What is Supply Chain Management in Agribusiness?
“What is Supply Chain Management in Agribusiness?” is an important question in Agribusiness.
Supply chain management can be described as the management of the flow of goods and
services, starting with the origin of the goods and ending with the consumption of the
commodity. It also involves the movement and storage of raw materials involved in work in
progress, inventory, and items that are fully furnished.
Supply chain management’s main goal is to track and relate the production, delivery, and
shipping of goods and services. Companies with a very strong and tight grip on internal
inventories, manufacturing, distribution, internal development, and sales will do this.
Basically, supply chain management merges the management of supply and demand. In order to
view the entire chain and function successfully at each and every stage involved in the chain, it
uses numerous techniques and approaches. Each unit involved in the process must aim to reduce
costs and help businesses enhance their long-term efficiency, while at the same time generating
value for their stakeholders and clients. By eradicating the unnecessary costs, movements, and
handling, this method can also minimize the prices.
Supply Chain Management Advantages:
Supply chain management plays a very important role in this period of globalization, where
businesses strive to provide consumers with the highest quality goods and meet all their
demands. All businesses are heavily dependent on efficient supply chain processes.
The main advantages of management of the supply chain are as follows:
o Develops stronger support and customer relationships.
o Provides better distribution processes with minimal delay for goods and services in
demand.
o Improves production and corporate roles.
o Minimizes costs of warehouse and transport.
o Reduces direct and indirect costs.
o Helps to deliver the best goods to the right location at the correct time.
o Improves inventory management, supporting just-in-time stock models to be efficiently
implemented.
o Allows businesses to respond to the challenges of globalization, economic disturbance,
growing customer preferences, and associated variations.
o Helps businesses in the supply chain process in minimizing waste, cutting out prices, and
generating efficiencies.
Supply Chain Management – Goals:
o Every business aims to balance supply with demand with the most effective use of
resources in a timely manner. Here are some of the essential supply chain management
objectives:
o In order to optimize resource utilization, create streamlined processes, eradicate
redundant efforts and minimize inventory levels, supply chain stakeholders work together
at different levels.
o Minimization of supply chain costs is very important, especially when businesses have
economic uncertainty about their ability to save resources.
o Cost-efficient and affordable goods are important, but supply chain managers need to
focus on generating value for their clients.
o Exceeding the needs of consumers on a daily basis is the only way to meet them.
o Increased consumer demands for the greater product range, personalized merchandise,
inventory availability off-season, and fast delivery should be balanced at a cost
comparable to in-store offerings.
o Merchants need to use inventory as a common resource to fulfill customer needs and use
distributed order management technology to complete orders from the optimum node in
the supply chain.
Supply chain management helps to lead to an enterprise’s financial performance. It is targeted at
leading companies using the supply chain to boost differentiation, increase revenue and enter
new markets, in addition to all the points outlined above. The aim is to foster competitive
advantage and shareholder value.
Supply Chain Drivers:
Supply chain capabilities are guided by the decisions you make regarding the five supply
chain drivers. Each of these drivers can be developed and managed to
emphasize responsiveness or efficiency depending on changing business requirements. As you
investigate how a supply chain works, you learn about the demands it faces and the capabilities it
needs to be successful. Adjust the supply chain drivers as needed to get those capabilities.
The five drivers provide a useful framework for thinking about supply chain capabilities.
Decisions made about how each driver operates will determine the blend of responsiveness and
efficiency a supply chain is capable of achieving. The five drivers are illustrated in the diagram
below:
1. PRODUCTION
This driver can be made very responsive by building factories that have a lot of excess capacity
and use flexible manufacturing techniques to produce a wide range of items. To be even more
responsive, a company could do their production in many smaller plants that are close to major
groups of customers so delivery times would be shorter. If efficiency is desirable, then a
company can build factories with very little excess capacity and have those factories optimized
for producing a limited range of items. Further efficiency can also be gained by centralizing
production in large central plants to get better economies of scale, even though delivery times
might be longer.
2. INVENTORY
Responsiveness can be had by stocking high levels of inventory for a wide range of
products. Additional responsiveness can be gained by stocking products at many locations so as
to have the inventory close to customers and available to them immediately. Efficiency in
inventory management would call for reducing inventory levels of all items and especially of
items that do not sell as frequently. Also, economies of scale and cost savings can be gotten by
stocking inventory in only a few central locations such as regional distribution centers (DCs).
