Supply Chain Management (SCM)
Supply Chain Management (SCM)
(SCM)
OBJECTIVE
The best companies around the world are discovering a powerful new source of
competitive advantage. It's called supply-chain management and it encompasses
all of those integrated activities that bring product to market and create satisfied
customers.
Supply Chains
A supply chain is the connected network of individuals, organizations, resources, activities, and
technologies involved in the manufacture and sale of a product or service. A supply chain starts with
the delivery of raw materials from a supplier to a manufacturer and ends with the delivery of the
finished product or service to the end consumer.
Supply chain management is the management of the flow of goods and services and includes all
processes that transform raw materials into final products. It involves the active streamlining of a
business's supply-side activities to maximize customer value and gain a competitive advantage in
the marketplace.
SCM represents an effort by suppliers to develop and implement supply chains that are as efficient
and economical as possible. Supply chains cover everything from production to product
development to the information systems needed to direct these undertakings.
SCM oversees each touchpoint of a company's product or service, from initial creation to the final
sale. With so many places along the supply chain that can add value through efficiencies or lose
value through increased expenses, proper SCM can increase revenues, decrease costs, and impact a
company's bottom line.
How Supply Chain Management Works?
Supply chain management is the process of integrating the supply and demand
management, not only within the organization, but also across all the various members
and channels in the supply chain so they work together most efficiently and effectively.
There are five basic components in a supply chain
management system:
1. Planning
To meet customer demands, supply chain managers have to plan
ahead. This means forecasting demand, designing the supply chain
intentionally, and determining how the organization will measure the
supply chain to ensure it is performing as expected in terms of
efficiency, delivering value for customers and helping to achieve
organizational goals.
2. Sourcing
Selecting suppliers who will provide the goods, raw materials, or
services that create the product is a critical component of the supply
chain. Not only does this include creating the contracts that govern
the suppliers, but also managing and monitoring existing relationships.
As part of strategic sourcing, supply chain managers must oversee the
processes for ordering, receiving, managing inventory and authorizing
invoice payments for suppliers.
3. Making
Supply chain managers also need to help coordinate all the steps
involved in creating the product itself. This includes reviewing and
accepting raw materials, manufacturing the product, quality testing
and packaging. Generally, businesses evaluate the quality, production
output and employee productivity to ensure overall standards are
upheld.
4. Delivering
Ensuring the products reach the customers is achieved through logistics
and it’s fundamental to supply chain success. This includes
coordinating the orders, scheduling delivery, dispatching, invoicing,
and receiving payments. Generally, a fleet of vehicles must be
managed to ship the products—from tankers bringing product
manufactured overseas to fleet trucks and parcel services handling
last mile delivery. In some cases, organizations outsource the delivery
process to other organizations who can oversee special handling
requirements or home delivery.
5. Returning
Supply chain managers also need to develop a network that supports
returning products. In some cases, this may include scrapping or re-
producing a defective product; in others, it may simply mean returning
a product to the warehouse. This network needs to be responsible and
flexible to support customer needs.
The foundation for each of these components is a solid network of
supporting processes that can effectively monitor the information
across the supply chain and assure adherence to laws and regulations.
This involves a wide number of departments, including HR, IT, quality
assurance, finance, product design and sales, according to CIO.
Lesson 1.1.1: Importance of Supply Chain Management (SCM)
In the ancient Greek fable about the tortoise and the hare, the speedy and
overconfident rabbit fell asleep on the job, while the "slow and steady" turtle won
the race. That may have been true in Aesop's time, but in today's demanding
business environment, "slow and steady" won't get you out of the starting gate, let
alone win any races. Managers these days recognise that getting products to
customers faster than the competition will improve a company's competitive
position. To remain competitive, companies must seek new solutions to important
Supply Chain Management issues such as modal analysis, supply chain
management, load planning, route planning and distribution network design.
Companies must face corporate challenges that impact Supply Chain Management
such as reengineering globalisation and outsourcing.
