Supply Chain Management

Introduction:

Supply Chain Management is the systematic, strategic coordination of the traditional business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole.

A basic supply chain consists of a company, an immediate supplier, and an immediate customer directly linked by one of the upstream and downstream flows of products, services, finances, and information.

An extended supply chain includes suppliers of the immediate supplier and customers of the immediate customer, all linked by one or more of the upstream and downstream flows of products, services, finances, and information.

An ultimate supply chain includes all the companies involved in all the upstream and downstream flows of products, services, finances and information from the initial supplier to the ultimate customer.

Seven Principles of Supply Chain Management:

Successful supply chain management is extremely complex; the number of players involved means that each company's supply chain management process will be unique. Some general principles that every company should follow when managing across the supply chain are:

1. Begin with Customer

2. Manage Logistics Assets

3. Organize Customer Management

4. Integrate Sales and Operations Planning

5. Leverage Manufacturing and Sourcing

6. Focus on Strategic Alliances and Relationship Management

7. Develop Customer-driven Performance Measures

Supply Chain Management is about competing on value вЂ" collaborating with customers and suppliers to create a position of strength in the marketplace based on the value delivered to the end customer. The main objective is to create customer value superior to the competitor's value offering and to enhance customer satisfaction, either through improving efficiency (lower cost) or effectiveness (added benefits). The degree to which the value created is perceived as important to the customer influences the customer's satisfaction. The customer's perception of differential value and degree of satisfaction influences behavior toward the supplier firm as well as the value delivered to downstream customers.

The supply chain as a whole can be considered a complete value system delivering products and services to the end customer. Value can be created at many points along the chain. The ultimate basis for value at each step along a supply chain is the role of the product or service in the value created. Thus, an understanding of the entire supply chain is critical in identifying and delivering value that improves the competitiveness of the chain as a whole.

Figure: Consequences of Supply Chain Management

Creating Customer Value:

Creating customer value is seen as a means of maintaining and enhancing long-term relationships with key customers. A key element is that it is as perceived or experienced by the customer. Customer value is based on the relative importance to the customer of the various elements of perceived price, perceived total cost of acquisition and use, and perceived benefits of owning or using the product or service.

Firms pursuing a strategy of customer intimacy focus on tailoring products and services to fit the needs, or create value, for specific segments of customers. The focus is on building loyalty and long-term relationships among strategic customer segments, trading off the investment required against the customer's lifetime value to the company. For example, Home Depot has built its business strategy around meeting customers' total need for products, information, and service to help them solve their home-repair problems. Thus, the first priority of store personnel is to make sure that the customers get exactly what they need, and they will spend whatever time is required to ensure this.

To create value for customers, a firm must first understand how the customer defines value, then identify those dimensions of value that are of critical or strategic importance. The ability to identify those strategically critical value dimensions and design and deliver products and services that deliver value along those dimensions is critical to achieving the objectives of differential advantage and long-term profitability.

A series of critical steps that managers can utilize to develop and implement a value deliver strategy are identified as follows:

пÑ"? Identify the value вЂ" The ability to understand the dimensions of value important to customers is a critical step in planning a customer value delivery strategy.

пÑ"? Choose the value вЂ" The firm must determine which customer segment it will service. The challenge is to understand the organization's capabilities or core competencies, then match them against the value sought by customers in the various segments.

пÑ"? Provide the value вЂ" The value delivery strategy must be translated into action. The firm's offerings must be designed to deliver an integrated product and service offering that meets the needs of target customers.

пÑ"? Communicate the value вЂ" An integrated communications campaign should help customers understand the value that is offered.

пÑ"? Assess the delivered value вЂ" The actual delivery process is evaluated to determine whether improvements are needed, in this process.

Customer Satisfaction:

Customer Satisfaction is determined based on the customer's perception of product/service performance compared to some standard that represents the customer's expectation. This is influenced by the desired value (ideal standard) as well as by the perceived value of competitive offerings (industry norms, expectations based on the use of competitive products). Thus, customer satisfaction is influenced by the perception of value delivered as well as perception of value offered by competition, as shown in the diagram.

Customer value and customer satisfaction are related, but different. Customer value is what the customer desires from a product or service independent of a particular offering, whereas customer