Supply Chain Management

Supply Chain Management

Supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chain management (SCM) is the management of the flow of materials, equipment, finances, information, and manpower resources within and among organizations to ensure the efficient and fast delivery of quality goods and services to the customer. It is the design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging logistics, synchronizing supply with demand and measuring performance. It is the conscious effort of an organization towards active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. Different definitions of supply chain management which are commonly being used are given below.

  • Supply chain strategies require a total systems view of the links in the chain that work together efficiently to create customer satisfaction at the end point of delivery to the consumer. As a consequence, costs get` lowered throughout the chain by driving out unnecessary expenses, movements, and handling. The main focus is turned to efficiency and added value or to the end user’s perception of value. Through the supply chain strategies efficiency is increased and bottlenecks are removed. The measurement of performance focuses on total system efficiency and the equitable monetary reward distribution to everyone within the supply chain. The supply chain system has to be responsive to customer requirements.
  • The integration of key business processes across the supply chain for the purpose of creating value for customers and stakeholders.
  • The management of upstream and downstream value added flows of materials, final goods, and related information among suppliers, organization, sellers, and final customers.
  • The systematic and strategic coordination of traditional business functions and tactics across all business functions of a particular organization and across businesses within the supply chain, for the purposes of improving the long term performance of the organization and the supply chain as a whole.

Supply chain management encompasses the planning and management of all activities involved in management of sourcing, procurement, conversion, and logistics. It also includes coordination and collaboration with strategic partners, which can be suppliers, intermediaries, third party service providers, or customers. Supply chain management integrates supply and demand management within and across organizations.

Concept of SCM is based on two core principles. The first is that a product that reaches a customer represents the cumulative effort of multiple organizations. These organizations are referred to collectively as the supply chain. The second principle is that organizations should not restrict their attention to what is happening within their four walls but also manage the entire chain of activities that ultimately deliver the products to the customer. Organizations adopt supply chain management processes and various technologies to assist in these processes.

The decisions with respect to supply chain management are broadly of two types namely strategic and operational. Strategic decisions are made typically over a longer time horizon. These decisions are closely linked to the organizational strategy and guide supply chain policies from a design perspective. On the other hand, operational decisions are short term, and focus on activities over a day to day basis. The effort in these types of decisions is to effectively and efficiently manage the product flow in the strategically planned supply chain. There are three levels of activities which SCM focus on to achieve the smooth running of the supply chain. These activities are given below.

  • Strategic – At this level, senior management is involved in the supply chain process and makes decisions that concern the entire organization. Decisions made at this level are of principle nature and affects the complete organization.
  • Tactical -Tactical level of activity focuses on achieving lowest costs for running the supply chain. As an example one of the ways this is done is by creating a purchasing plan with a preferred suppliers and working with transportation companies for cost effective transport.
  • Operational – At the operational level, activity decisions are made on a day-to-day basis and these decisions affect how the product shifts along the supply chain.

Components of supply chain management is given in Fig 1

Component of supply chain management

Fig 1 Components of supply chain management

Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. Information shared between the partners of supply chain 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. An integrated supply chain requires a continuous information flow. Also optimizing of product can be accomplished only by implementing a process approach.

The important links in a supply chain are customer, purchasing, materials, storage yards, inventories, processes, production, quality control, transportation, information and resources. A supply chain management system has the following five basic components.

  • The plan – It refers to the overall strategy of the SCM program including the development of SCM metrics to monitor
  • The source – It refers to the suppliers who provide the organization with goods and services necessary for the organization to run the business
  • The ‘make’ or manufacturing component – It refers to the execution of processes needed to produce, test, and package the products or services
  • The delivery – It refers to the system for receiving orders from customers, developing a network of warehouses, getting the products to the customers, invoicing customers and receiving payment from them
  • The return – It is the system for processing customer returns and/or supporting customers with problems with the products they received.

The main critical supply chain business processes are given below.

Customer service management process – Customer service management process deals with the relationship between the organization and its customers. Customer service is the source of customer information. It also provides the customer with real time information on scheduling and product availability through interfaces with the company’s production and distribution operations. For building of the customer relationship, this process has the steps of (i) determination of the mutually satisfying goals for the organization and the customers, (ii) establishment and maintenance of customer rapport, and (iii) inducement of positive feelings in the organization and the customers

Procurement process – The process consists of strategic plans which are drawn up with suppliers to support the production process and the development of new products. The desired outcome is a relationship where both the supplier and the organization benefit and there is a reduction in the time required for the product’s design and development. For the purchasing function it is also necessary to develop rapid communication system for conveying requirements more rapidly. Activities related to obtaining products and materials from suppliers involve resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling, and quality assurance, many of which include the responsibility to coordinate with suppliers on matters of scheduling, supply continuity, hedging, and development of new sources.

Product development and commercialization – Both customers and suppliers are required to be integrated into the product development process. The product development and commercialization process includes (i) coordination with customer service management to identify customer articulated needs, (ii) selection of materials and suppliers in conjunction with procurement, and (iii) development of production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the given combination of product and markets.

Production flow management/support – The production process produces and supplies products to the distribution channels based on past forecasts. Production processes need to be flexible in order to respond to market changes. This process manages activities related to planning, scheduling, and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at production sites, and co ordination in the production process and physical distribution operations.

Physical distribution – This concerns the movement of a finished product or service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product or 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.

Outsourcing/partnerships – This includes not just the outsourcing of the procurement of materials and components, but also the outsourcing of services that traditionally have been provided in house. The logic of this trend is that the company will increasingly focus on those activities in the value chain in which it has a distinctive advantage and outsource everything else. 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, managing and controlling this network of partners and suppliers requires a blend of central and local involvement: strategic decisions are taken centrally, while the monitoring and control of supplier performance and day-to-day liaison with logistics partners are best managed locally.

Performance measurement – A strong relationship exists between the supplier and customer integration with market share and profitability. Both the supplier capabilities and a long term supply chain perspective in customer relationships can be correlated with the organization’s performance. Logistics competency is also a critical factor in creating and maintaining competitive advantage. Hence measurement of logistics performance becomes increasingly important. Organizations engaging in comprehensive performance measurement realize improvements in overall productivity. Usually internal measures are collected and analyzed by the organizations include cost, customer service, productivity, asset measurement, and quality. External performance is measured through customer perception measures and best practice benchmarking.

Store management – To reduce the operations cost and expenses, store management plays a valuable role in the operation process. A well managed store with all the necessary facilities reduces the cost. The sore should have procedures along with necessary loading and & unloading facilities along with proper area and stock management system.

Theories of Supply Chain Management

A number of experts in the field of supply chain management have tried to provide theoretical foundations for some areas of supply chain management by adopting organizational theory. Some of these theories are (i) resource based view (RBV), (ii) transaction cost analysis (TCA), (iii) knowledge based view (KBV), (iv) strategic choice theory (SCT), (v) agency theory (AT), (vi) institutional theory (InT), systems theory (ST), and (vii) network perspective (NP).