SUPPLY CHAIN MANAGEMENT

SUPPLY CHAIN MANAGEMENT

ABSTRACT

SCM is management of material and information flow

in a supply chain to provide the highest degree of

customer satisfaction at the lowest possible cost. SCM

requires commitment of supply chain partners to work

closely to coordinate order generation, order taking

and order fulfillment thus, creating an “extended

enterprise” spreading far beyond the producer’s

location. Supply chains encompass the companies and

the business activities needed to design, make, deliver

and use a product or service. Businesses depend on

their supply chains to provide them with what they need

to survive and thrive. Every business fits into one or

more supply chains and has a role pay in each of them.

And also supply chain management is the integration of

key business processes from initial raw material

extraction to the final or end customer, including

intermediate processing, transportation and storage

activities and final sale to the end customer. Today, the

practice of supply chain management is becoming

extremely important to achieve and maintain

competitiveness. Many firms are just now beginning to

realize the advantages of supply chain integration.

Supply chain management is an out-growth and

expansion of logistic and purchasing activities and has

grown in popularity and use since the 1980s. Important

elements in supply chain management are in the areas

of purchasing, operations and production and

distribution. Finally, as markets, political forces,

technology and competition change around the world,

the practice of supply chain management must also

change.

KEYWORDS

Supply chain management, Purchasing issues,

Operation issues, Distribution issues, Sustaining

competitive advantage

1. SUPPLY CHAIN MANAGEMENT

I want to start with definition of supply chain. The

supply chain starts with firms extracting raw materials

from the ground –such as iron, oil, wood, and food- and

then selling them to raw material manufactures. These

companies, acting on purchase orders and

specifications they have received from component

manufacturers, turn the raw materials into materials

that are usable by these customers. Now what is supply

chain management? SCM is management of material

and information flow in a supply chain to provide the

highest degree of customer satisfaction at the lowest

possible cost.

1.1. Importance of SCM

Many firms, thought, have discovered value, long term

benefits from their supply chain management efforts.

Firms with large system inventories, many suppliers,

complex product assemblies, and highly valued

customers with large purchasing budgets have the most

to gain from the practice of supply chain management.

For these firms, even moderate supply chain

management success can mean lower purchasing and

inventory costs, better product quality, and higher

levels of customer service and sales. Purchasing

inventory, and transportation cost saving is quite

sizable for firms utilizing supply chain management

strategies.

Firms must realize that their management efforts can

start small –for instance, with just one key supplierand

build through time to include more supply chain

participants- such as other important suppliers, key

customers, and shippers- and, eventually, second-tier

suppliers and customers. So why is this integration

activity important? As alluded to earlier, when a firm,

its customers, and its suppliers all know each others’

future plans, the planning process is easier and more

accurate.

1.2. The five major supply chain drivers

Companies in any supply chain must make decisions

individually and collectively regarding their actions in

five areas. These are the five major supply chain

drivers.

• Production (what, how, and when to produce)

• Inventory (how much to make and how much

to store)

• Location (where best to do what activity)

• Transportation (how and when to move

product)

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• Information (the basis for making these

decisions)

Effective supply chain management calls first for an

understanding of each driver and how it operates. Each

driver has the ability to directly affect the supply chain

and enable certain capabilities. The next step is to

develop an appreciation for the results that can be

obtained by mixing different combinations of these

drivers.

1.3. Useful model of supply chain

operations

In this useful model identifies four categories of

operations. We will use the following four categories to

organize and discuss supply chain operations, plan,

source, make, deliver.

• Plan: This refers to all the operations needed to

plan and organize the operations in the other

three categories.

• Source: Operations in this category include the

activities necessary to acquire the inputs to

create products or services. These operations

are procurement and credit& collection.

• Make: This category includes the operations

required to develop and build the products and

services that a supply chain provides.

• Deliver: These operations encompass the

activities that are part of receiving customer

orders and delivering products to customers.

2. PURCHASING ISSUES IN SCM

2.1. Purchasing management

Over the last decade, the traditional purchasing

function has evolved into an integral part of supply

chain management. Purchasing is an important strategic

contributor to overall business strategy. It is the largest

single function in most organizations, controlling

activities and transactions valued at more than fifty

percent of sales. Every single dollar saved due to better

purchasing impacts business operations and profits

directly. Purchasing personnel talk to customers; users;

suppliers; and internal design, finance, marketing, and

operation personnel, in addition to top management.

The information they gain from all this exposure can be

used to help the firm to provide better, cheaper, and

timelier products and services to both internal and

external customers. Savvy business executives are thus

turning to purchasing to improve business and supply

chain performance.

2.2. Creating and managing supplier

relations

Over the past two decades we have seen the buyersupplier

relationship evolve from an arm’s-length/

adversarial approach to one favoring developing longterm

partnerships. Significant competitive advantage

can be achieved by organizations working closely with

their suppliers. Without a shared vision, mutual

benefits, and top management commitment, partnership

are likely to be short-lived. Other ingredients necessary

for developing and managing lasting supplier

relationships are trust, creating personal relationships,

effective change management, information sharing, and

using performance metrics to create superior

capabilities. Mutually agreeable measures to monitor

supplier performance provide the basis for continuous

improvement to enhance supplier quality, cost, and

delivery.

Supplier certification ensures that buyers continue to

work with their best suppliers to improve cost, quality,

delivery, and new product development to gain a

competitive advantage. Finally supplier relationship

management software automates the exchange of

information and allows for improved efficiency and

effectiveness in managing supplier relationships and

improving performance.

2.3. Strategic sourcing for successful

SCM

Achieving supply chain management success starts

with the sourcing activity. The strategic role played

within the firm by the purchasing function and the

impact of purchasing on the management of supply

chain. Firms that fail to recognize this importance will

simply not experience the same level of success in the

long run.

