3. Chapter 3: Literature Review
3.6 Supply Chain Management
Supply chain management (SCM) has influenced the way organisations structure their procurement functions taking into account integration as well as issues of supply and demand management, which assist in creating value that will increase customer satisfaction, particularly in public sector organisations (Ambe and Badenhorst-Weiss, 2012).
The business literature term used for control of information, finances and materials while in the process of move between supplier, manufacturer, wholesaler, and retailer and eventually to consumer, is supply chain management (SCM). The supply chain terminology seeks to explain that prior to goods and services being delivered to the relevant stakeholders (citizens, businesses or taxpayers) they pass through numerous companies. The Council of Supply Chain Management Professionals (CSCMP, 2007) submits that "Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. It also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers." When linking the above to functions it means that all functional departments get involved in supply chain management thus placing a greater focus on relationships and activities.
48 Supply chain management is defined by Hadfield (2011), as the achievement of maintainable inexpensive benefit and growth of customer value through dynamic management of supply chain activities. It arises from continuous effort by government supply chains departments to improve and maintain supply chain functions in an efficient and effective way. Supply chain management includes purchasing, strategic sourcing, logistics, development of product and systems required to manage such activities.
Effective financial management is dependent on economical, effective, efficient and timely objectives achieved by the organisation (Abedian, 1997 as cited in Mathiba, 2011). Government’s system of integrated supply chain management is regarded as one of the significant improvements towards sound management (National Treasury, 2004). The conventional way of purchasing has changed; the focus is more on demand plan, strategic sourcing and total spent (Bowersox, Closs & Cooper, 2007).
There is a great need for government organisations like SARS to adopt integrated supply chain management in order to take their procurement function to another level.
Supply chain management in the public sector provides a framework of reference for public sector multilevel and supply chains networks composition (Migiro & Ambe, 2008). Normally, higher productivity, lower costs, shorter lead times, greater customer loyalty, higher profits, greater agility, and lower inventories are benefits of effective supply chain management (Stevenson, 2009). Public institutions that do not implement effective supply chain management lose out on these key benefits.
The Office of Government of Commerce, UK, (2005) report of 2004 issued by the Public Accounts Committee, called ‘Improving departments' capability to procure cost-effectively’ indicates that most non-departmental public bodies, agencies and departments suffered a lack of assurances regarding the resilience and reliability of their important suppliers’ subcontractors. Only 17 percent of them considered analysing supply chains of their suppliers as part of the process of selecting them (Ambe and Badenhorst-Weiss, 2012).This highlights the fact that organisations that do not adopt supply chain practices are exposed to more risks than those who practise supply chain management.
49 Government entities that modernise and streamline their supply chain can benefit from substantial time improvements and cost savings (Gansler, Luby Jr and Kornberg, 2004). This view is echoed by Essig & Dorobek (2006) who submit that there has been an improvement in secondary inventory management and greater optimisation of logistics support owing to the critical role played by government supply chain management (Ambe and Badenhorst-Weiss, 2012). It is therefore essential that the public sector examine and implement better ways to source, plan, pay for or move services and goods.
The introduction of procurement reforms has brought much transformation to the supply chain of South African government. The implementation of these reforms began in 1995 and had a main focus area, which was to address objectives of socio- economic policy through the introduction of a preference system and promotion of good governance principles. Supply chain management is an essential element of South African public financial management. It addresses government’s policy objectives of preferential procurement and presents internationally accepted principles of best practice (Croom and Brandon-Jones, 2005). The intention of supply chain management is to add value at each process stage; starting with demand management of services and goods, to acquiring the goods, logistics management processes, to usage and finally disposal. Consequently, it resolves weaknesses relating to current procurement practice, obsolescence planning, asset and inventory control, and contract management (National Treasury RSA, 2003;
Mkhize, 2004).
Ambe and Badenhorst-Weiss (2012) argue that a growing effective use of SCM contributes to a broad programme of improving value for money and increasing the efficiency of government entities’ commercial activities by stimulation of increased efficiency in supplier management and promotion of competition across a wider base of supply.
Economization effects and reduction of cost can be achieved through a well devised supply chain control (Jehle, and Schulze, 2002). Supply chain management assumes a strategic planning role which includes consideration of government and public action strategic objectives, and long-term effects i.e. multi-level network outcome (Thom & Ritz, 2000).
50 Despite benefits highlighted in this chapter, Mathee, (2005), Ambe, (2006), van Zyl, (2006), and Migiro & Ambe, (2008) submit that supply chain management practices and effective implementation are not yet at acceptable levels. The biggest contributing factor to this is lack of people who possess necessary capacity, knowledge and skills to be able to implement supply chain management effectively in many departments as per the SCM policy requirements. It must be noted that
"procurement is a crucial central element of SCM" and supply chain management includes "all functions throughout organisations, from marketing and production to procurement" (Mason-Jones, 2004:83). Government organisations like SARS can experience more benefits by establishing full supply chain management function.