencies arise in the supply chain.
The preceding review highlights certain practical constraints in the reality of supply chains. The idea of partnering for growth is empowering, and the idea of combining core competencies for productivity is appealing. However, the mechanisms of how such dynamic relationships work on a daily basis are not well understood.
Most so-called supply chains in today’s world lack the assumptive and policy structure needed for long-term success. According to a recent Michigan State University study, less than one out of every five companies involved in collaborative arrangements had established and authorized policies to direct their managers in the structure and conduct of such agreements. There were no reports of or willingness to share cross-organizational collaborative arrangements that went beyond conventional performance contracts.
The obvious conclusion is that end-to-end supply chain structures are only in their early stages. Today’s system is dotted with a variety of intricate operating structures that broaden and promote performance between two and, in some cases, three organizations. Supply chain techniques developed by major retailers, manufacturers, and high technology companies have resulted in structural benefits in a few cases. Less clear is an in-depth understanding of whether these advantages are spread across the entire supply chain or are maintained by the dominant or lead organization.
References: Supply Chain Logistics Management by D.J. Bowersox, David.J. Closs and M. Bixby Cooper