Integrating beyond buyer-seller interfaces and their effects on overall performance

The advent of information technology (IT) and today's unpredictable and unforgiving business environment has enticed many 'best-in-class' manufacturers into adopting supply chain management (SCM). The SCM involves a set of several independent organisations, including the logistics service provider, responsible for moving materials from the point of origin to the point of consumption. The materials cost often comprises a large portion of the total cost of manufacturing. However, management of the large numbers of different levels of suppliers is frequently difficult and complex.

This project proposes a five-stage framework. Within this framework, it discusses the process whereby an organisation creates a paradigm shift towards a new culture of directional SCM, called Directional Supply Chain Management (DSCM), which is the main theme of this project. It allows an organisation to utilise a common logistics service provider (CLSP) for all members along the supply chain and provide direction to them. DSCM uses technology to monitor variability and complexity, to decide on the right courses of action, and then to act rapidly on those decisions so that the business can better keep its promises to customers and deliver the right product, at the right price, at the right quantity and at the right time.

The use of such a technique, successfully implemented in the case study, enabled the company concerned to reduce its material cost from US$36,344/machine in the period July - September 2003 to US$30,256/machine in the period October - December 2005, with different amounts for each quarter due to different sales volumes, translating into an overall total saving of US$7,134,000 over a period of ten quarters (or savings of US$2.854 million per annum). The guidelines proposed in this study for DSCM can help other companies reduce their costs and increase responsiveness to improve overall performance.

On the basis of the literature review and case study, a questionnaire-based survey was formulated to investigate contemporary practices and concerns regarding DSCM. A general conclusion is that all of the significant DSCM practices positively impact on performance.