Change Management
Roles and Impacts of Strategic Supply Chain Management

Executive Summary

In this article, the many concepts and management philosophies about strategic supply chain management will be applied towards an automotive company from Malaysia, namely, Proton Holdings Bhd (“Proton”). The applications of supply chain management is particularly relevant for the company because as a manufacturing companies, the government-related automotive company is facing a higher production or manufacturing costs; while at the similar time, lower quality cars. Before the relevant suggestions on specific supply chain management strategies are discussed, the importance or roles of efficient and strategic supply chain management are illustrated. Then, viable recommendations on how the company should move forwards in the ever globalized and competitive world will be discussed. The impacts from following the recommended strategies will also be outlined. As a concluding remarks, the importance of supply chain management to Proton will be reiterate, and it is argued that without serious attention and efforts being paid to strategic management of the supply chain, Proton will never able to compete with other more powerful and reputable automotive companies around the world.

Introduction

Proton is the Malaysian government linked automotive company, which is struggling hard due to intense competition of the global automotive industry, despite the company is obtaining a lot of governmental protection and supports in the past (Chacko, 2006). There are a lot of issues faced by the company, in which if unsolved, may threaten the long terms growth, profitability as well as survival of the company in the ever challenging industry and globalized world. Firstly, the company is too small in scale, if compared to other big automotive and established multinational corporations such as Toyota, Honda, Ford, General Motors and etc (Ahmed et. al., 2008). This is causing the company to lose out in terms of economies of scale. Secondly, the company is not having efficient and high quality management of supply chain management practices. As such, the costs of every vehicles produced by Proton is costly (Economist, 2005), and worst, the quality is significantly below average when compared to other leading automotive (Burton, 2005). Thirdly, in the increasingly globalized world, there are talks that Malaysian government is forced to provide lesser support to the company in the future, while ASEAN free trade agreement is forcing the government to lower the tariffs upon imported cars (Jayasankaran, 2004). Apart from that, the company is also struggling to return to profitability, after years of financial losses (Burton, 2007).

A viable and strategically relevant supply chain management for Proton is urgently needed, considering so many unfavorable factors threatening the survivability of the company in the future. In fact, in the ever globalized and competitive business landscape, competition is no longer between companies or corporations, but between supply chains. In order to lower the costs while at the similar time improving the quality of products produced by Proton, the management shall look seriously into viable supply chain management strategies and techniques for growth, profitability, and ideally, successful global expansion in the future.

Roles of Strategic Supply Chain

There are many important roles of an efficient supply chain for any organization. In fact, particularly in the automotive industry, the management of supply chain is often the source of competitive advantages for an automotive company (Tippayawong et. al., 2010). Firstly, an efficient supply chain enables a company to lower the production costs. This is because all of the unnecessary wastes can be eliminated through the continuous improvement process. Then, when the supply chain had been optimized (Quah et. al., 2010), the production process can be streamlined and the many procedures and process in the value chain can be adjust accordingly. Setup time can be reduced, and thus, the time taken for the production of every unit of vehicle can be shortened. In the context of the automotive industry, this means that every different car models can be introduced to the market at a shorter time frame. Thirdly, when the supply chain is optimized, the many defects or production problems can be identified, as the manufacturing process is lean (Bonin et. al., 2010). All these mean that the quality of the end products can be enhanced. In other words, with an efficient supply chain, Total Quality Management in an organization is possible (Vanichchinchai et. al., 2011). Fourthly, the inventory level in an organization can also be reduced. Consistent with that, the storages costs can be minimized, and that would means higher profits or returns for the shareholders or more capital for reinvestment in the company in the future. Lastly, the adoption of strategic and efficient supply chain managements means the adoption of many state of the arts management philosophies, such as lean manufacturing, just-in-time, continuous improvement, kanban, kaizen, and Total Quality Management (Mann et. al., 2010). All of the concepts and philosophies are crucial to enhance customer satisfaction, and in the long run, enable a company to build up strong reputation and brand name in the competitive industry landscape (Khan et. al., 2010). In the long term, a successfully and efficiently managed supply chain will enable a company to attain competitive advantage as well as growth and profitability in the future.

