what is supply chain management

what is supply chain management

The Fundamentals of Supply Chain Management

1. Introduction to Supply Chain Management

In essence, the traditional business functions must develop new ways of working together. The future will require new interfaces such as product development and sourcing, sales and support services, and order entry and demand forecasting. 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. Because existing supply chain technology and systems ensure stable and efficient supply and demand chains, manufacturers are looking beyond the four walls of the company and tenure. Supply chain companies have emerged to bring the focus back to what’s profitable for the supply chain. In essence, today’s manufacturers want to get back in the business of making widgets, which today’s sophisticated supply chain can deliver to the end customer with the greatest efficiency.

While supply is becoming more responsive to changes in demand, it is still difficult to predict demand with great accuracy. Offsetting the effects of demand variation to maintain a single ‘optimal’ level of inventory while providing higher product variety remains a decision-making challenge for supply chain management. Moreover, the trend towards greater product variety is expected to continue. Task-specific hardware or off-the-shelf software? Customized training or a standard curriculum? Pre-packaged news or a personalized page pulled from the Internet? Customers are becoming more powerful every day. They can order or build exactly what they want and have it delivered to their doorstep. They have more choices all the time. They expect instantaneous responses and delivery. Companies who ignore this trend do so at their peril. The availability of product variety and rapid product growth promises increased market demand. However, the increased product and flexibility associated with product variety has implications for supply chain design. These implications reflect the trends in the internal interfaces between the major primary and support tasks associated with providing the product variety at the required level of response.

The first supply chain was formed about three days after the first product was invented. It has been an important function since the first product was invented. Supply chain management is the systematic, strategic coordination of the traditional business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole. Using the basic supply and demand model, it is easy to see why supply chain management has become such an important management issue. The proliferation of product variety is a fact of life in most industries today.

2. Key Components of Supply Chain Management

Customer service includes organizing timetables when goods should be offered and over what period of time inventories should be stocked. Actual performance is regularly matched with pre-set standards. Manufacturing flow includes scheduling and application of the production processes within the production facility. Production planning comprises the detailed planning of work activities, raw material scheduling, demand forecasting, capacity arrangement, and production preparation. It includes routing, scheduling, dispatching, and load dispatch loads.

Supply chain management is a business process that connects the purchasing and distribution processes of goods with customers, vendors, suppliers, and various supply chain partners. The overall objective is to provide goods, raw materials, components, and services required for the effective operation of the supply chain process. Organized and integrated internally, the supply chain process can be evaluated with sub-processes and several components such as purchase, production, distribution, transport, and service. These basic supply chain management processes also comprise various sub-sections such as customer service, manufacturing flow, production planning, purchasing, returns, and supplier relationship management.

3. Challenges and Trends in Supply Chain Management

The development of information technology and increased availability of Internet access has allowed for substantial changes in transportation systems. Furthermore, rapid advances in electronic data interchange (EDI) require organizations to rethink the way they perform their logistics operations, manage their inventories, and schedule the movement of both raw materials and finished goods. The aforementioned elements, when propelled by constant product innovation in the supply chain area, lead to typical relationship patterns which vary in time and space. These involve concentration, centralization/fragmentation, and horizontal and vertical integration in the supply chain, as well as a revolutionary change in the spatial distribution of warehouses aimed at improving their functional flexibility.

Apart from these disruptions in the supply chain, companies are also faced with the challenge of increasing the responsiveness and service levels of their supply chains. As the property cost of the capital in logistics operations is generally high, there is a growing trend in outsourcing and relying more on logistics companies to provide the needed logistics services, including production (manufacturing). This sits well with the theory of doing what is core or which the organization has a strong discipline. An enterprise should give more weight to critical missions for achieving its competitive edge, such as being closer to its customers, better quality of services, and new product design and development.

4. Best Practices and Strategies in Supply Chain Management

Best practices and strategies in supply chain management are always an appealing area because of their impact and relevance at all manufacturing situations and all companies. Each company must determine a strategy and best practices appropriate for their circumstances and the stage of its evolution. Best practices must be performed at the optimal level for a strategy to provide true competitive benefit. Until 25 years ago, the management accounting and control system design aspects have been overlooked or underestimated by the abundant literature on business strategy. Many reference articles highlight organizations that implement “corporate strategies,” which are strategic changes at top management level that produce little more than short-term performance improvement. This kind of company approach results in maintaining the same operating policies. However, most organizations, instead of changing top management strategic approach, attempted to gain competitive advantage through structural changes related to decentralization and empowerment, globalization, M&A strategic acquisitions, outsourcing and/or offshoring, and strategic alliances company partnerships.

This chapter discusses several different strategies that companies have pursued to effect significant supply chain improvement. This chapter discusses the leading business process reengineering methodologies and how they relate to each other. In addition, it describes the conditions under which companies should consider business reengineering and specific advice on how to achieve business improvement in those areas. Accompanying the book are an agent-based software model and various data sets used to support some of the recommendations which are provided courtesy of the authors. Upon completion of this chapter, the students will have developed an understanding of process-improvement methodologies, a description of several different strategies currently in use and a model for evaluating their effectiveness.