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Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.

According to the Council of Supply Chain Management Professionals (CSCMP), a professional association that developed a definition in 2004, Supply Chain Management "encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies."Council of Supply Chain Management Professionals: CSCMP Definition of Supply Chain Management.

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.

Some experts distinguish supply chain management and logistics management, while others consider the terms to be interchangeable. From the point of view of an enterprise, the scope of supply chain management is usually bounded on the supply side by your supplier's suppliers and on the customer side by your customer's customers.

Supply chain management is also a category of software products.

Opportunities enabled by Supply Chain Management

The following strategic and competitive areas can be used to their full advantage if a supply chain management system is properly implemented.

  • Fulfillment. “Ensuring the right quantity of parts for production or products for sale arrive at the right time.”(Haag, Cummings, McCubbrey, et al., 2006, p. 46). This is enabled through efficient communication, ensuring that orders are placed with the appropriate amount of time available to be filled. The supply chain management system also allows a company to constantly see what is on stock and making sure that the right quantities are ordered to replace stock.

  • Logistics. “Keeping the cost of transporting materials as low as possible consistent with safe and reliable delivery.” (Haag, Cummings, McCubbrey, et al., 2006, p. 46). Here the supply chain management system enables a company to have constant contact with its distribution team, which could consist of trucks, trains, or any other mode of transportation. The system can allow the company to track where the required materials are at all times. As well, it may be cost effective to share transportation costs with a partner company if shipments are not large enough to fill a whole truck and this again, allows the company to make this decision.

  • Production. “Ensuring production lines function smoothly because high-quality parts are available when needed.” (Haag, Cummings, McCubbrey, et al., 2006, p. 46). Production can run smoothly as a result of fulfillment and logistics being implemented correctly. If the correct quantity is not ordered and delivered at the requested time, production will be halted, but having an effective supply chain management system in place will ensure that production can always run smoothly without delays due to ordering and transportation.

  • Revenue & profit. “Ensuring no sales are lost because shelves are empty.”(Haag, Cummings, McCubbrey, et al., 2006, p. 46). Managing the supply chain improves a company’s flexibility to respond to unforeseen changes in demand and supply. Because of this, a company has the ability to produce goods at lower prices and distribute them to consumers quicker then companies without supply chain management thus increasing the overall profit.

  • Costs. “Keeping the cost of purchased parts and products at acceptable levels.” (Haag, Cummings, McCubbrey, et al., 2006, p. 46). Supply chain management reduces costs by “… increasing inventory turnover on the shop floor and in the warehouse” (&ldquo Supply chain management,” 2006) controlling the quality of goods thus reducing internal and external failure costs and working with suppliers to produce the most cost efficient means of manufacturing a product.

  • Cooperation. “Among supply chain partners ensures 'mutual success.'” (Haag, Cummings, McCubbrey, et al., 2006, p. 46). Collaborative planning, forecasting and replenishment (CPFR) is a “longer-term commitment, joint work on quality, and support by the buyer of the supplier’s managerial, technological, and capacity development.” (Klassen, Krajewski, Ritzman, 2004, p.293) This relationship allows a company to have access to current, reliable information, obtain lower inventory levels, cut lead times, enhance product quality, improve forecasting accuracy and ultimately improve customer service and overall profits. The suppliers also benefit from the cooperative relationship through increased buyer input from suggestions on improving the quality and costs and though shared savings. Consumers can benefit as well through higher quality goods provided at a lower cost.

Supply chain management problems

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: Integrate systems and processes through the supply chain to share valuable information, including demand signals, forecasts, inventory and transportation.
  • Inventory Management: Quantity and location of inventory including raw materials, work-in-process and finished goods.

Activities/Functions

Supply chain management is a cross-functional approach to managing the movement of raw materials into an organization and the movement of finished goods out of the organization toward the end-consumer. As corporations strive to focus on core competencies and become more flexible, they have reduced their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other corporations that can perform the activities better or more cost effectively. The effect has been to increase the number of companies involved in satisfying consumer 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 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.

Strategic

  • 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 third-party logistics.
  • Product design coordination, so that new and existing products can be optimally integrated into the supply chain.
  • Information Technology infrastructure, to support supply chain operations.
  • Where to make and what to make or buy decisions

Tactical

  • Sourcing contracts and other purchasing decisions.
  • Production decisions, including contracting, locations, scheduling, and planning process definition.
  • Inventory decisions, including quantity, location, and quality of inventory.
  • Transportation strategy, including frequency, routes, and contracting.
  • Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise.
  • Milestone Payments

Operational

  • Daily production and distribution planning, including all nodes in the supply chain.
  • Production scheduling for each manufacturing facility in the supply chain (minute by minute).
  • Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers.
  • Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers.
  • Inbound operations, including transportation from suppliers and receiving inventory.
  • Production operations, including the consumption of materials and flow of finished goods.
  • Outbound operations, including all fulfillment activities and transportation to customers.
  • Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers.
  • Performance tracking of all activities

The Bullwhip Effect

The Bullwhip Effect (or Whiplash Effect) is an observed phenomenon in forecast-driven distribution channels. Because customer demand is rarely perfectly stable, businesses must forecast demand in order to properly position inventory and other resources. Forecasts are based on statistics, and they are rarely perfectly accurate. Because forecast errors are a given, companies often carry an inventory buffer called "safety stock". Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. In periods of rising demand, down-stream participants will increase their orders. In periods of falling demand, orders will fall or stop in order to reduce inventory. The effect is that variations are amplified the farther you get from the end-consumer.

