The effect of problems on supply chain wide efficiency

Abstract

For any business to compete successfully in the modern, globalised business environment, it needs to mobilise its suppliers and customers to co-operate in order to reduce unnecessary costs and inefficiencies between them and to ensure the best value for the final customer. The focus is on management of the supply chain as a whole (or a system) and maximum value for the final customer of the supply chain, instead of on management for the maximum benefit of one of the parties in the supply chain. If the supply chain is seen as a system of organisations with one aim (value for the final customer), it is logical that a problem in one part of the supply chain must affect the workings and efficiency of the system or supply chain as a whole.
This article reports on an exploratory empirical study to illustrate the effect of problems at one party in the supply chain on the whole supply chain. The study was done at automotive component manufacturers. To determine how problems at one place permeate through the whole supply chain, correlation testing was done between supply-side, internal operations, and distribution or customer-side problems. The study found that problems experienced at one place in the supply chain had a negative impact throughout the supply chain. Automotive supply chains should therefore be managed more as a system, taking into consideration the effect of decision making and actions at one part of the supply chain on other parts of the supply chain. There should be a supply chain wide co-operative effort to find solutions to inefficiencies at all places in the supply chain.