Supply Chain Management (SCM)

What Is Supply Chain Management (SCM)?

Supply chain management is the management of the flow of goods and
services and includes all processes that transform raw materials into final
products. It involves the active streamlining of a business's supply-side activities
to maximize customer value and gain a competitive advantage in the
marketplace.

SCM represents an effort by suppliers to develop and implement supply chains

that are as efficient and economical as possible. Supply chains cover everything
from production to product development to the information systems needed to
direct these undertakings.

Explaining Supply Chain Management (SCM)

Why is supply chain management important?

3 scenarios where 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.

How Supply Chain Management Works

Typically, SCM attempts to centrally control or link the production, shipment,
and distribution of a product. By managing the supply chain, companies are able
to cut excess costs and deliver products to the consumer faster. This is done by
 keeping tighter control of internal inventories, internal production, distribution,
sales, and the inventories of company vendors.

SCM is based on the idea that nearly every product that comes to market results
from the efforts of various organizations that make up a supply chain. Although
supply chains have existed for ages, most companies have only recently paid
attention to them as a value-add to their operations.

In SCM, the supply chain manager coordinates the logistics of all aspects of the
supply chain which consists of five parts:

 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.
 Making – Organize the activities required to accept raw materials, manufacture the
product, test for quality, package for shipping and schedule for delivery.
 Delivering (or logistics) – Coordinating customer orders, scheduling delivery,
dispatching loads, invoicing customers and receiving payments.
 Returning – Create a network or process to take back defective, excess or unwanted
products.
 Enabling – Establish support processes to monitor information throughout the supply
chain and assure compliance with all regulations. Enabling processes include: finance,
human resources, IT, facilities management, portfolio management, product design,
sales and quality assurance.

The supply chain manager tries to minimize shortages and keep costs down. The
job is not only about logistics and purchasing inventory. supply chain managers,
“make recommendations to improve productivity, quality, and efficiency of
operations.”

Improvements in productivity and efficiency go straight to the bottom line of a

company and have a real and lasting impact. Good supply chain management
keeps companies out of the headlines and away from expensive recalls and
lawsuits.
Flow of components:

Transportation:
Transportation or shipment is necessary for an uninterrupted and seamless
supply. The factors that have an impact on shipment are economic uncertainty
and instability, varying fuel prices, customers’ expectations, globalization,
improvised technologies, changing transportation industry and labor laws.

The major factors are:

 Long term decision:

Transportation managers should acknowledge the supply freight flow and
accordingly design the network layout. Now, when we say long term
decision, we mean that the transportation manager has to select what
should be the primary mode of transportation. The manager has to
understand the product flows, volume, frequency, seasonality, physical
features of products and special handlings necessities, if any. In addition to
this, the manager has to make decisions as to the extent of outsourcing to
be done for each and every product. While considering all these factors, he
should carefully consider the fact that the networks need not be constant.
 Lane Operation Decisions:
These functional decisions stress on daily freight operations. Here, the
transportation managers work on real time information on products’
requirements at different system nodes and must collaborate every move of
the product that is both inbound and outbound shipping lanes so as to
satisfy their services demands at the minimal possible cost. Managers who
make good decisions easily handle information and utilize the opportunities
for their own profit and assure that the product is moved to them
immediately, whenever it is demanded, that too in the right quantity. At the
same time, they are saving cost on transportation also.
 Choice and Mode of Carrier:
A very important decision to be made is to choose the mode of
transportation. With the improvement in the means of transportation,
modes of transport that were not available in the traditional transportation
modes in the past can be now be a preferred choice.
 Dock Level Operations:
This involves the last level of decision-making. This comprises planning,
routing and scheduling. For example, if a carriage is being loaded with
 different customers’ orders, the function of the dock-level managers is to
assure that the driver is informed of the most efficient route and that loads
are placed in the order of the planned stops.

Warehousing:
Warehousing plays a vital role in the supply chain process. In today’s industry, the
demands and expectations of the customers are undergoing a tremendous
change. We want everything at our door step – that too with efficient price. We
can say that the management of warehousing functions demands a distinct
merging of engineering, IT, human resources and supply chain skills.

The Warehouse Management Systems (WMS) leads the products to their storage
location where they should be stored. The required functionality for the
completion and optimization of receiving, storing and shipping functions is then
supplied.

