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.
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