Supply Chain Management
Supply chain management SCM is the process of planning, implementing, and controlling the
operations of the supply chain as efficiently as possible. Supply Chain Management spans all
movement and storage of raw materials, workinprocess inventory, and finished goods from
pointoforigin to pointofconsumption.The definition one American professional association put
forward is that Supply Chain Management encompasses the planning and management of all
activities involved in sourcing, procurement, conversion, and logistics management activities.
Importantly, it also includes coordination and collaboration with channel partners, which can be
suppliers, intermediaries, thirdparty service providers, and customers. In essence, Supply Chain
Management integrates supply and demand management within and across companies.Some
experts distinguish Supply Chain Management and logistics, while others consider the terms to be
interchangeable.
Supply Chain Management is also a category of software
products.Supply chain event management abbreviated as SCEM is a consideration of all possible
occurring events and factors that can cause a disruption in a supply chain. With SCEM possible
scenarios can be created and solutions can be planned.Supply chain management must address
the following problems,Distribution Network Configuration Number and location of suppliers,
production facilities, distribution centers, warehouses and customers.Distribution Strategy
Centralized versus decentralized, direct shipment, Cross docking, pull or push strategies, third
party logistics.Information Integration of systems and processes through the supply chain to
share valuable information, including demand signals, forecasts, inventory and transportation
etc.Inventory Management Quantity and location of inventory including raw materials,
workinprocess and finished goods.
Business Processes
Organizations increasingly find that they must rely on effective supply chains, or networks, to
successfully compete in the global market and networked economy.In Peter Drucker's 1998
management's new paradigms, this concept of business relationships extends beyond traditional
enterprise boundaries and seeks to organize entire business processes throughout a value chain
of multiple companies.During the past decades, globalization, outsourcing and information
technology have enabled many organizations, such as Dell and Hewlett Packard, to successfully
operate solid collaborative supply networks in which each specialized business partner focuses
on only a few key strategic activities Scott, 1993. This interorganizational supply network can be
acknowledged as a new form of organization. However, with the complicated interactions among
the players, the network structure fits neither market nor hierarchy categories Powell, 1990. It is
not clear what kind of performance impacts that different supply network structures could have
on firms, and little is known about the coordination conditions and tradeoffs that may exist among
the players. From a system's point of view, a complex network structure can be decomposed into
individual component firms Zhang and Dilts, 2004. Traditionally, companies in a supply network
concentrate on the inputs and outputs of the processes, with little concern for the internal
management working of other individual players.
Therefore, the choice of an internal
management control structure is known to impact local firm performance Mintzberg, 1979.In the
21st century, there have been a few changes in business environment that have contributed to
the development of supply chain networks. First, as an outcome of globalization and the
proliferation of multinational companies, joint ventures, strategic alliances and business
partnerships, there were found to be significant success factors, following the earlier JustInTime,
Lean Management and Agile Manufacturing practices.Second, technological changes, particularly
the dramatic fall in information communication costs, which are a paramount component of
transaction costs, have led to changes in coordination among the members of the supply chain
network Coase, 1998.
Network Structure
Many researchers have recognized these kinds of supply network structures as a new
organization form, using terms such as Keiretsu, Extended Enterprise, Virtual Corporation, Global
Production Network, and Next Generation Manufacturing System.In general, such a structure can
be defined as a group of semiindependent organizations, each with their capabilities, which
collaborate in everchanging constellations to serve one or more markets in order to achieve
some business goal specific to that collaboration Akkermans, 2001.This article or section needs
copy editing for grammar, style, cohesion, tone or spelling.You can assist by editing it now. A
howto guide is available.It has been suggested that Demanddriven supply network be merged into
this article or section.Successful SCM requires a change from managing individual functions to
integrating activities into key supply chain processes. An example scenario the purchasing
department places orders as requirements become appropriate. Marketing, responding to
customer demand, communicates with several distributors and retailers, and attempts to satisfy
this demand. Shared information between supply chain partners can only be fully leveraged
through process integration.
Supply chain business process integration involves
collaborative work between buyers and suppliers, joint product development, common systems
and shared information. According to Lambert and Cooper 2000 operating an integrated supply
chain requires continuous information flows, which in turn assist to achieve the best product
flows. However, in many companies, management has reached the conclusion that optimizing the
product flows cannot be accomplished without implementing a process approach to the business.
The key supply chain processes stated by Lambert 2004 are,One could suggest other key critical
supply business processes combining these processes stated by Lambert such as,Customer
service management,Procurement, Product development and commercialization,Manufacturing
flow management/support,Physical distribution,Outsourcing/partnerships,Performance
measurement.
