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The latest decline in global economy has contributed to a number of challenging factors to the industrial sector and especially the industrial manufacturers. These factors have continued to affect the market conditions as most manufacturers face aggressive competition from their key business competitors. The stiff competition has in turn exerted pricing pressure on their commodities. In countering such challenges, many manufacturers continue to integrate operations that can enable their products to counter the fluctuating market conditions while at the same time ensuring that they offer cost effective supply chain.
A special business operation report by the Bolton Consulting Group (2009, p. 1) also points out that any business can maximize its profit only if it is able to create cost effective supply chain. The group notes that in establishing cost effective supply chain companies are able to avoid business inefficiencies at the market level that would in turn risk their operations. According to their report, various global business challenges such as the low cost of outsourcing can adversely affect the cost of supply chain and minimize their value if not checked on. Various companies have thus toiled to ensure effective management of their supply chain through their expertise. The write up analyses on how we can create cost effective supply chain.
How We Can Create Cost Effective Supply Chain
According to McCarthy (2005, p.3), the companies can create cost effective supply chain by taking advantage of the evolution of the digital technologies. He points out that companies can actively utilize the digital technology to effectively design programs that do not only improve the quality of their products, but also limit the time taken by their products in the supply chain. Meadows (2009, p.1) notes that enhancing digital technology can enable most of the companies to exploit key business areas hence allowing them to counter the challenges that are posed by their aggressive business competitors.
According to Lall (2008, p.1), another way of creating an effective supply chain is through ensuring an effective management of procurement processes. He notes that effective procurement procedures allow various supplying agencies and companies to continuously supply their products and services in adequate and appropriate manner. Lall (2008, p. 1) also argues that procurement processes must seek to reduce the number of middlemen any company uses to supply its products to the market. He also observes that a buyer can play an important role in creating cost effective supply chains through the management of product’s information during the procurement. According to him, sensitizing the cordial business relationship between buyers and suppliers during the product’s supply chain process can help in creating awareness of each stage of the supply process. This can thus enable the companies to greatly reduce the time cycle and cost of the products that they might experience in the process of supplying their products.
On their approach, Monczka, Landfield & Guinipero (2008, p.7) start by noting that managing the purchasing system not only helps in improving the quality of the products, but it also enhances cost effective supply chains. In their contribution they point out that companies which are able to effectively manage their procurement procedures have been able to acquire quality raw materials and services that in turn improve their productivity. Inman (2011, p.1) notes that procurement management has been possible through the creation of external supply chains that enable the companies to directly purchase most of their raw products. This has helped in lowering the cost of purchasing power thereby enhancing cost effective supply chains for their products.
Another important concept that helps in creating cost effective supply chains is the management of the supply chain. According to Hugos (2011, p.2), any company’s supply chain involves various undertakings which ranges from its internal operation to its market influence. At each stage of these processes, funds are required to carter for the subjected operating costs that are incurred. This means that if not managed, companies can incur high cost of supplying products. Fugate (2006, p. 1) points out that management of supply chains which entails various strategies that are implemented to enhance the supply chain can be implemented to reduce the associated cost. This strategy incorporates programs which capture the company’s manufacturing and purchasing processes as well as its business networking (Fugate, 2006, p.1).
One of the supply management strategies that have been employed to create cost effective supply chains is the utilization of digital technology. According to McCarthy (2005, p.4), companies have taken advantage of the digital technologies and designed programs that have enabled them not only to manage the production cost, but also to enhance cost effective supply chains. Raab (2009, p.2) points out that these programs have been designed to promote direct business operations between the suppliers and the customers. This has allowed the reduction of the effect of middlemen that normally affects the cost of the products.
For instance, Sarac (2010, p.77) points out that the invention and utilization of the Radio Frequency Identification (RFID) technologies by various companies have improved their management of the supply chain. She notes that through these technologies companies have been able to reduce business risks that they incur during their trading. According to Ustundag (2008, p. 29), the RFID technologies have not only help to reduce inventory business losses incurred during products supply but have also increased the efficiency and speed of the trading processes. Erkan & Sinan (2011, p. 53) note that RFID technologies are primarily helpful in the identification of various factors that impact negatively on the supply chain performance thereby affecting both the cost and efficiency of the supply chains.