3. LOCATION
A location decision that emphasizes responsiveness would be one where a company
establishes many locations that are close to its customer base. For example, fast-food chains use
location to be very responsive to their customers by opening up lots of stores in high volume
markets. Efficiency can be achieved by operating from only a few locations and centralizing
activities in common locations. An example of this is the way e-commerce retailers serve large
geographical markets from only a few central locations that perform a wide range of activities.
4. TRANSPORTATION
Responsiveness can be achieved by a transportation mode that is fast and flexible such as trucks
and airplanes. Many companies that sell products through catalogs or on the Internet are able to
provide high levels of responsiveness by using transportation to deliver their products often
within 48 hours or less. FedEx and UPS are two companies that can provide very responsive
transportation services. And now Amazon is expanding and operating its own transportation
services in high volume markets to be more responsive to customer desires. Efficiency can be
emphasized by transporting products in larger batches and doing it less often. The use of
transportation modes such as ship, railroad, and pipelines can be very efficient. Transportation
can also be made more efficient if it is originated out of a central hub facility or distribution
center (DC) instead of from many separate branch locations.
5. INFORMATION
The power of this driver grows stronger every year as the technology for collecting and sharing
information becomes more wide spread, easier to use, and less expensive. Information, much
like money, is a very useful commodity because it can be applied directly to enhance the
performance of the other four supply chain drivers. High levels of responsiveness can be
achieved when companies collect and share accurate and timely data generated by the operations
of the other four drivers. An example of this is the supply chains that serve the electronics
market; they are some of the most responsive in the world. Companies in these supply chains,
the manufacturers, distributors, and the big retailers all collect and share data about customer
demand, production schedules, and inventory levels. This enables companies in these supply
chains to respond quickly to situations and new market demands in the high-change and
unpredictable world of electronic devices (smartphones, sensors, home entertainment and video
game equipment, etc.).
WHEN TO BE EFFICIENT AND WHEN TO BE RESPONSIVE
The table below summarizes what can be done to guide the five supply chain drivers
toward responsiveness or efficiency. Companies and supply chains continually adjust their mix
of responsiveness and efficiency as situations change.
Over the long run, the cost of one driver — Information — continues to drop while the cost of
the other four drivers continues to rise. Companies that make best use of information to increase
their internal efficiency, and increase their responsiveness to external supply chain partners will
gain the most customers and be the most profitable.
Efficiency is good — In the 20th century, efficiency drove economic growth. The push for
efficiency increased productivity and lowered the prices of products from automobiles to home
appliances thus making them available to a wide segment of the population. Yet efficiency
requires two things that are becoming much harder to find. The first thing is predictability. To
efficiently plan and manage production and distribution of products you need to know what the
demand will be for those products, and you need to know what the cost of raw materials will be
and what the selling prices will be for the products. Then you can optimize your operations to
produce the right amounts at the right prices and maximize profits.
Efficiency also requires one more thing — stability. You need to know that demand and prices
will remain relatively stable for some number of years (5 or 10 years or more). Because then you
can build factories and stores and transportation infrastructure to enable your efficient operating
model. Efficiency is best when producing relatively simple commodity products and
services that sell in more predictable and stable markets.
Responsiveness is better — In the 21st century, responsiveness drives the economy.
Responsiveness is what drives continuous innovation in products and technology and continuous
change in the ways we organize businesses and serve customers. The big companies of the 20th
century were efficient manufacturing companies (Ford, GM, US Steel, Kodak, Whirlpool etc.),
but the big companies of the 21st century are responsive service and technology companies
(Alibaba, Amazon, Apple, Facebook, Google, Starbucks, Tencent, etc.). All these 21st century
companies certainly need to be efficient, but their success is based mostly on their ability to
sense and respond quickly to changing markets and evolving customer desires. Lowest price is
not always the deciding factor in purchasing decisions. People want products and services that
respond quickly and meet their changing needs and desires.
Apple and Starbucks do not sell the lowest priced laptops or cups of coffee, nor does Porsche or
Tesla make the lowest priced automobiles, but as long as people value the quality and innovation
offered by those companies and others like them, they will pay more for their products. Home
delivery of everything from clothes to groceries costs a bit more, but people value and pay for
the responsiveness and convenience of those services. Responsiveness is best when
providing complex or unique products and services that sell in continuously changing markets
driven by evolving technology and new customer needs and desires.
