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The Impact of Supply Chain Management on Value Creation


Executive Summary

Purpose: Supply chains facilitate the movement of products from producers to consumers. However, these supply chains require progress towards efficiency that calls for effective management. The purpose of this report is to highlight how firms create value through supply chain management. The report explores the impacts of supply chain management on value creation

Scope: While this report explores the impact of supply chain management in value creation, the report will also highlight the challenge that firms face while trying to create value through the management of supply. The report will also recommend strategies for effective value creation through supply chain management.

Methodology: The report involves a systematic literature review where peer-reviewed journals and scholarly books will be used to collect credible information on supply chain management and value creation.

Findings: The report indicates that there is a close link between value creation and supply chain management. Customer and business value are principal qualities of a firm’s competitiveness with a customer value-based supply chain management producing competitive time and cost advantages. The report indicates that value-based supply chain management helps in addressing issues in information sharing, coordination and convergence during transfer and creation of value.

Recommendations: To ensure effective value creation, firms should integrate both supply and demand through coordinating the processes and activities reflective of a company’s value focus with the operational supply activities. They should maintain long-term collaborative relations with their customers, suppliers and other members of the supplier chain

Table of Contents

  1. Introduction………………………………………………………………………………….4

2.0 Discussion…………………………………………………………………………………………………………..4

……………………………………………………………………….42.1 Conceptual Background

2.2 The Supply Chain Management Concept…………………………………………………….5

2.3 Supply Chain Management and Value Creation…………………………………………..6

3.0 Implications for Future Directions…………………………………………………………………………..8

4.0 Conclusion and Recommendations………………………………………………………………9

5.0 Reference List…………………………………………………………………………………………..11


Novel value prospects suggest a bright future for supply chain management. The contribution of supply chain management to business value creation is a positive aspect for business sustainability and profitability. This requires supply chain managers to manage both down-stream and up-stream relationships. The value-creation engine for most modern organisations depends on supply chain management. However, only a few business professionals have recognised the importance of supply chain management in creation of value for business. In this perspective, it is important to explore the role of supply chain management in value creation as well as establish how firms create value through supply chain management. For instance, P& G CEO emphasizes the call for procurement to operate with suppliers to accelerate time to market and reap benefits from the innovative roles of suppliers to ensure business growth ( Hoek, Mena & Gattoma 2014). The focus of this report is on highlighting the major concepts of supply chain management that are essential in ensuring value creation besides highlighting the challenges and prospects that surface when firms integrate and improve their supply chain process from, producers, suppliers and consumers. Although effective management of supply chain promotes value creation, managing a supply chain does not involve a magic bullet. Instead, managing supply chain for the best of consumers and firms calls for multiple activities that include managing risks and demand for both investment and commitment. Firms are held accountable for incidents down-stream and upstream, hence a need for effective supply chain management.

  1. Discussion

    1. Conceptual Background

Globalisation and advancements in technology have brought about quite informed customers who expect firms to ensure customer value. Businesses in the modern world hold supply chains that drive the flow of information, products and services. Supply chains support movement of services and goods from the suppliers to the consumers. Although supply chains play a crucial role in ensuring consumer satisfaction and a firm’s productivity, these supply chains require effective management. In the contemporary globalised world, supply chain management plays a crucial role in the attainment of a competitive advantage. Supply chain management is a comparatively novel management concept and entails more that logistics and operations to include value creation for customers. Value creation is a major aspect that helps in attainment of a firm’s competitiveness. In the current marketplace, firms do not compete one-on-one, but do so through their supply chains. These firms create value through removing waste from their supply chain. Through streaming supply chain processes, using technology and establishing powerful relationship with suppliers, a firm attains profitability.

Drawing from Porter’s value chain blueprint, firms require to develop value that surpasses production costs of their services or goods to consumers. Maximising the activities in inbound logistics, operations, procurement, human resource management, technology development, service, sales and marketing is a key step to attaining a competitive advantage. Supply chain management is a principal process-improvement, revenue enhancing and cost-saving business policy. According to Oliveira and Gimeno (2009), supply chain creates value through cost reduction. Cost reduction is absolutely a crucial component of the supply chain management. With regard to Porter’s value chain, the elements of supply chain should undertake more activities that focus on creating valuing for consumers and business as product move along the supply chain. Firms can focus on value creation in order to gain competitive advantages.