The sourcing activity is comprised of a number of

related activities that, when taken together, provide

sustainable competitive advantage for the firm. Firms

can maximize this advantage by developing effective

supply chain strategies and then assessing and revising

these strategies periodically as markets, competitors,

and technologies change.

3. OPERATION ISSUES IN SCM

3.1. Process management: Just-in-time

and total quality management issues

in SCM

Supply chain management, the just-in-time philosophy,

and total quality management make up a hierarchy for

breakthrough competitive advantage. In order for

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supply management to reach its full potential and

provide benefits its members, trading partners must

adopt a JIT operating philosophy. Similarly, the

primary ingredient in the success of a JIT program is

the use of TQM and its improvement tolls. There are a

number of practices mentioned within each of the three

topics that overlap or are very similar such as top

management and workforce involvement and

continuous improvement. This is not surprising given

the close ties between supply chain management, JIT

and TQM. JIT and TQM have a critical importance in

achieving successful supply chain management.

3.2. Demand forecasting and collaborative

planning, forecasting, and

replenishment

Proper demand forecasting enables better planning and

utilization of resources for business to be competitive.

Forecasting is an integral part of demand management

since it provides an estimate of future demand and the

basis for planning and making sound business

decisions. A mismatch in supply and demand could

result in excessive inventories and stock-outs and loss

of profits and goodwill. Both qualitative and

quantitative methods are available to help companies

forecast demand better. The qualitative methods are

based on judgment and intuition, whereas the

quantitative methods use mathematical techniques and

historical data to predict future demand.

4. DISTRIBUTION ISSUES IN SCM

4.1. Domestic and international

transportation

In this section I will mention the important role of

transportation to any industrialized society-and to

supply chains in particular. There are some elements

within transportation to give the reader an adequate

understanding of the entire field of transportation.

These elements included the modest of transportation,

transportation pricing, regulation and deregulation of

transportation, third-party transportation providers,

warehousing, international transportation,

transportation management, and e-commerce issues in

transportation. It is hoped that readers have gained an

understanding of the many elements within the broad

topic of transportation and why these are so important

to the management of supply chains.

4.2. Customer relationship management

Customer relationship management is really all about

just treating customers right; for as long as there have

been businesses, some firms have been very successful

at keeping customers satisfied and coming back, while

others have not. For the past ten or fifteen years,

though, both the level of competition in the market

place and the available computer technology and

software capabilities has been increasing quite

dramatically.

Firms today are learning how to combine many

channels of customer contact to better serve customers,

resulting in better service and more sales. While many

of the CRM applications and ASPs are very expensive,

firms can use a structured approach to design an

appropriate plan and then analyze and select the right

applications and vendors to implement a successful

CRM program.

4.3. Service response logistics

Services constitute a large and growing segment of the

world economy. Managing the supply chains of

services is thus becoming an important part of an

overall competitive strategy for services. Since service

customers are most often the final consumers of the

service provided, successfully managing service

encounters involves managing productive capacity,

managing waiting lines, managing distribution

channels, and managing service quality. These four

concerns are the foundations of service response

logistics.

5. SUSTAINING COMPETITIVE

ADVANTAGE

5.1. Supply chain process integration

Process integration should be considered the primary

means to achieving successful supply chain

management, but it is the one thing most firms struggle

with then setting out to manage their supply chains; for,

without the proper support, training, tools, trust, and

preparedness, process integration most likely will be

impossible to ever fully achieve. The supply chain

integration model provides the framework for

integrating processes first within the firm and then

among trading partners.

5.2. Performance measurement along the

supply chain

Measuring the performance of supply chains and their

member firms is critical for identifying underlying

supply chain problems and in keeping end customers

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satisfied in today’s highly competitive, rapidly

changing marketplace. Unfortunately many firms have

adopted performance measurement systems that

measure the wrong things and are thus finding it

difficult to achieve strategic goals and align their goals

with those of the other supply chain members and the

supply chain as a whole. Good performance measures

drive performance and can turn a mediocre supply

chain into a world-class supply chain that benefits all of

its members.

Financial performance, while important to

shareholders, is argued to provide too little information

regarding the long-term effectiveness of the firm in

satisfying customers. Thus, use of measures that say

something about the firm’s product quality,

productivity, and customer service capabilities have

begun to be used successfully in many organizations.

World-class organizations realize how important it is to

align strategies with the performance of their people

and processes, and performance measurement systems

give these firms a means for directing efforts and firm

capabilities toward what the firm is trying to do over

the long haul- meet strategic objectives and satisfy

customers.

Performance measurement systems should be a mix of

financial, nonfinancial, quantitative, cost oriented,

process-oriented and customer oriented measures that

effectively link the actions of the firm to the strategies

defined by the firm’s executive managers. Firms trying

to manage their supply chains have an added layer of

performance measure requirements-measures must be

added that link the operations of member firms as well

as linking the actions of the firms to the competitive

strategies of the supply chain.

5.3. Looking to the future of supply chain

management

At the final section of this text discussed the current

trends and the future outlook of supply chain

management. A number of issues currently facing the

practice of supply chain management are discussed,

including the global expansion of supply chains;

expanding the supply chain’s influence to include

second-and third-tier supply chain members; the

greening of supply chains; increasing the

responsiveness of supply chains; and reducing supply

chain costs through purchase cost reductions,

outsourcing supply chain functions, and managing

supply chain inventories more efficiently. As

competition among supply chains increases and the

demand for varied products and services continues,

supply chain members will need to become adept at

improving the performance of their supply chains to

maintain profitability. This has already become a

continuous effort among leading supply chains and

their members.