18-08-2012, 03:57 PM
Supply Chain Management
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Literature Review
This chapter consists of three sections that report on previous studies pertaining to
supply chain management, inventory management, and apparel manufacturing to explore
meaningful concepts and variables for the study. The first section includes a general
overview of supply chain management (SCM) and SCM activities. The second section
provides a general overview of inventory management (i.e., definition, type, and role of
inventory, inventory control models) and the review of relationships between SCM and
inventory management. The third section provides a general overview of apparel
manufacturing followed by the review of SCM and inventory management in apparel
industry, and key issues (i.e., product characteristics, production system, retail
customers).
Reasons for Forming Supply Chain Management
Practices experienced in the traditional management of the supply chain raised the
need for conversion to a new paradigm of supply chain management (SCM). The
traditional supply chain and manufacturing processes relied on experience and intuition
of managers and were designed with long supply cycle times, large batch sizes, capacity
based on annual volumes, volume-driven technology, and numerous suppliers for the
same parts on the short-term base contracts. With traditional management processes, the
goal of business activities was to maximize the efficiency of an individual functional unit
by achieving competitive edges based on cost reduction. Under the traditional supply
chain, efforts of manufacturers to meet the increased changing of customer requirements
caused decreased margins, poor service performance, increased overhead costs, poor
production process reliability, increased downtime due to changeovers, and high
inventory levels of raw materials and finished product. None of these conditions are
viable in a competitive market. Most product supply systems are out of balance with
customer requirements (Lummus, Vokurka, & Alber, 1998).
Definition
The concept of SCM is relatively new to academics and practitioners, appearing
first in 1982 (Cooper, Lamber, & Pagh, 1997). Although the term, supply chain
management, has been used since the 1980s and the academic and trade presses have
given extensive attention to the concept, confusion still persists in defining what is SCM
(Bechtel & Jayaram, 1997). Many researchers have tried to define the meaning of SCM.
Table 2-2 provides the summary of each author's definitions. Although subtle differences
are found in the word choice and expression, commonalities contribute to an
understanding of core concepts in the definition of SCM. The first component is the
range of participants. All of the definitions in Table 2-2 state that all channel members
within a company or between companies, including supplier, manufacturer, distributor,
and customer, should be involved in the chain activities and collaboration between
members. The second component is the flow of materials and information. Agreement
across definitions is that materials, whether raw materials or finished goods, and
information flow simultaneously both upstream and downstream in the chain. Third, to
manage the flow of materials and information and to provide high customer value,
integrated and coordinated value-added activities are required (i.e., cross-functional
approach, joint planning and forecasting, flexible operations).
Key Management Processes in the Supply Chain
According to Davis (1993), key business processes of SCM can be grouped into
three activities: supply, transformation, and demand. Transformation refers to a broader
meaning than manufacturing in that the term encompasses material handling and
distribution functions. Harrington (1999) also identified four distinct management
processes in the supply chain as plan, source, make, and deliver. In Harrington's
discussion, source, make, and deliver are execution processes that form a link in the
supply chain, and plan is a process of managing the customer-supplier links. Figure 2-1
depicts the management processes occurring between chain members. Manufacturers
are involved with both the interfaces with second tier suppliers and with customers. The
purchasing-manufacturing interface and the manufacturing-warehouse/distribution
interface have been most widely studied in the articles which SCM (Bechtel & Jayaram,
1997; Cooper & Ellram, 1993). The role of manufacturers in the supply chain is critical
for the efficiency of the whole supply chain because they have to build a direct
relationship with suppliers as well as with customers and handle both interfaces
efficiently.
Benefits
Many previous studies conducted in various industries have revealed tangible
benefits generated from efficient SCM (Harrington, 1999; Higginson & Alam, 1997;
Alber & Walker, 1997; Palevich, 1997; Giunipero & Brand, 1996; Cooper & Ellram,
1993). The summary of benefits is presented in Table 2-2. These benefits can be
categorized into four groups. First, financial benefits were reported: reduction in costs
tied with high level of inventory, shipping, and operating costs; cost advantage over
competitors; and increased profit margin with lower product costs. These cost reductions
were achieved without downsizing, laying off employees, or closing plants. Second,
companies' operational activities were improved: reduced cycle times, lower inventory
levels, increased stock availability, less stockouts, increased inventory turns, and greater
productivity in operations. Third, customer service was increased: more reliable delivery
and increased responsiveness to changes. Lastly, closer coordination among channel
members is an important benefit. This benefit results in an improvement in the quality of
products and information and an increase in the sharing of expertise and risks, which
creates a competitive advantage and greater profitability.
Inventory Management
Inventory management includes a company's activities to acquire, dispose, and
control of inventories that are necessary for the attainment of a company's objectives.
The management of inventories concerns the flow to, within, and from the company and
the balance between shortages and excesses in an uncertain environment (Tersin, 1988).
According to McPharson (1987, p360), in apparel manufacturing, "inventory
management systems are designed to obtain concise and accurate information for control
and planning of planned goods, issues, cuts, projections, WIP and finished goods."
Inventory management has been a concern for academics as well as practitioners, in that
overall investment in inventory accounts for relatively large part of a company's assets.
Inventory may account for 20 to 40% of total assets (Tersin, 1988; Verwijmeren, Vlist, &
Donselaar, 1996). Inventories tie up money, and success or failure in inventory
management impacts a company's financial status. Having too much inventory can be as
problematic as having too little inventory.