2.2 The Supply Chain Management Concept

According to Vladmir (2011), the establishment of supply chain management topic rose in 1999. This topic has attained intense attention from researchers. Since 2006, researchers have become more concerned with exploring the topic of supply chain management. Kirovska, Josifovska and Kiselicki (2002) define supply chain management as the process of planning, executing and controlling the activities and operations of supply chain with the aim of meeting the needs of customers as effectively as possible. Supply chain management entails a set of perspectives used to effectively integrate manufacturers, stores, warehouses and suppliers so that products are developed and dispersed at the right time, to the right places and with the right quantity in order to reduce costs while meeting service level needs. Kirovska, Josifovska and Kiselicki (2002) further assert that supply chain management covers all the storage and movement of raw materials, finished goods and work-in process inventory from the origin point to the consumption point. The sub areas of supply chain management include planning/forecasting, procurement/purchasing, operations, logistics, transport, distribution, warehousing, inventory management and customer service. Although the management of supply chain differ with respect to internal and external parts of the chain, effective supply chain management should prompt substantial business improvements focused on growth of revenue, improved utilisation of resources and cost reduction.

    1. Supply Chain Management and Value Creation

Value refers to the trade-off amid the components received and the price. Value is an essential aspect in modern businesses. A firm has the capacity to create value for consumers and itself through taking part in value chain practices. To make sure that value is developed and attained by both consumers and businesses, the relationships in the supply chain must be reliable and cooperative. From an economic perspective, value creation involves resources used in business transactions and the resulting benefits. From economist, price is a prevalent value measure. From the perspective of management, value entails the desired upshots of a firm that uses its capacity to be competitive through the application of organisational, physical and human resources. Value creating practices focus on the manufacturing and operation activities of a company (Chen, Preston & Swink 2015). It is at this level that a product value is created thereby establishing activities that bring raw materials, change it to consumer products and taking them where consumer needs them.

The integration mode in the value chain affects business organisations in numerous ways as well as influences their competitive advantage sustainability. As firms compete for an extensive market share, they considerably focus on their core competencies in order to become customer-centric. This entails, among other components of business transformation, lowering costs. Lowering costs involves looking to the supply chain to promote the value created and augment efficiencies. Firms in all sectors are required by their stakeholders to show where they get their raw materials. The action taken following the disclosure and recognition influences the supply chain and enhances business and environmental performance. For instance, in Australia, MCA (Mineral Council of Australia) has established a blueprint that promotes value creation through sustainable development for mining companies (Richards 2009).

Notably, supply chain management is a crucial component in value creation. Kersten, Blecker and Ringle (2013) assert that supply chain management stemmed from an economic approach with the main goal of maximising profits and lowering financial risks. To promote value creation, most firms have recognised the need to establish more integrated and efficient methods. In this view, a long-term business sustainability calls for a coordinated approach in the supply chain where organisations create value in services and products through interlocking activities that include sourcing, distribution, manufacturing and warehousing (Stank, Esper, Crook & Autry 2012). The economic approach considers sustainability as the manner in which organisations can effectively use resources in order to be flexible in dynamic environment while consequently attaining the demands of consumers. From an economic perspective, the objectives of a sustainable supply chain management influence the selection of supply materials, distribution channels, packaging and manufacturing. The value-based supply chain management includes supply chain partners who work jointly to promote value of services and products (Madhani 2015). Depending on the heterogeneity in capabilities and resources, different partners in the supply chain create diverse amounts of value to end service or product. As a result, effective management of B2B relationships is essential as it instigates co-creation of value in the supply chain thereby promoting the economic sustainability of a business. However, effective value creation through supply chain management calls for transformation of the corporate cultures of the firms involved in the supply chains. Transforming firms’ corporate is one of the challenges that supply chain managers encounter because change in most cases can be resisted