Customer Service Management
Process
Customer Relationship Management concerns the relationship between the organization and its
customers.Customer service provides the source of customer information. It also provides the
customer with realtime information on promising dates and product availability through interfaces
with the company's production and distribution operations. Successful organizations use
following steps to build customer relationships.Strategic network optimization, including the
number, location, and size of warehouses, distribution centers and facilities.Strategic partnership
with suppliers, distributors, and customers, creating communication channels for critical
information and operational improvements such as cross docking, direct shipping, and thirdparty
logistics.Product design coordination, so that new and existing products can be optimally
integrated into the supply chain, load management.Information Technology infrastructure, to
support supply chain operations.
Wheretomake and whattomakeorbuy decisions.Aligning
overall organizational strategy with supply strategy.Strategic plans are developed with suppliers to
support the manufacturing flow management process and development of new products. In firms
where operations extend globally, sourcing should be managed on a global basis. The desired
outcome is a winwin relationship, where both parties benefit, and reduction times in the design
cycle and product development are achieved. Also, the purchasing function develops rapid
communication systems, such as electronic data interchange EDI and Internet linkages to transfer
possible requirements more rapidly. Activities related to obtaining products and materials from
outside suppliers requires performing resource planning, supply sourcing, negotiation, order
placement, inbound transportation, storage, handling and quality assurance, many of which
include the responsibility to coordinate with suppliers in scheduling, supply continuity, hedging,
and research into new sources or programmes.
Product Development And
Commercialization
Here, customers and suppliers must be united into the product development process, thus to
reduce time to market. As product life cycles shorten, the appropriate products must be
developed and successfully launched in ever shorter timeschedules to remain competitive.
According to Lambert and Cooper 2000, managers of the product development and
commercialization process must,coordinate with customer relationship management to identify
customerarticulated needs,select materials and suppliers in conjunction with procurement, and
develop production technology in manufacturing flow to manufacture and integrate into the best
supply chain flow for the product/market combination.
The manufacturing process is produced and supplies products to the distribution channels based
on past forecasts. Manufacturing processes must be flexible to respond to market changes, and
must accommodate mass customization. Orders are processes operating on a justintime JIT
basis in minimum lot sizes. Also, changes in the manufacturing flow process lead to shorter cycle
times, meaning improved responsiveness and efficiency of demand to customers. Activities
related to planning, scheduling and supporting manufacturing operations, such as workinprocess
storage, handling, transportation, and time phasing of components, inventory at manufacturing
sites and maximum flexibility in the coordination of geographic and final assemblies
postponement of physical distribution operations.
This concerns movement of a finished product/service to customers. In physical distribution, the
customer is the final destination of a marketing channel, and the availability of the product/service
is a vital part of each channel participant's marketing effort. It is also through the physical
distribution process that the time and space of customer service become an integral part of
marketing, thus it links a marketing channel with its customers e.g. links manufacturers,
wholesalers, retailers.This is not just outsourcing the procurement of materials and components,
but also outsourcing of services that traditionally have been provided inhouse. The logic of this
trend is that the company will increasingly focus on those activities in the value chain where it has
a distinctive advantage and everything else it will outsource. This movement has been particularly
evident in logistics where the provision of transport, warehousing and inventory control is
increasingly subcontracted to specialists or logistics partners. Also, to manage and control this
network of partners and suppliers requires a blend of both central and local involvement. Hence,
strategic decisions need to be taken centrally with the monitoring and control of supplier
performance and daytoday liaison with logistics partners being best managed at a local level.
Performance Measurement
Experts found a strong relationship from the largest arcs of supplier and customer integration to
market share and profitability. By taking advantage of supplier capabilities and emphasizing a
longterm supply chain perspective in customer relationships can be both correlated with firm
performance. As logistics competency becomes a more critical factor in creating and maintaining
competitive advantage, logistics measurement becomes increasingly important because the
difference between profitable and unprofitable operations becomes more narrow. A.T. Kearney
Consultants 1985 noted that firms engaging in comprehensive performance measurement
realized improvements in overall productivity. According to experts internal measures are
generally collected and analyzed by the firm including
External performance measurement is examined through customer perception measures and
best practice benchmarking, and includes,customer perception measurement, and best practice
benchmarking.Components of Supply Chain Management are Standardisation Postponement.The
SCM components are the third element of the foursquare circulation framework. The level of
integration and management of a business process link is a function of the number and level,
ranging from low to high, of components added to the link Ellram and Cooper, 1990 Houlihan,
1985.
Consequently, adding more management components or increasing the level of each component
can increase the level of integration of the business process link. The literature on business
process reengineering, buyersupplier relationships, and SCM suggests various possible
components that must receive managerial attention when managing supply relationships.
