Traditionally, marketing, distribution, planning, manufacturing, and the
purchasing organizations along the supply chain operated independently. These
organizations have their own objectives and these are often conflicting.
Purchasing contracts are often negotiated with very little information beyond
historical buying patterns. The result of these factors is that there is not a
single, integrated plan for the organization---there were as many plans as
businesses. Clearly, there is a need for a mechanism through which these
different functions can be integrated together. Supply chain management is a
strategy through which such integration can be achieved.
To comprehend the term "Supply Chain Management" we must first understand as to
what is a supply chain. A 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 chains exist in
both service and manufacturing organizations, although the complexity of the
chain may vary greatly from industry to industry and firm to firm.
Supply chain management (SCM) is the oversight of materials, information, and
finances as they move in a process from supplier to manufacturer to wholesaler
to retailer to consumer. Supply chain management involves coordinating and
integrating these flows both within and among companies. SCM is typically viewed
to lie between fully vertically integrated firms, where the entire material flow
is owned by a single firm, and those where each channel member operates
independently. Therefore coordination between the various players in the chain
is key in its effective management. It is said that the ultimate goal of any
effective supply chain management system is to reduce inventory (with the
assumption that products are available when needed).
Supply chain management flows can be divided into three main flows:
The product flow
The information flow
The finances flow
The product flow includes the movement of goods
from a supplier to a customer, as well as any customer returns or service needs.
The information flow involves transmitting orders and updating the status of
delivery. The financial flow consists of credit terms, payment schedules, and
consignment and title ownership arrangements.
Software & Technology
Increasing numbers of companies are turning to Web sites and Web-based
applications as part of the SCM solution. A number of major Web sites offer
procurement marketplaces where manufacturers can trade and even make auction
bids with suppliers.
There are two main types of SCM software: planning applications and execution
applications. Planning applications use advanced algorithms to determine the
best way to fill an order. Execution applications track the physical status of
goods, the management of materials, and financial information involving all
Some SCM applications are based on open data models that support the sharing of
data both inside and outside the enterprise (this is called the extended
enterprise, and includes key suppliers, manufacturers, and end customers of a
specific company). This shared data may reside in diverse database systems, or
data warehouses, at several different sites and companies. By sharing this data
"upstream" (with a company's suppliers) and "downstream" (with a company's
clients), SCM applications have the potential to improve the time-to-market of
products, reduce costs, and allow all parties in the supply chain to better
manage current resources and plan for future needs.
SCM applications are developed using a number of scalable enterprise-level
technologies like Electronic Data Interchange (EDI), Extensible Markup Language
(XML) and other server application tools.
Supply Chain Management involves many processes and procedures for efficient
chain management. A few of the processes of Supply Chain Management are:
Procurement: E-Procurement is the business-to-business purchase and sale of
supplies and services over the Internet. An important part of many B2B
initiatives, e-procurement web sites allow qualified and registered users to
look for buyers or sellers of goods and services. Depending on the approach,
buyers or sellers may specify prices or invite bids. Transactions can be
initiated and completed. Ongoing purchases may qualify customers for volume
discounts or special offers.
Outsourcing: Outsourcing is an arrangement in which one company provides
services for another company that could also be or usually have been provided
in-house. Outsourcing is a trend that is becoming more common in information
technology and other industries for services that have usually been regarded as
intrinsic to managing a business.
E-Fulfillment: It optimizes customer response by merging several important
functions: order management, storage and delivery of finished goods. Warehouse
execution may involve final assembly and packaging of products. Besides better
customer response, benefits include more efficient inventory management, order
entry, warehousing and transportation management and an optimizing end-to-end
E-Tailing: E-tailing is the virtual storefront. As a place for direct retail
shopping, with its 24-hour availability, global reach, ability to interact and
provide custom information and ordering, and multimedia prospects, the Web is
rapidly becoming a multibillion-dollar source of revenue for the world's
Forecasting: Seeks to predict levels of weekly or monthly product activity over
a time horizon, typically two years. The statistical methods proven to make such
predictions have been used by manufacturers and distributors since the advent of
MRP II systems. Besides increased availability, the nature of forecasting also
is changing. Forecasting systems are used to increase agility. Companies are
able to consolidate demands from multiple business units, reduce forecasting
cycle times from weeks to days, while simultaneously increasing forecasting
accuracy, eliminating excess inventory, and ensuring that material is on-hand
for scheduled production.
Warehousing: Integrates work performed within warehouses and distribution
centers with a transactional-type information system. Simple storage and
retrieval of materials is superseded by strategies to increase throughput and
productivity by managing the full range of warehouse resources to effectively
manage warehouse business processes and direct warehouse activities, including
receiving, put away, picking, shipping, and inventory cycle counts. Most support
radio-frequency communications, allowing real-time data transfer between the
system and warehouse personnel.
Logistics: Logistics is that part of the supply chain process that plans,
implements, and controls the efficient, effective flow and storage of goods,
services, and related information from the point of origin to the point of
consumption in order to meet customers' requirements.
Conclusion & The Future of Supply Chain Management
Supply chain management is poised for a rapid evolution. Over the next few
months, the rush to meet the demands of individual customers is expected to
speed up. Increasing supply chain collaboration will take place at large
enterprises and small- and medium-sized enterprises (SMEs), both of which are
increasing their supply chain investments and pursuing e-business initiatives.
Increasingly, more brick-and-mortar manufacturers are adding e-commerce
capabilities and, as a result, are facing new challenges, such as individual
delivery of products.
The biggest challenge ahead may be to overcome the notion that a single
organization can achieve best-in-class supply chain management. The truth is
that organizations must work together to help each other succeed. Everyone in
the supply chain is a strategic link. Strong links make strong supply chains;
weak links hurt everybody - from the raw material producer to the end customer,
who evaluates how well a supply chain is performing every time he or she makes a