SUPPLY CHAIN MANAGEMENT – INTEGRAL ELEMENT OF A COMPANY’S BUSINESS STRATEGY
SUPPLY CHAIN MANAGEMENT
Introduction:
Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers. A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers and customers themselves.
According to the Council of Supply Chain Management Professionals (CSCMP), Supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management.
Objective of Supply Chain:
The objective of a supply chain is to maximize the overall value generated. The value a supply chain generates is the difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customer’s request. This can be done using Supply Chain Profitability which is the total profit to be shared across all supply chain stages.
Decision phases in a Supply Chain:
Effective Supply Chain requires many decisions relating to the flow of information, product and funds. These decisions fall into three categories as below.
During this phase, a company decides how to structure the supply chain over the next several years. It also decides what is the chain’s configuration will be, how resources will be allocated and what processes each stage will perform.
For decisions made in the previous phase, the time frame considered is a quarter to a year. Companies start the planning phase with a forecast for the coming year of demand in different markets. Planning included decisions regarding which markets will be supplied from which locations, the subcontracting of manufacturing, the inventory policies to be followed and the timing and size of marketing promotions.
The time horizon here is weekly or daily and during this phase companies make decisions regarding the individual customer orders. At the operational level, supply chain configuration is considered fixed and planning policies are already defined. The goal of supply chain operations is to handle incoming customer orders in the best possible manner.
Cycle View of a Supply Chain process:
A supply chain is a sequence of processes and flows that take place within and different stages and combine to fill a customer need for a product. The cycle view of a supply chain process can be classified into four.
The customer order cycle occurs at the customer/retailer interface and includes all processes directly involved in receiving and filling the customer’s order. Typically the customer initiates the cycle at a retailer site and the cycle primarily involves filling customer demand. The processes involved in customer order cycle are as below.
- Customer arrival.
- Customer order entry.
- Customer order fulfillment.
- Customer order receiving.
The replenishment cycle occurs at the retailer/distributor interface and includes all processes involved in replenishing retailer inventory. It is initiated when a retailer places an order to replenish inventories to meet future demand. The objective of this cycle is to replenish inventories at the retailer at minimum cost while providing high product availability. The processes involved are
- Retail order trigger.
- Retail order entry.
- Retail order fulfillment.
- Retail order receiving.
The manufacturing cycle occurs at the distributor/manufacturer interface and includes all processes involved in replenishing inventory. The manufacturing cycle is triggered by customer orders, replenishment orders from a retailer or distributor or by forecast of customer demand and current product availability in the manufacturer’s finished goods warehouse. The processes involved in manufacturing cycle are
- Order arrival from warehouse, distributor, retailer or customer.
- Production scheduling.
- Manufacturing and shipping.
- Receiving at the distributor, retailer or customer.
The procurement cycle occurs at the manufacturer/supplier interface and includes all processes necessary to ensure that materials are available for the manufacturing to occur according to schedule. During the procurement cycle, the manufacturer orders components from suppliers that replenish the components inventories. The relationship is quite similar to that between a distributor and manufacturer with one difference. Here the components order depends on the production schedule. Thus it is important that suppliers are linked to the manufacturer production schedule.
Importance of SCM in company’s business strategy:
The business climate in today’s environment is rapidly changing and the competition level is very high. The competitive advantage of a company is the major factor for the company to outplay its competitors. To create this competitive advantage, companies are trying out various methods. SCM has played a major role in creating the competitive advantage. SCM has made companies to analyze its strategies and redesign it such that its core competencies are focused. The value of SCM is not only for creating a market position for the company but also in guiding the strategy for choosing the resources and workforce required.
SCM has made the companies attain not only productivity advantage but also gain certain value addition in the services it is offering. Maximizing of value and reduction of cost at the same time will lead to more innovation in the company for the products and services. Effective supply chain will also lead to effective customization. With this the customers are given value by doing flexible manufacturing according to customer requirements. Thus SCM enables companies cater to the needs of the customers.
Conclusion:
Thus supply chain management plays a critical role in a company’s success and become an integral part of a company’s strategy in satisfying the customer’s needs. SCM effectively interconnects the various business functions in a company and this helps in increasing the efficiency of the company in both manufacturing the product and offering appropriate services to the customers.