Supply chain Management

When the term “supply chain management”, coined in 1982 started to gain popularity in 1990s, it has gained the popularity status of becoming one of the most used buzzword in operation managers. There are so many definitions for the term itself since there are so many perspectives on how to define it. But we will use this definition below to explain what supply chain management is:

“Supply chain management is the systematic, strategic coordination of the traditional business functions and the tactics across these 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”. (John T. Mentzer, 2001)

Since the definition is rather broad, we can shorten it up as an inter-organisational system working toward the same goal, increase profitability and gaining competitive edges. This make Supply Chain Management a small branch of Logistics and Transportation. Since Feigenbaum set up the cornerstone for Quality in Supply Chain, when mentioned the necessity to have collaborations between multiple departments to achieve better quality, the involvement of the whole supply chain process to quality has always been emphasized in literatures. But back then, his emphasis concentrated more on the internal supply chain, and has not considered the external one. When the concept of supply chain management started to gaining its recognition, people started to realize the interconnectivity of the two subject, thus marked the start of the supply chain quality management. Since the objective of supply chain management is gaining competitive advantages by collaboration and quality management is the continuous improvement of internal process to satisfy customer needs, we can define Supply chain quality management as the management of the supply chain collaboration to gain competitive advantages by continuously improving the operation standard and products/services standard to satisfy customer’s requirements.

Prior to the 1980s, procurement decisions in the West were still stuck in the mentality of the cheaper the better, thus they still aiming to buy raw materials, components and services from the lowest contract bidder. This could be one of the contribution to the rise of Japanese products and services during that time, when the Japanese has already developed the aphorism of “Highest Quality is Lowest Cost”. Therefore, when the practice of continuous development and improvement start to blossom in the West, suppliers and firms start to realize the price without basing it on quality does not reflect the true cost to the business ecosystem. In W. Edward Deming’s 14 points on Quality Management, he also suggested that company should not award business based solely on price, and should try to minimize the total cost by working with one supplier, making the relationship evolved from short-term to long-term, which is the key point to measure the performance of the supply chain. If both side are going toward a sustainable collaboration where mutual are benefit from the partnership, it is easier to achieve a total quality control where joint efforts and shared knowledge are keys to success. Better collaboration means that the alliance will have more edges in the competition. Therefore, the urge to form a relationship between companies is increasing.

From the firm perspective, consider 40% of the production cost comes from purchased material, by securing a good supplier means they could mitigate some of the cost. Therefore, firm should set up very strict criteria for supplier selection. Firm should expect their vendors to understand the requirements and to have some knowledge in the sector. They need to find out the capability of their suppliers, quality wise and quantity wise. Another criterion which is important is the accessibility of the suppliers, how they can be reached when unexpected event occurred. Occasionally, suppliers might have to show their credibility since there might be events where trader’s secrets or unreleased technologies are shared and need to be kept in the dark. But the most crucial criterion must be the standard of the quality system, or the supplier certification. ISO 9001 standard should at least be some criteria when judging a supplier since it is universally accepted. There are also situations where automobile company need its suppliers to have certain standard certificates but overall these standards will help firms reduce the amount of time identifying the right partners. Another overlooked advantage of collaboration is firm can omit investing on fixed assets which may become irrelevant after some time.

From supplier perspective, by having a good firm which accept their products or services capability means they can have a long-term partnership which they can rely on and share their vision with. Collaboration between two companies will lead to shorter amount of time spending on inspections or random checking, meaning they can perform ship-to-stock scheme. Still periodic audits are usually required to ensure their capability.

Supplier can also come in forms of providing services such as transportation, contract manufacturer, co-packer … these are a form of outsourcing. If company and supplier is looking to collaborate with their supplier using this strategy, they need to find out if their quality standards and management system are appropriate and follow each other guidelines.

It’s argue that whether vendor or supplier should be the one who lead the charge. But to author’s opinion, the leader role should not be too importance since the partnership is based on mutual interests and both party are beneficial.

To sum up, to ensure products and services quality and maintain a good relationship between firm, in this case, the vendee and the vendor, Kaoru Ishikawa has set up 10 principles, translated by Hinshitshu Kanri, in 1967, which both parties need to follow:

·         Both vendee and vendor are fully responsible for applications of quality control with mutual understanding and cooperation between their quality control systems.

·         Both vendee and vendor should be independent and respect each other.

·         The vendee is responsible to the vendor for offering the demand that the vendor clearly understands what he should manufacture.

·         Both vendee and vendor should sign a rational contract when they begin trading regarding with quality, quantity, price, and the data of delivery, etc.

·         The vendor is responsible for the assurance of quality that will give satisfaction to the vendee, moreover complying with a request for providing the objective data needed.

·         Both vendee and vendor should decide the method how to evaluate the products for both being satisfied.

·         Both vendee and vendor should decide the systems and procedures for the trouble resolution when the contract is established.

·         Both vendee and vendor, should exchange necessary information to carry out quality control taking into consideration the other parties’ standing.

·         Both vendee and vendor should keep sufficient on control ordering, production, inventory planning, paperwork and organization, etc. to maintain their smooth relationship.

·         Both vendee and vendor should always take the consumers’ advantage into account at the transactions .

These principles set up the basis for a long-term relationship of working together to achieve common goals, to satisfy customers’ requirements by continuous quality improvement and to form a beneficial symbiotic partnership.