SCM - Ship management perspective

Topics: Supply chain management, Transaction cost, Management Pages: 6 (1941 words) Published: December 25, 2013
Supply Chain Management: Assignment

K Line Ship management (KLSM) is a ship management company located in Singapore and involved in the technical management of a fleet of 30 container and tanker ships. It is a fully owned subsidiary company of K Line in Japan and all the ships managed by KLSM are owned by its parent company in Japan. Technical management activities include provision on crew members to man the ships, implementing and maintaining safety and quality management systems on board the vessels, maintaining safe and satisfactory vessel operations and maintenance of hull and machinery on board the ship. The company is involved in procurement and supply management of various goods and services including stores, spare parts, bunkers, food and beverage, manpower etc.

One of the major functions of the company is the maintenance of hull and machinery of vessels under its management. Technical superintendents are responsible for the maintenance matters on board their controlled ships whilst managers are responsible for formulating and overseeing policy making and implementation. A major part of maintenance involves the supply of stores and spare parts to the vessel. Each ship is fitted on board with a large number of complex equipments and machinery manufactured by hundreds of different makers and thus spare parts lists for all the equipment and machinery on board, runs into hundreds of pages. With the life of a ship being 20-30 years, several of these equipments/parts become obsolete and even OEM’s close shop during such course. Procuring spares and delivering these on board ships (in good time) that are trading worldwide thus becomes a great challenge for the technical department and in turn for the company.

Presently the responsibility of procuring spare parts for each vessel lies with the technical superintendent in charge of the vessel. An admin lady assists him in this work. The technical superintendent, who is responsible for the smooth running of the vessel and its machinery, spends a majority of his time in such procurement and supply issues. It might be a good idea to outsource this function to another department or to another organization altogether. This would free up the technical superintendents time to work on more critical operational and technical issues where his expertise might be better utilized and also perhaps make the procurement and supply management more efficient and organized. The decision to make or buy could be critical and various factors must be considered.

Transaction Cost Economics is a central theory in Strategy. It addresses questions about why firms exist, how firms define their boundaries, and how they must govern operations. Transaction cost economics suggests that the costs and difficulties associated with market transactions sometimes favor hierarchies (or in-house production) and sometimes markets as an economic governance structure. An intermediate mechanism, called hybrid or relational, between these two extremes has recently emerged as a new governance structure.

Coase (1937) defined the term transaction costs by asking two fundamental questions: “Why is there any organization?” and “Why isn’t all production carried out by one big firm?” Reason is that there are transaction costs that determine what is done in the market, with price as the regulating mechanism, and what is done inside the firm, with bureaucracy as the regulator. Within this framework, all transactions carry a cost, either as an external market transaction cost or an internal bureaucratic transaction cost. The limit to the size of the firm is reached when the costs of organizing additional transactions within the firm exceed the costs of carrying out the same transactions through the market (Coase 1993). The most important market transaction costs are the cost of determining the price of a product or service, the cost of negotiating and creating the contract, and the cost of information failure....

Bibliography: Kraljic, P. (1983) “Purchasing must become supply management”, Harvard business review
Cousins, Lamming, Lawson & Squire, “Strategic Supply Chain Management – Principles, Theories and Practice”
Ronald Coase (1937) “The Nature of the Firm”
Paul Cousins (2006) “Developing Collaboratively Competitive Inter-firm Business Relationships”
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