Supply chain management (SCM) is broad focused management that puts into consideration the combined impact that all the companies that are involved in the production process of goods and services has on the overall operation of the company. The impact affects all sectors ranging from the suppliers, wholesalers, retailers, final consumers and even beyond to disposal and recycling. The use of the approach of supply chain management often assumes that the management of the production and logistics of the company involved in the process of supplying or delivering of goods to the consumers forms a part of a network, a supply chain or a pipeline. The concept of supply chain includes all the processes that are involved in ensuring customer satisfaction and it encompasses almost everything ranging from determination of products that they often buy how the company will produce them as well as the method of delivering the processed and bought goods to the target customer (Karp, & Hanan, 1991).
The philosophy of supply chain ensures that the right products are delivered to the customer at the right time for an acceptable price and delivered at the desired location. All the companies that practice the concept of supply chain management often report significant cost as well as cycle time. A supply chain that is focused in customer should involve lowering of the consequences costs along the entire chain by focusing on added value while driving way unnecessary costs. Through the supply chain efficiencies must be improved, and setbacks removed while measuring the performance by focusing on total efficiency as well as maintaining an equable reward distribution for all in the supply chain hence adding value. Basically the supply chain should be responsive to the requirements of the customer (Hayes, 1998).
Importance of supply chain management
Supply chain is very critical in success of any company as well as promoting customer satisfaction. The social supply chain also plays critical role in the society as its capabilities can be used to support medical missions, conducting of disaster relief operations as well as other types of emergencies. The supply chain management also serves to influence cultural evolution hence improving the life of the people in the society (Hill, & Alexander, 2006).
Applying supply chain helps improve the financial position of the company by increasing profit leverage through reduction and control of supply chain costs increasing the firm's profits. Also it help decrease fixed firms assets by decreasing the use of the larger fixed assets like plants, warehouses as well as the transportation. In addition to that it increases the firms cash flow by speeding up the product flows to the customers.
The use of supply chain by a firm also helps in boosting the customer serve through the assortment of the right product and quantity which customers expect as part of the deal, promotes location of the right stock hence deliverance to customers at the desired location, enhances delivery of products to customers at the right time and finally ensue that customers are provided with the right after sale support like maintenance.
Other benefits of supply chain to the firm include reduced operating costs which are attained through decreased purchasing cost as suppliers deliver expensive products quickly as possible hence avoiding the costly inventories, also realized through decreased cost of production cost as the supply chains deliver the raw materials and assembly parts as quickly as possible to the firm hence avoiding the material hostages which threaten the normal operations of the firm and finally decreased cost incurred in the total supply chain as supply chain mangers design networks that serve to meet the goals of the customer at a least cost hence making them efficient increasing the competitiveness of the firm in the market place.
Fiat auto spa is a European volume car maker with its production facilities on the joint venture in countries like Italy, Poland, Brazil and Turkey. Fiat is an automobile and engine manufacturer as well as a financial group that is based in Turin in the region of Piedmont Italy and was founded in the year 1889 by group investors. In the year 2009 the company was ranked as the world's ninth largest car maker and the Italy's largest car maker Rao, & Allen, 2000).
The company's total output derived from the joint venture is about two million cars of which one and half million of the cars being produced in Italy and most of them being produced in Europe.
The purchasing behavior of modern customers has drastically changed due to changing preferences especially those related to demographic factors like age, gender and financial status. Customers needs have therefore been constantly shifting hence affecting the effectiveness of the existing models of the supply chains used by many companies in the modern world market. For company's to keep abreast to the adverse competition that increased I the globalized markets, they have to constantly keep restructuring their models of supply chains in order to promote customer loyalty while in expanding its market base through attraction of the potential customers (Copacino 1997).
For instance the Italy's Fiat Auto recorded an immense less of two billion euros in the year 2002 and made financial experts to even speculate on its impending bankruptcy but made strategic objective of solving the town trend which yielded reverse result a by the company recording a trading profit of more than one billion euros in the year 20008 which is a three billion turn around in just six years.
Challenges facing the Fiats' supply chain managers
There are various factors that have led to consumers change their purchasing trends. These include: High cost of supplying products: the decreasing amount of profits from the business transactions for various reasons like stiff competition and changing consumer purchasing trends has led high costs of supplying the products especially with regards to the longer chain of supply that is involved right from production to after sale support of the company products. Due to the high competition the value of the products have remained high despite the lower prices offered by the competitors hence lose of customers (Mentzer, 2001).
Stiff competition from competitors: as a result of globalization and increased use of internet in conducting business transactions has led to acute competition on the company products hence decreasing sales. Competitor companies like the General Motors. BMW ,Ford and Volkswagen has intensified their marketing strategies that have served a great deal in increasing their dominance and presence in the global motor market place thus enticing some consumers hence reducing the numbers available for the Fiat motor industry. Stiff competition has therefore affected the trend of consumers purchasing as more models of cars from other companies have flooded the market leading to losses as profits decrease increasing the costs incurred in the supply chain.
Inexperienced haulier workforce: the company has been trying to increase its profits by changing its supplying chain through employment of low cost suppliers for instance of services offered by brokers to supply its products instead of the costly suppliers. This has led to brokers using inexperienced workforce in their operations like hiring inexperienced drivers who incurring a lot of damages on the firm's products before delivery hence creating a negative attitude by consumers towards the firm's products. For instance damage cause on hauling reduce the quality of the cars delivered while at same time exposing them to safety risk especially from the damages done o the cars. This has been a problem on the firms supply chain which instead of gaining from it has led to loss of revenues through reduced customer base especially in the United ate and Australian markets.
Model of supply chain
The best model that the Fiat Company should adopt o ensure that it meets the changing need of its customers is as follows: First it form a cross-functional team that will dealing with the valuing the company's global supply chains and it should include all the internal as well as the external parties that are affected by the business operations. Such team formed is liable to change as development and the implementation progress proceeds (Cochran, 2003).
Secondly the company should identify the needs and opportunities critical for the transformation of the supply chain and it includes determining the requirements that the supply chain should meet, defining the main components like chain planning, event management, order demand capture, sourcing, trading exchanges, supplier collaboration, content management, procurement, commodity team, market places, fulfillment, order management, logistics, movement of goods, procurement, customer analysis and merchandise returns all of which operational dimensions of supply chains should be identified, put into consideration and included in the value determination, assessment of the current status, requirements and the potential improvements of the supply chain (Hugos, 2006).
The model also involves determination of the commodity or services priorities for the effects of globalization with considerations based on the needs and opportunities. Managers should also determine the potential markets and suppliers through comparisons as per the markets, supply chain and suppliers arrangement. An evaluation or qualification of markets as well as suppliers should be carried out in order to identify the supplier pool i.e. total likely cost of ownership and the potentiality to meeting or exceeding the model expectations and requirements.
This model also involve determination of a selection process for the suppliers through bidding, request for proposal, past performance, negotiation, point system and reverse auction, followed by selection of suppliers or confirmation of the current ones, then formalization of the agreements with the selected suppliers concludes the process ushering in the implementation of the agreements of the model which is subject to monitoring, evaluation ,review and revision of the model if need to arises in the future (Chopra, & Meindl, 2007).
The problem if reduced revenues resulting from declining customer base cab be corrected if the company's supply chain managers can put an effort both in decision making as well as proposing for increased funding to reclaim its past glory. If the model described above if considered and implemented with utmost attention it requires then the company will be able to realize an increase in its revenues through satisfied customers who then become loyal while improving the image of the company hence realization of its business goals and objectives.