3.0 Implications for Future Directions

Firms are under intense pressure to enhance supply chain management and performance given the increased competition and uncertainties in the contemporary business environment. Supply chain management is an essential element in attaining the needs of consumers and providing business value. The ability to ensure customer value and business value is enhanced through supply chain management. Drawing from Michael Porter’s value chain blueprint, firms do not involve isolated sets of functions, but rather comprise of chains of value-creating practices that help them to gain competitive advantages. These activities are tied together from a company backward to suppliers and forward to consumers. To ensure maximum value creation, firms disaggregates their activities, those of consumers and suppliers into a chain of interconnected value-creating activities. The effectiveness of supply chain management in value creation holds the potential to make firms to consider supply chain management as a strategic assert. Firms in future can create distinct supply chains that align with their strategic objectives, outsourcing strategy, operations strategy, procurement strategy and customer service strategy (Chae, Olson & Sheu 2014). To increase competitiveness, performance and efficiency, integration of supply chain and its effective management become an essential component of business in the competitive business environment. Firms need to equip their procurement, operations, transportation and logistics managers with the needed expertise in these supply chain units and understand and acknowledge how these units interact and affect value creation in the supply chain.

4.0 Conclusion and Recommendations

Today’s global and dynamic business place considerably demands powerful relationships among suppliers, consumers and other members of the supply chain to ensure smooth flow of products and information besides promoting value creation. Supply chain management centres on positioning firms in a way that all participants in the supply chain benefit through value creation. However, effective value creation and supply chain management depends on high trust, collaboration and cooperation levels and effective communication. The efficiency of supply chain determines value creation with supply chains holding a crucial role in augmenting a firm’s profitability. Customer value and that of a firm is created via cost-effective and efficient operations and management of supply chains. However, value creation calls for the coordination, integration and collaboration of a firm’s activities with those consumers and suppliers both upstream and downstream in the supply chain

While supply chain management allows firms to create value and realise competitive advantages of vertical integrations, certain conditions must be present for effective supply chain management. In this regard, firms must transform the corporate cultures of all the involved firms in the supply chain to make them conducive to supply chain management. However, transforming firms’ corporate cultures is a challenging tax. In addition, firms must extend supply chain boundaries from manufactures, suppliers to the consumers. They should also maintain long-term collaborative relationships with their customers, suppliers and other members of the supplier chain. Firms should implement effective strategies aimed at sustaining and obtaining a competitive edge

5.0 Reference List

Chae, B, Olson, D & Sheu, C 2014, ‘ The impact of supply chain analytics on operational performance: A resource-based view’, International Journal of Production Research, vol.52, no.16, pp.4695-4710.

Chen, D Preston, D & Swink, M 2015 ‘ How the use of big data analytics affects value creation in supply chain management’, Journal of Management Information Systems, vol.32, no.4, pp.4-39.

Hoek, R, Mena, C & Gattorna, J 2014, ‘ Mind the gaps: Exploring how value-creation perceptions across the internal triad influence identity and impact’, Journal of Business Logistics, vol.35, no.1, pp.44-51.

Kersten, W, Blecker, T & Ringle, C 2013, Sustainability and collaboration in supply chain management: A comprehensive insight into current management approaches, USA, BoD.

Kirovska, Z, Josifovska, A & Kiselicki, M 2002, ‘ Efficient management of supply chain in achieving a significant competitive advantage in the market’, Journal of Sustainable Development, vol.5, no.4, pp.5-22.

Madhani, P 2015, ‘ Demand chain management: Enhancing customer lifetime value through integration of marketing and supply chain management’, Journal of Business Strategy, vol.12, no.3, pp.7-26.

Oliveira, A & Gimeno, A 2014, Supply chain management strategy: Using SCM to create greater corporate efficiency and profits, UK, FT Press.

Richards, J 2009, Mining, society, and a sustainable world, UK, Springer Science & Business Media.

Stank, T, Esper, T, Crook, R & Autry, C 2012, ‘ Creating relevant value through demand and supply integration’, Journal of Business Logistics, vol.33, no.2, pp.167-172.

Vladimir, M 2014, Handbook of research on design and management of lean production systems, UK, IGI Global.