Sourcing and Procurement:

Sourcing and procurement are a vital part of the supply chain management. The
company decides if it wants to perform all the exercises internally or if it desires
to get it done by any other independent firm. This is commonly referred as the
make vs buy decision, which we will be discussing in brief in another chapter.

Returns Management:
Returns management can be defined as the management that invites the merger
of challenges and opportunities for inbound logistics.

three pillars that support returns management processes. These are as follows:

Speed: It is a must to have quick and easy returns management and automate
decisions regarding whether to produce return material authorizations (RMAs)
and if so, how to process them. Basically, the tools of speed return processing
include automated workflows, labels & attachments and user profiles.

Visibility: For improving the visibility and predictability, information needs to be

captured initially in the process, ideally prior to delivering the return to the
receiving dock. Most effective and easily implementable approaches for obtaining
visibility are web-based portals, carrier integration and bar-coded identifiers.

Control: In case of returns management, synchronizing material movements is a

common issue that needs to be handled. The producers need to be very cautious
and pay close attention to receipts and reconciliation and update the
stakeholders of impending quality issues. In this case, reconciliation activates
visibility and control all over the enterprise. The key control points in this process
are regulatory compliance, reconciliation and final disposition and quality
assurance.

Post- sales services:

The post sales service in supply chain tends to be an increasingly essential factor
as businesses offer solution instead of products. The post sales services comprise
selling spare parts, installing upgrades, performing inspection, maintenance and
repairs, offering training & education and consulting. Presently, with the growing
demands of the clients, a high volume of after sales service proves to be a
profitable business. Here, the services are basically heterogeneous and the value-
added services are different from those provided prior to sales service.

Supply Chains
A supply chain is the connected network of individuals, organizations, resources,
activities, and technologies involved in the manufacture and sale of a product or
service. A supply chain starts with the delivery of raw materials from a supplier to
a manufacturer and ends with the delivery of the finished product or service to
the end consumer.

SCM oversees each touchpoint of a company's product or service, from initial

creation to the final sale. With so many places along the supply chain that can
add value through efficiencies or lose value through increased expenses, proper
SCM can increase revenues, decrease costs, and impact a company's bottom
line.

KEY TAKEAWAYS

 Supply chain management (SCM) is the centralized management of the

flow of goods and services and includes all processes that transform raw
materials into final products.
 By managing the supply chain, companies are able to cut excess costs
and deliver products to the consumer faster.
  Good supply chain management keeps companies out of the headlines
and away from expensive recalls and lawsuits.

Key features:
the five “Cs” of the effective supply chain management of the future:

 Connected: Being able to access unstructured data from social media, structured data
from the Internet of Things (IoT) and more traditional data sets available through
traditional ERP and B2B integration tools.
 Collaborative: Improving collaboration with suppliers increasingly means the use of
cloud-based commerce networks to enable multi-enterprise collaboration and
engagement.
 Cyber-aware: The supply chain must harden its systems and from cyber-intrusions and
hacks, which should be an enterprise-wide concern.
 Cognitively enabled: The AI platform becomes the modern supply chain's control
tower by collating, coordinating and conducting decisions and actions across the chain.
Most of the supply chain is automated and self-learning.
 Comprehensive: Analytics capabilities must be scaled with data in real time. Insights
will be comprehensive and fast. Latency is unacceptable in the supply chain of the
future.

Example of SCM
Understanding the importance of SCM to its business, Walgreens Boots Alliance
Inc. placed focused effort on transforming its supply chain in 2016. The company
operates one of the largest pharmacy chains in the United States and needs to
efficiently manage and revise its supply chain so it stays ahead of the changing
trends and continues to add value to its bottom line.

As of July 5, 2016, Walgreens has invested in the technology portion of its supply
chain. It implemented a forward-looking SCM that synthesizes relevant data and
uses analytics to forecast customer purchase behavior, and then it works its way
back up the supply chain to meet that expected demand.

For example, the company can anticipate flu patterns, which allow it to accurately
forecast needed inventory for over-the-counter flu remedies, creating an efficient
supply chain with little waste. Using this SCM, the company can reduce excess
inventory and all of the inventories' associated costs, such as the cost of
warehousing and transportation.