Agriculture Reference
In-Depth Information
Importance of supply chain management
Some companies such as Wal-Mart have made supply chain management the cornerstone of
their total business strategy. Its increasing importance has also motivated agribusiness fi rms
to restructure their organizations creating supply chain management departments whose
manager reports directly to the company CEO. But why is supply chain management so
important?
Three examples show its importance to a company's total profi tability and success. First,
take the critical function of inventory control—just one part of supply chain management.
Inventory typically represents 35 to 50 percent of the current assets in a company. With such
a signifi cant share of assets, decisions about how to best manage inventory play a critical
role in the total profi tability of the agribusiness. Other supply chain functions involve pur-
chasing inputs for use in production, coordinating the smooth production of goods and serv-
ices, determining the appropriate levels of inventory, and probably most importantly, serving
as the linkage between the agribusiness, its suppliers, and its customers. This last set of func-
tions involves distribution of the agribusiness fi rm's products and services.
Second, increasingly industry sectors have come to understand the importance of col-
laboration. One important food industry concept of supply chain management is a business
strategy called
Effi cient Consumer Response (ECR)
(Food Marketing Institute). ECR is a
responsive, accurate, information-based system that links food manufacturers and distribu-
tors with retail supermarkets. The four aspects of ECR include:
•
Replenishment of products as they are used
•
Providing the right assortment of products
•
Introducing new products
•
Developing effective promotion strategies
The benefi ts of ECR are increased sales, fresher products, less damage, reduced cycle time,
more accurate invoicing, increased cash fl ow, and fewer instances of out-of-stock products.
For the production agriculture sector, AgGateway has similar aspirations.
A third reason logistics has become important is a concept called
cycle-time-to-market
.
Also called “quick response,” cycle-time-to-market has become a central strategic focus for
many agribusinesses. The goal is to reduce the time it takes for a product to go from an idea
to a fi nished product in the customer's hands. To reduce cycle-time-to-market, a team of
sales, logistics, marketing, design, and manufacturing employees work closely together to
plan, design, produce, and market new products. Supply chain management plays a critical
role in reducing cycle-time-to-market by integrating suppliers into new product develop-
ment, thereby minimizing time and supplier production issues. Supply chain management
provides the equipment and information infrastructure beginning with suppliers and pur-
chasing, through production, and fi nally to the physical distribution systems. Many fi rms
have developed integrated information systems to reduce cycle-time-to-market.
Supply chain management objectives
Supply chain management, as it is defi ned today, is a relatively new fi eld of study which has
evolved dramatically in the past 40 years. In the past, agribusinesses narrowly focused their
efforts on the physical distribution of their fi nished products, attempting to optimize inven-
tory levels and reduce transportation costs.