According to Lall (2008, p.2), the utilization of technologies has improved the management of business inventories in the supply chain. He points out that every stage of supply chain encompasses the product’s inventory which in turn affects the efficiency and cost of the supplying process. McLaughin, Madan & Gunasekaran (2003, p. 69) argue that another approach that can be utilized to make the supply chain more efficient is therefore to make use of various technologies that can increase the movement of products thereby reducing the time cycle of products. For instance, Lall (2008, p. 2) notes that technologies enhance vendor-management inventory (VMI) that reduces the number of product storage location hence reducing the cost incurred during the movements of products.
Claassen & Raaij (2010, p. 406) also point out that the technology’s effect on vendor-managed inventory (VMI) have not only called for the importance of effectively locating products near to the buyers, but it has also addressed the need of effective products’ classification methods. Inaccurate classification of products, especially during marketing, has adversely affected the cost of incurred in supplying products by companies. Thus VMI has helped in maintaining and controlling products in terms of the level of quality which in turn has enabled the pricing of products (Lall, 2008). He notes that some products have performed poorly at the market since their price tags do not match their quality level. Thus effective categorizing of products enhances the supply methods which in turn deduce cost effective supply chains.
According to Edie & Brady (2011, p. 1), engaging in effective products’ distribution outsourcing is a key to the creation of cost effective supply chains. They point out that today’s business challenges have impacted negatively on existence and sustenance of various companies. In addressing such challenges, most companies have partnered with other highly developed companies to improve their productivity and counter the aggressive competitors at the market level. However, Edie & Brady (2011, p.1) argue that creating cost effective supply chain is not guaranteed by business outsourcing but rather can be enhanced if effective supply chain partnership is adored.
Anderson (2011, p.1) also observes that most of the world leading companies have enhanced good business partnership with their business outsourcers especially during their products distribution. According to him, this has enabled them to create cost effective supply chains. He points out that the good business partnership has enabled most companies to contract some of their operations such as product’s processing to other companies at efficient operating cost. This has in turn enabled these companies to lower their products’ supply cost thereby creating cost effective supply chains.
Transportation is another factor that has widely affected the cost of the supply chains. Identifying the role played by transportation in creating an effective supply chain, Lall (2008, p. 3) points out that transportation has been the determining factor of the cost of the supply chain. This means that companies can create cost effective supply chain only if appropriate transport systems are engaged. For instance, he points out that applying cross-docking techniques in the transport system reduces the transportation cost that in turn reduces the cost incurred in supplying the products. He explains that cross-docking allows the distributing trucks to load a variety of goods from different suppliers and transport them to various retailing centers thus reducing the cost of transporting each supplier’s goods at a time.
In addition, Wilding (2008, p.1) agrees that selecting and operating under low cost modes of transportation can enhance cost effective supply chains. He emphasizes the need for transportation planners to utilize various software programs that can help in designing transport systems that optimizes the supply of products while also seeking to minimize the cost of transportation. For examples, companies can install the satellite based programs that can enable them to assess adequate transportation routes. This will reduce the transportation cost while also helping to maintain the products’ supply chain.
On the other hand, Cao & Zhang (2011, p. 163) point out that the effective business collaboration, especially in supply chain, has enabled most of the businesses to excel even in stiff competing environment. They note that encouraging collaboration in the supply chain helps the stakeholders to jointly coordinate and plan for the supply process. According to him, it is during such processes that new and effective supply chain procedures that are cost effective can be invented. According to Chen & Hong (2006, p.1), most companies have used various systems in devising methods of encouraging collaboration in a supply chain. A good example is the use of CPFR systems that enable various supplying chain agents to share various supply information.
Moreover, Tsai (2006, p.2) points out that encouraging collaboration in supply chain enables the company to expands its activities to various areas. He notes that this not only increases the company’s annual return but it also creates cost effective supply chain as the company is able to bring its products near to the customers. This reduces various supply chain inventory barriers that normally affects the cost of supply chain.
It is therefore clear that for any company to excel in today’s competitive market, the companies have to put a number of measures in place to enhance the effectiveness of their supply chains. In the current technological age, for example, effective utilization of the digital technology is essential in enhancing business operations thereby reducing the cost incurred in the supply chain. However, it is also evident that for an effective supply chain to be realized, companies must incorporate appropriate measures in their supply chain management. Such measures should focus on all the levels of the supply process. Finally, the write up has emphasized the need to encourage collaboration in supply chain as it helps in improving effective supply procedures that in turn result in cost effective supply chains.