Understanding Supply Chain Management (SCM)

Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.

Supply chain management is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and high-performing business model. It includes all of the logistics management activities, as well as manufacturing operations, and it drives coordination of processes and activities with and across marketing, sales, product design, finance and information technology.

We can say that Supply chain management has following three major functions:

1-Supply of materials to a manufacturer

2-The manufacturing process

3-The distribution of finished goods through a network of distributors and retailers to a final customer. Companies involved in various stages of this process are linked to each other through a supply chain.

The more the companies within a supply chain are able to integrate and coordinate their activities, the more likely they'll be to optimize the flow of goods from supplier to customer and to react efficiently to changes in demand.

Goals of Supply Chain Management

Following goals can be achieved through successful supply chain management:

·         Inventory can be minimized

·         Costs can be reduced

·         Product time to market can be improved

·         Flexibility can be enhanced

Japanese manufacturing companies brought great emphasis to the area of Supply Chain Management in the 1980’s and early 1990’s. Awareness of Supply Chain Management tools such as “Just In Time” and “Kan Ban” spread rapidly and became globally accepted best practice amongst volume manufacturing businesses. At the same time companies like SAP and Oracle were developing the complex IT systems that would be essential for enabling large complex businesses to effectively integrate and managing the sub areas that combined to make complex supply chains.

Of course the elements of Supply Chain Management have always existed in business. What changed was the willingness of businesses to recognize the inter-relationship of the various sub areas, and to pursue the benefits generated through coordination and integration, both from a strategy / planning perspective and operationally.

Following are the sub areas of Supply Chain Management: Forecasting / Planning All business need to forecast and plan. To look forward and predict what will be required in terms of resources and materials in order to deliver their product or service to their customer in a timely manner. In this area we find activities such as demand planning, inventory planning, capacity planning etc. Purchasing / Procurement The commercial part of the supply chain is purchasing. It is also known as Buying or Procurement. This is where a business identifies suppliers to provide the products and services that it needs to acquire in order to create and deliver its own service or product. Costs and terms of business are negotiated and agreed and contracts created. Thereafter the supplier’s performance and future contractual arrangements will be managed in this area. This area of the business is sometimes referred to as purchasing, sometimes, procurement, buying, sourcing, etc. The difference between purchasing and procurement is largely theoretical. Business use both titles interchangeably for the two variations of activity. In its strictest definition purchasing is limited to the actual commercial transaction and no more, whilst procurement includes the wider elements of the acquisition, including logistics and performance management. Logistics In its strictest definition logistics refers to the movement of goods or materials, whether inbound, though, or outbound. In some manufacturing businesses forecasting and planning will be found within a logistics department, in other businesses logistics will be exclusively managing the movement and transportation of goods and materials. Operations Operations is a general management type activity ensuring that a business uses its resources effectively to meet its customer commitments. Usually referring to the conversion activity of the business, i.e. the point where the acquired resources and/or materials are converted into the product or service that the business is selling on to its customers. Inventory Management Sometimes found within Logistics Management, or Demand Planning or Operations, Inventory Management typically takes responsibility for both the replenishment of physical stock, the levels of physical stock, and of course storage and issue of physical stock. Stock may be materials and goods sourced from suppliers, work in progress, or finished goods awaiting sale/dispatch. Transport Transport management can involve the control of a company owned fleet of vehicles, collecting, moving, or delivering materials and goods, or managing transport services sourced from a 3rd party transport provider. Warehousing Like transport management, warehousing can involve the control of company warehouse space, or managing warehouse space sourced from 3rd party providers. Distribution Distribution involves the physical distribution of the company’s products to the sub-distributor or directly to the customer base. Typically this is a combined transport and warehousing operation, responsible for storing and delivering products to meet the customer’s needs. Again this combined activity will often be placed with a 3rd party service provider who will control and implement the processes. Customer Service Most people do not recognize customer service as part of supply chain management, but it is in fact the final piece in the jigsaw. Having taken the business inputs, created and delivered a product or service, the final element is to check that the customers’ expectations were achieved, and manage any actions necessary to meet your customer obligations and commitments.

Today, Supply Chain Management is an accepted term in our business. However, it is difficult to find a standard model of Supply Chain Management operating in the business community. Some business will refer to and manage their supply chains in a coordinated and all-encompassing fashion, including all of the sub areas. Others will integrate some elements of the supply chain, for example purchasing and logistics and call this Supply Chain Management.