Lambert and Cooper 2000 identified the following components which are However, a more careful
examination of the existing literature will lead us to a more comprehensive structure of what
should be the key critical supply chain components, the branches of the previous identified
supply chain business processes, that is, what kind of relationship the components may have that
are related with suppliers and customers accordingly. Bowersox and Closs states that the
emphasis on cooperation represents the synergism leading to the highest level of joint
achievement Bowersox and Closs, 1996. A primary level channel participant is a business that is
willing to participate in the inventory ownership responsibility or assume other aspects of financial
risk, thus including primary level components Bowersox and Closs, 1996. A secondary level
participant specialized, is a business that participates in channel relationships by performing
essential services for primary participants, thus including secondary level components, which are
in support of primary participants. Third level channel participants and components that will
support the primary level channel participants, and which are the fundamental branches of the
secondary level components, may also be included.
Product Data Management
Consequently, Lambert and Cooper's framework of supply chain components does not lead us to
the conclusion about what are the primary or secondary specialized level supply chain
components see Bowersox and Closs, 1996, p.g. 93. That is, what supply chain components
should be viewed as primary or secondary, how these components should be structured in order
to have a more comprehensive supply chain structure, and to examine the supply chain as an
integrative one See above sections.Baziotopoulos reviewed the literature to identify supply chain
components.Based on this study, Baziotopoulos 2004 suggests the following supply chain
components,For customer service management Includes the primary level component of
customer relationship management, and secondary level components such as benchmarking and
order fulfillment. For product development and commercialization Includes the primary level
component of Product Data Management PDM, and secondary level components such as market
share, customer satisfaction, profit margins, and returns to stakeholders.
For physical distribution, manufacturing support and procurement Includes the primary level
component of enterprise resource planning ERP, with secondary level components such as
warehouse management, material management, manufacturing planning, personnel management,
and postponement order management.For performance measurement Includes the primary level
component of logistics performance measurement, which is correlated with the information flow
facility structure within the organization. Secondary level components may include four types of
measurement such as variation, direction, decision and policy measurements. More specifically,
in accordance with these secondary level components, total cost analysis TCA, customer
profitability analysis CPA, and asset management could be concerned as well.For outsourcing
Includes the primary level component of management methods, and the strategic objectives for
particular initiatives in key areas of information technology, operations, manufacturing
capabilities, and logistics secondary level components.Reverse Supply Chain Reverse Logistics
is the process of planning,implementing and controlling the efficient, effective inbound flow and
storage of secondary goods and related information opposite to the traditional supply chain
direction for the purpose of recovering value or proper disposal. Reverse logistics is also referred
to as Aftermarket Customer Services. In other words, anytime money is taken from a company's
Warranty Reserve or Service Logistics budget, that is a Reverse Logistics operation.
Process Integration
Process integration is a term in chemical engineering which has two possible meanings.A holistic
approach to process design which considers the interactions between different unit operations
from the outset, rather than optimising them separately. This can also be called integrated
process design or process synthesis. Smith (2005) describes the approach well. An important first
step is often product design (Cussler and Moggridge 2003) which develops the specification for
the product to fulfil its required purpose.Pinch analysis, a technique for designing a process to
minimise energy consumption and maximise heat recovery, also known as heat integration,
energy integration or pinch technology. The technique calculates thermodynamically attainable
energy targets for a given process and identifies how to achieve them. A key insight is the pinch
temperature, which is the most constrained point in the process. The most detailed explanation of
the techniques is by Kemp (2006).CashFlow Arranging the payment terms and the methodologies
for exchanging funds across entities within the supply chain.Supply chain execution is managing
and coordinating the movement of materials, information and funds across the supply chain.
Supply chain management is a crossfunctional approach to managing the movement of raw
materials into an organization, certain aspects of the internal processing of materials into finished
goods, and then the movement of finished goods out of the organization toward the
endconsumer. As organizations strive to focus on core competencies and becoming more
flexible, they have reduced their ownership of raw materials sources and distribution channels.
These functions are increasingly being outsourced to other entities that can perform the activities
better or more cost effectively. The effect has been to increase the number of organizations
involved in satisfying customer demand, while reducing management control of daily logistics
operations. Less control and more supply chain partners led to the creation of supply chain
management concepts. The purpose of supply chain management is to improve trust and
collaboration among supply chain partners, thus improving inventory visibility and improving
inventory velocity.Several models have been proposed for understanding the activities required
to manage material movements across organizational and functional boundaries. SCOR is a
supply chain management model promoted by the Supply Chain Management Council. Another
model is the SCM Model proposed by the Global Supply Chain Forum GSCF. Supply chain
activities can be grouped into strategic, tactical, and operational levels of activities.