Supply chain management is crucial for any organization because doing it
well can introduce several benefits to the organization; however, poor
supply chain management can result in very expensive delays, quality
issues, or reputation. In some cases, poor supply chain management can
also cause legal issues if suppliers or processes are not compliant.
Technology advances have unlocked huge potential for supply chain
management, enabling supply chain managers to work closely – and in
real time – with members of the supply chain. With supply chain
management, organizations can:
Anticipate problems
Dynamically adjust prices
Improve inventory and fulfillment
Effective supply chain management systems minimize cost, waste and
time in the production cycle. The industry standard has become a just-
in-time supply chain where retail sales automatically signal
replenishment orders to manufacturers. Retail shelves can then be
restocked almost as quickly as product is sold. One way to further
improve on this process is to analyze the data from supply chain
partners to see where further improvements can be made.
• Identifying potential problems. When a customer orders more product than
the manufacturer can deliver, the buyer can complain of poor service. Through
data analysis, manufacturers may be able to anticipate the shortage before the
buyer is disappointed.
• Optimizing price dynamically. Seasonal products have a limited shelf life. At
the end of the season, these products are typically scrapped or sold at deep
discounts. Airlines, hotels and others with perishable “products” typically adjust
prices dynamically to meet demand. By using analytic software, similar
forecasting techniques can improve margins, even for hard goods.
• Improving the allocation of “available to promise” inventory. Analytical
software tools help to dynamically allocate resources and schedule work based
on the sales forecast, actual orders and promised delivery of raw materials.
Manufacturers can confirm a product delivery date when the order is placed —
significantly reducing incorrectly-filled orders.
The organizations that make up the supply chain are “linked” together
through physical flows and information flows.
Supply chain management is important because it can help achieve several business
objectives. For instance, controlling manufacturing processes can improve product
quality, reducing the risk of recalls and lawsuits while helping to build a strong consumer
brand. At the same time, controls over shipping procedures can improve customer
service by avoiding costly shortages or periods of inventory oversupply. Overall, supply
chain management provides several opportunities for companies to improve their profit
margins, and is especially important for companies with large and international
operations.
Important Aspects of SCM Strategy
The supply chain network structure:
This considers physical structures, such as manufacturing facilities, warehousing, outlets, and customer locations, as well a s
logistics and the organizational philosophy as to where and how each are structured and handled.
S&OP policies:
Because the supply chain doesn't operate in a vacuum, decisions and strategies should align with the corporate philosophy
and be presented in the same financial language.
Supplier profiles:
The strategy should determine who the company does business with and require certain systems to be used by suppliers to
manage product quality and deliveries.
Typical SCM Key Performance Indices
Key performance indices (KPIs) are crucial elements of a successful SCM strategy. They
identify required performance standards and allow supply chain managers to measure
performance and identify areas needing attention. Additionally, they are useful for
measuring performance improvements. Common KPIs include:
Cash to cycle time: The time between paying for raw materials and receiving
payment for goods delivered, which is an important factor in determining
working capital requirements.
Perfect order rate: The number of orders delivered without errors, which is a
crucial metric for organizations striving for perfection and often broken down
further by function.
Inventory turnover: The time it takes to sell the total inventory in dollars, which is
another factor that affects working capital.
GMROI: The gross margin return on investment, measuring the amount of gross
profit earned on the cost of inventory used, which is a metric commonly used in
retail.
Benefits of supply chain management
Supply chain management creates a number of benefits that translate to higher
profits, better brand image and greater competitive advantage. These include the
following:
better ability to predict and meet customer demand;
better supply chain visibility, risk management and predictive capabilities;
fewer process inefficiencies and less product waste;
improvements in quality;
increased sustainability, both from a societal and an environmental standpoint;
lower overhead;
improvements in cash flow; and
more efficient logistics.