Supply chain experts have recognized that the Bullwhip Effect is a problem in forecast-driven supply chains. The alternative is to establish a demand-driven supply chain which reacts to actual customer orders. In manufacturing, this concept is called Kanban. This model has been most successfully implemented in Wal-Mart's distribution system. Individual Wal-Mart stores transmit point-of-sale (POS) data from the cash register back to corporate headquarters several times a day. This demand information is used to queue shipments from the Wal-Mart distribution center to the store and from the supplier to the Wal-Mart distribution center. The result is near-perfect visibility of customer demand and inventory movement throughout the supply chain. Better information leads to better inventory positioning and lower costs throughout the supply chain. Barriers to implementing a demand-driven supply chain include investments in information technology and creating a corporate culture of flexibility and focus on customer demand.

Factors contributing to the Bullwhip Effect:

  • Forecast Errors
  • Lead Time Variability
  • Batch Ordering
  • Price Fluctuations
  • Product Promotions
  • Inflated Orders

Methods intended to reduce uncertainty, variability, and lead time:

See also

Beer Distribution Game '''

Supply Chain Management

Nowadays, one of the few outcomes in the constantly changing business world is that organizations can no longer compete solely as individual entities. Increasingly, they must rely on effective supply chains, or networks, to successfully compete in the global market and networked economy (Baziotopoulos, 2004). 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 inter-organizational 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 different supply network structures could have on firms, and little is known about the coordination conditions trade-offs 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 internal management control structure is known to impact local firm performance (Mintzberg, 1979). In the 21st century, there have been few changes in business environment that contributed to the development of supply chain networks. First, as an outcome of globalization and proliferation of multi-national companies, joint ventures, strategic alliances and business partnerships were found to be significant success factors, following the earlier “Just-In-Time”, “Lean Management” and “Agile Manufacturing” practices (MacDuffie and Helper, 1997; Monden, 1993; Womack and Jones, 1996; Gunasekaran, 1999). Second, technological changes, particularly the dramatic fall in information communication costs, a paramount component of transaction costs, has led to changes in coordination among the members of the supply chain network (Coase, 1998). Many researchers have recognized these kinds of supply network structure as a new organization form, using terms such as “Keiretsu”, “Extended Enterprise”, “Virtual Corporation”, Global Production Network”, and “Next Generation Manufacturing System” (Drucker, 1998; Tapscott, 1996; Dilts, 1999). In general, such structures, can be defined as “a group of semi-independent organizations, each with their capabilities, which collaborate in ever-changing constellations to serve one or more markets in order to achieve some business goal specific to that collaboration” (Akkermans, 2001).

Supply Chain Business Process Integration

Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. The purchasing department placed orders as requirements became appropriate and marketing, responding to customer demand, interfaced with several distributors and retailers and attempted to satisfy this demand. Shared information between supply chain partners can only be fully leveraged through process integration (Christopher, 2000). Process integration means collaborative working 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, such as 3M, 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 and Cooper (2000) are: - customer relationship management - customer service management - demand management - order fulfillment - manufacturing flow management - procurement - product development and commercialization - returns

However, the existing literature makes greater contribution to other important supply chain processes (Mills et al., 2004; Lewis and Talalayevsky, 2004; Hedberg and Olhager, 2002; Hemila, 2002; Vickery et.al., 2003; Yusuf et al., 2003; Handfield and Bechtel, 2001; Prater et al., 2001; Kern and Willcocks, 2000;; Bowersox and Closs, 1996; Christopher, 1992; Bowersox, 1989; Porter, 1985). One could suggest other key critical supply business processes combining these processes stated by Lambert and Cooper (2000), such as (Figure 7):

a) Customer service Management b) Procurement c) Product development and Commercialization d) Manufacturing flow management/support e) Physical Distribution f) Outsourcing/ Partnerships g) Performance Measurement (internal/external)

a) Customer service management process: Customer service provides the source of customer information. It also provides the customer with real-time information on promising dates and product availability through interfaces with the company’s production and distribution operations (Lambert and Cooper, 2000; Kern and Willcocks, 2000; Lewis and Talalayevsky, 2004).

