Supply Management Tools

Abstract

The term supply management as key value-adding function replaces old definitions of procurement or purchasing (Helmold & Terry, 2021). This definition is in line with Porter’s description of value chains (Porter, 1980). A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product, service for the market. The concept comes from business management and was first described and popularized by Michael E. Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance in the upstream supply management or the supply side. Figure 9.1 displays the operations, the upstream supply side (supply management) and the downstream supply side (customer or demand side side). In Porter’s value chain framework (see Fig. 9.2), Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, and Service are categorized as primary activities. Secondary activities include Procurement, Human Resource management, Technological Development and Infrastructure. As many companies have external value chains (purchase of goods, services) of more than 80%, supply management has here the most significant role in any enterprise. In many enterprises, functions are still working independently from each other, leading to a large amount of waste and inefficiencies. Many industries are currently faced by fierce competition. This is forcing manufacturing companies to concentrate on core competencies and to transfer the production of components, goods and services to external suppliers (Helmold, 2021). The number of value-adding activities has decreased constantly and now lies between 10% and 30% in this industry (Dyer, 1996). The company Apple has no production and decided to outsource the manufacturing of iPads or iPhones to the company FoxConn. Such a development has had a great influence on the structure of supply chains and supplier relationships. Supply chains (the terms “supply chains” and “supply networks” are used synonymously in the literature) have become more complex and international, as pointed out by several authors Christopher and Peck see the level of complexity increasing in the upstream supply chain management of manufacturing companies in many industries, a trend which is characterized by the growing transfer of activities to suppliers and supplier networks, high numbers of supply chain layers (tiers), and the ongoing globalization of supply chains (Christopher & Peck, 2004). As a consequence, vulnerability and risk exposure have risen significantly. The rapid increase in supplier activities therefore directly affects supply management, as emphasized by Emmett and Crocker (2009). In recent years, many companies have reduced their value-adding activities and implemented efficiency-oriented cost reductions, e.g. outsourcing, single sourcing, low-cost country sourcing, platform concepts, lean management, design-to-cost approaches (Gürtler & Spinler, 2010). Supply Management has become more important in core and peripheral business areas and is aimed at building resilient supply chains. Resilience is based on being able to anticipate, manage and prevent supply chain disruptions at an early stage (Christopher & Peck, 2004). On the other hand, supply risks have risen due to increased dependency on supplier networks (Kersten et al., 2008). Figure 9.1 depicts the supply chain including the supply management phases. Resilience means the optimum levels of quality, cost, delivery and alpha objectives (Helmold & Terry, 2021).

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Peter Drucker