Supply Chain Management

It is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective & efficient ways possible. Supply chain activities cover everything from product development, sourcing, production, and logistics, as well as the information systems needed to coordinate these activities.

The concept of Supply Chain Management (SCM) is based on two core ideas:

The first is that practically every product that reaches an end user represents the cumulative effort of multiple organizations. These organizations are referred to collectively as the supply chain.

The second idea is that while supply chains have existed for a long time, most organizations have only paid attention to what was happening within their "four walls." Few businesses understood, much less managed, the entire chain of activities that ultimately delivered products to the final customer. The result was disjointed and often ineffective supply chains.

The organizations that make up the supply chain are "linked" together through physical flows and information flows.

1. Physical Flows

Physical flows involve the transformation, movement, and storage of goods and materials. They are the most visible piece of the supply chain. But just as important are information flows.

2. Information Flows

Information flows allow the various supply chain partners to coordinate their long-term plans, and to control the day-to-day flow of goods and materials up and down the supply chain.

There are five components of traditional supply chain management systems:

Planning

Plan and manage all resources required to meet customer demand for a company's product or service. When the supply chain is established, determine metrics to measure whether the supply chain is efficient, effective, delivers value to customers and meets company goals.

Sourcing

Choose suppliers to provide the goods and services needed to create the product. Then, establish processes to monitor and manage supplier relationships. Key processes include ordering, receiving, managing inventory, and authorizing supplier payments.

Manufacturing

Organize the activities required to accept raw materials, manufacture the product, test for quality, package for shipping and schedule for delivery.

Delivery and Logistics

Coordinate customer orders, schedule deliveries, dispatch loads, invoice customers and receive payments.

Returning

Create a network or process to take back defective, excess, or unwanted products.

Why is supply chain management important?

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 were 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 analyse the data from supply chain partners to see where further improvements can be made.

Three scenarios where effective supply chain management increases value to the supply chain cycle:

• 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.