b) Procurement process: 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 (Prater et al., 2001; Bozarth et al., 1998; Yourdon, 1998). The desired outcome is a win-win relationship, where both parties benefit, and reduction times in the design cycle and product development is achieved. Also, the purchasing function develops rapid communication systems, such as electronic data interchange (EDI) and Internet linkages to faster transfer possible requirements (Vickery et al., 2003). Activities related to obtaining products and materials from outside suppliers. Requires performing resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage and handling and quality assurance (Bowersox and Closs, 1996). Also, includes the responsibility to coordinate with suppliers in scheduling, supply continuity, hedging, and research to new sources or programmes.

c) 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 time-schedules to remain competitive (Lambert and Cooper, 2000; Kern and Willcocks, 2000; Lynch, 2003; Porter, 1985). According to Lambert and Cooper, managers of the product development and commercialization process must: a) coordinate with customer relationship management to identify customer-articulated needs; b) select materials and suppliers in conjunction with procurement, and c) develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination (Gunasekaran and Ngai, 2004; Romano, 2003; Lewis and Talalayevski, 2004).

d) Manufacturing flow management process: The manufacturing process is produced and supplied products to the distribution channels based on past forecasts. Manufacturing processes must be flexible to respond to market changes, and must accommodate mass customization (Lambert and Cooper, 2000). Orders are processes on a just-in-time (JIT) basis in minimum lot sizes (Christopher, 2000; Prater et al., 2001; Kalafatis, 2000; Yusuf et al., 2003). Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency of demand to customers (Handfield and Bechtel, 2001). Activities related to planning, scheduling and supporting manufacturing operations, such as work-in-process 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 (Bowersox and Closs, 1996).

e) Physical Distribution: This concerns movement of a finished product/service to customers (Bowersox and Closs, 1996). 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 (Bowersox, 1989). 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).

f) Outsourcing/ Partnerships: Not just outsourcing the procurement of materials and components, but also 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 where it has a distinctive advantage and everything else it will outsource (Christopher, 1992). 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 (Vickery et al., 2003). Hence, strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level.

g) Performance Measurement: Frohlich and Westbrook(2001) 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 long-term supply chain perspective in customer relationships can be both correlated with firm performance (Tan et al., 1998). 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. As Kearney Consultants (1985) noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to Bowersox and Closs, internal measures are generally collected and analyzed by the firm including 1) Cost, 2) Customer Service, 3) Productivity measures, 4) Asset measurement, and 5) Quality (Bowersox and Closs, 1996; Bowersox, 1989). External performance measurement is examined through customer perception measures and “best practice” benchmarking, and includes 1) Customer perception measurement, and 2) Best practice benchmarking (Bowersox, 1989)

Supply Chain Management Components Integration

The management components of SCM:

The SCM management components are the third element of the four-square 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 (Macneil ,1975; Williamson, 1974; Hewitt, 1994), buyer-supplier relationships (Stevens, 1989; Ellram and Cooper, 1993; Ellram and Cooper, 1990; Houlihan, 1985), and SCM (Cooper et al., 1997; Lambert et al.,1996; Turnbull, 1990) suggests various possible components that must receive managerial attention when managing supply relationships. Lambert and Cooper (2000) identified the following components which are:

- planning and control - work structure - organization structure - product flow facility structure - information flow facility structure - management methods - power and leadership structure - risk and reward structure - culture and atttude

However, a more careful examination of the existing literature (Zhang and Dilts, 2004 ;Vickery et al., 2003; Hemila, 2002; Christopher, 1998; Joyce et al., 1997; Bowersox and Closs, 1996; Williamson, 1991; Courtright et al., 1989; Hofstede, 1978) 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 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 supporting the primary ones. Also, third level channel participants and components may be included, that will support the primary level channel participants, and which are the fundamental branches of the secondary level components. 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, and how should these components 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 2.1 and 3.1). Therefore, as a consequence of reviewing the literature (Stevens, 1989; Ellram and Cooper, 1993; Mills et al., 2004; Lewis and Talalayevsky, 2004; Hedberg and Olhager, 2002; Hemila, 2002; Vickery et.al., 2003; Yusuf et al., 2003; Handfield and Bechtel, 2001; Prater et al., 2001; Kern and Willcocks, 2000;; Bowersox and Closs, 1996; Christopher, 1992; Bowersox, 1989), Baziotopoulos (2004) suggests the following supply chain components, which are as follows (Fig.8):

1) For “Customer Service Management”: Includes the primary level component of customer relationship management, and secondary level components such as benchmarking and order fulfillment. 2) 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. 3) 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). 4) For “Performance Measurement”: This 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. In general, information flow facility structure is regarded by two important requirements, which are a) planning and Coordination flows, and b)operational requirements. 5) For “Outsourcing”: This includes the primary level component of management methods and the company’s cutting-edge strategy and its vital strategic objectives that the company will identify and adopt for particular strategic initiatives in key the areas of technology information, operations, manufacturing capabilities, and logistics (secondary level components).

See also

External links

Supply Chain Management | Gestion de la chaîne logistique | Supply chain management | SCM-systeem | Supply Chain Management | Gerência de cadeia de suprimentos | 供应链管理

 

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