Recommendations

A review of the Proton situation found that the company is seriously losing out from both the costs and quality factors when compared to the larger automotive manufacturers. However, the single advantage of the company is its ability to obtain protection from the Malaysian government. From the strategic supply chain management context, there are three options for the company, which include: low cost strategy, responsive strategy as well as differentiation strategy. Among all of these strategies, only the low costs strategies are viable, because the company is seriously lacking of technical competencies when compared to the other well-established manufacturers. Although low costs strategies may not enable the company to compete with the cost structure of the bigger manufacturers with truly efficient supply chain and economies of scale, the company does have certain advantages. For example, due to geographical factors, the company can aim to serve the low costs segment of the South East Asia countries.  As such, it is argued here that Proton should apply low cost strategies to prepare for potential pricing competition from other auto manufacturer when the Malaysian government reduces the tariffs or quota for imported cars into the country.

In order to apply a low cost strategy, it is crucial for the company to choose the most efficient suppliers for the vehicles parts. In order to do this, it is crucial for the company to choose the most reliable and lowest cost suppliers for the parts required in the car manufacturing process. Strong partnerships are important, and the suppliers must agree to adjust the process flow together with Proton so that truly efficient supply chain can be made. In return, Proton shall agree to long term sourcing for the few vital suppliers for vehicles parts in the future. Sharing of information is crucial and should be encouraged. All these are crucial for lowering the costs structure of the vehicles produced, while as the similar time, to reduce the inventory level across the supply chain.

The lean manufacturing or waste management philosophies should also be applied. Under such a theme, management should be aware on the wastes incurred in the manufacturing process, and through a customer centric paradigm, any non-value adding process or value offering should be eliminated. This is consistent with the low costs strategies to be adopted by the company. Besides, lean manufacturing should also be implemented for relevant cost reduction. The seven wastes concepts can be applied, whereby from time to time, the potential wastages can be analyzed and investigated. Employees shall be educated on how to reduce wastages in the corporations; and through the continuous efforts, cost savings can be tremendous.

Besides, consistent with the increasingly educated and environmentally conscious consumers, it is crucial for Proton to adopt green supply chain manufacturing practices. This can be crucial to improve the corporate reputations, as well as to exercise the Corporate Social Responsibilities in the context of CO2 emissions and containment of global warming issues. For example, the procurement, the logistics management as well as the product design should incorporate the useful ideas related to sustainability and green manufacturing practices. Creativity and innovation could be very important to define the value offering consistent with the sustainability and green movement (Mollenkopf et. al., 2010). One good example is the development of hybrid vehicles or petrol saving vehicles (Soylu et. al., 2010). Not only such products are beneficial to the consumers, they could be beneficial to the environment as well. Under the increasingly soaring oil prices in the recent years, it can be seen that the demand of hybrid, or petrol and energy efficient or savings vehicles are becoming more popular. Overall, by being innovative, and ability to deliver the environmentally friendly and yet costs savings vehicles to the market place, the company can slowly gain reputation as well as enjoy potentially positive financial rewards for the new and timely value offering to the marketplace.

Impacts of Efficient Strategic Supply Chain

From the applications of the recommendations suggested in the section above, the direct implication is that Proton shall be able to enjoy significant costs savings from a more efficient supply chain. The relationships with vital suppliers can be strengthened, whereby both Proton as well as the partners can be mutually benefited. From the lean manufacturing practices, extra financial resources can be churn out, and that will also prepare the company to face with increasingly competitive and pricing cutting business environment. Besides, the company can gain better reputation, as the costs are lower down, and the financial resources can be better spent on other areas, such a product and development, or marketing purposes. In the long run, the company will be able to return to profitability, and with stronger financial muscle, the company can then expand globally, to further enhance the economies of scale. By adopting the strategies mentioned above, it is also possible for Proton to derive better financial performance, such as higher return on equity, return on assets and faster payback period. Overall, the many shareholders can be rewarded. The growth of the company can be ensured and all these will enable to firm to survive in the challenging industry landscape even without government support in the future.

Conclusion

Overall, for Proton, and any other automotive companies, it is managerial imperative to adopt efficient and strategic supply chain management to become relevant and fit in the new era of globalization. The entire industry is in the mature stage, and companies shall adopt the best business model, by focusing on relevant supply chain management to compete with other networks of companies. The management concepts and philosophies of supply chain are well-recorded, and it is up to the management to find the best strategies that fit their organizational and situational context. The importance of an efficient and well-defined supply chain is nothing complicated to understand. As discussed above, the associated benefits from well-formulated supply chain include: lower costs, better product quality, better inventory management, better customer satisfactions, faster setup or production time, and in the long run, better reputation and enhanced brand equity of the organization in the marketplace. For Proton, all of these benefits are what the corporation required. There is no better way for the company to achieve these unless with serious attentions on how to make the concepts related to supply chain management work in the organization.

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