Lesson 1.1.2: Supply Chain Management today
If we take the view that Supply Chain Management is what Supply Chain
Management people do, then in 1997 Supply Chain Management has a
firm hand on all aspects of physical distribution and materials
management. Seventy-five percent or more of respondents included the
following activities as part of their company's Supply Chain
The future for Supply Chain Management looks very bright. This year, as
well as last year, two major trends are benefiting Supply Chain
Management operations. These are
The motor carrier industry forges a critical link in a multimodal Supply Chain
Management system and must compete against time and service to stay in
business. Shippers move cargo over whatever mode provides the best service.
Less-than-truckload (LTL) motor carriers find their competition particularly stiff.
Parcel carriers constantly increase their maximum shipment weight while truck load
carriers now accept partial trailer loads as small as 10,000 pounds. Shorter cycle
times means better service.
Customers' needs have also changed. The growth of Just-in-Time and
Quick Response inventory management and third-party Supply Chain
Management requires all participants in the Supply Chain
Management chain to consider shorter cycle time a competitive
advantage. Manufacturers, distributors, and some carriers effectively
use information technology to reduce cycle times and improve the
quality of freight handling. Package handlers use the technology to
great competitive advantage.
Effective use of information technology maximises the advantages and minimises the
risks inherent in LTL transportation. Each package must be positively identified every
time it is handled. Information about every destination must be checked and double
checked to maximise cargo speed while minimising empty trailer miles.
The dock management system, in turn, profits from data provided by pickup and delivery
automation. When shipment information from city drivers immediately flows to the hubs, support
systems and supervisors can anticipate requirements. Incoming cargo stays in motion because
dock managers already know what is on each inbound truck. If pickup and delivery systems are
not immediately automated, carriers can implement intermediate systems to efficiently feed
information to hub management support projects.
Dockside data collection allows operators to enter all data about an inbound truck's cargo at
the dock even as operators strip the cargo for consolidation.
Dockside data collection becomes more efficient when carriers encourage their shippers to
produce scannable bills of lading. These documents can be produced on existing printers with
specialized software. A two-dimensional bar code encodes all necessary shipment information.
In less than one second, a dockside scanner captures an entire bill of lading. The same
scannable documents can be used when the carrier later implements a pickup and delivery
management system.
Effective supply-chain management may be the best way to achieve reduced
order-to-delivery cycle time. Instead of treating each function as consisting of
discrete activities, supply-chain management considers all functions to be linked
and interdependent. As a result, supply-chain management can reveal the
cumulative effect of problems anywhere in the chain, not just within Supply Chain
Management' areas of responsibility.
LESSON 1.2: Objectives of the Supply Chain Management
That brings us to the example of the fish fingers. During the Supply Chain Management '98
conference in the United Kingdom this fall, a participant in a supply chain management
seminar said that total time from fishing dock through manufacturing, distribution, and final
sale of frozen fish fingers for his European grocery-products company was 150 days.
Manufacturing took a mere 43 minutes. That suggests an enormous target for supply chain
managers. During all that time, company capital is-- almost literally in this case--frozen. What
is true for fish fingers is true of most products. Examine any extended supply chain, and it is
likely to be a long one. James Morehouse, a vice president of consulting firm A.T. Kearney,
reports that the total cycle time for corn flakes, for example, is close to a year and that the
cycle times in the pharmaceutical industry average 465 days. In fact, Morehouse argues
that if the supply chain, of what he calls an "extended enterprise," is encompassing
everything from initial supplier to final customer fulfilment, could be cut to 30 days, that
would provide not only more inventory turns, but fresher product, an ability to customize
better, and improved customer responsiveness. "All that add value," he says. And it provides
a clear competitive advantage.
Supply Chain Management becomes a tool to help
accomplish corporate strategic objectives:
Supply chain management has some key & important objectives which are
also applicable for International Logistics and Supply Chain management.
The main objectives of Supply chain management are to reduce cost,
improve the overall organization performance and customer satisfaction by
improving product or service delivery to the consumer.