What is SCM?

Supply chain management - delivering the right product to the right place, at the right time and at the right price - is one of the most powerful engines of business transformation. It is one of the leading cost saving and revenue enhancement strategies in use today. At the end of the continuum of trends that started off from Business Process Reengineering, Total Quality Management and ERP that have all addressed only the inner workings of an Organization, SCM aims at integrating the company's internal systems to those of its suppliers, partners and customers. Technologies such as the Internet, electronic data interchange, transportation and warehouse management software, including software that manages plant scheduling, demand forecasting, procurement, make SCM a versatile strategy to adopt.

Supply Chain Yearbook 2000 described SCM as, A chain of processes that facilitates business activities between trading partners, from the purchase of raw goods and materials for manufacturing to delivery of a finished product to an end user.´

Cost Reduction & SCM There are number of cost reduction techniques available for management to reduce cost which ranges from Man Power Reduction , Strict supervision , compromise with quality , Overtime work etc . But cost reduction at the cost of quality is mere waste strategy. SCM aims at cost reduction without affecting quality. SCM strategy is to reduce cost by eliminating all non value added activities in the flow of goods from Raw material supplier to End consumer. The Objective of SCM is to increase the competitive advantage of the channel as a whole. The means to accomplish this objective is through creating customer value superior to the competitor s value offering and

Four major decision areas on supply chain management are: (1) Location (2) Production (3) Inventory (4) Transportation (distribution) And there are both strategic and operational elements in each of these decision areas. number. The location of facilities involves a commitment of resources to a long-term plan. Decisions in supply chain management: 1 Decisions for supply chain management can be classified into two broad categories strategic and operational. Location decisions: The geographic placement of production facilities. to enhance customer satisfaction . . so are the possible paths by which the product flows through to the final customer. stocking points. Once the size. and location of these are determined. plants to Distribution Channel s(DC). and equipment maintenance. Other considerations include workload balancing. operational decisions are short term. These are closely linked to the corporate strategy and guide supply chain policies from a design perspective. and focus on activities over a day-today basis. These decisions have a big impact on the revenues. Production decisions: The strategic decisions include what product to produce. strategic decisions are made typically over a longer time horizon. On the other hand. allocation of suppliers to plants. Although location decisions are primarily strategic. The effort in these types of decisions is to effectively and efficiently manage the product flow in the strategically planned supply chain. and which plant to produce them in. they also have implications on an operational level. and DC s to customers markets. As the term implies. and quality control measures at a production facility. These decisions include the construction of the master production schedules.. scheduling production on machines. either through improving efficiency (lower cost) or effectiveness (added values at the same cost). costs and customers service level of the firm. and sourcing points is the natural first step in creating a supply chain.thus.

Similar expectations apply to external entities. These are closely linked to the inventory decisions. Continued emphasis on outsourcing. Dynamic business environment characterized with Time-based competition. suppliers and service providers dictates greater visibility and collaboration throughout the supply chain. Increased consolidation of suppliers and service providers. Shipment sizes (consolidated bulk shipments versus Lot-for-Lot). Customers will demand faster. Evolution of Supply Chain Management: Span of Responsibility . The importance and need of SCM will increase in the future. Manufacturing will expect greater knowledge of order requirements to better plan its operations and procurement processes. routing and scheduling of equipment are key in effective management of the firm s transport strategy. Development of performance measures encompassing supply chain partners. Increased collaboration between supply chain partners. Transport decisions: The mode choice aspects of these decisions are the more strategic ones. and Electronic commerce to enable communications throughout the supply chain will increase the need of of supply chain. Inventories exist at every stage of the supply chain as either raw material. This need for increased coordination among customers. It is strategic in the sense that top management sets goals. Further privatization and deregulation. timelier delivery of orders. Synchronization with other corporate functions. They can also be in process between Locations. Since transportation is more than 30 percent of the logistics costs. Since holding of inventories can cost anywhere between 20 to 40 percent of their value. Customer service levels and geographic location play vital roles in such decisions. Service customized to specific markets and customers.Inventory decisions: These refer to means by which inventories are managed. operating efficiently makes good economic sense. semi-finished or finished goods. Why Supply Chain. Their primary purpose to buffer against any uncertainty that might exist in the supply chain. their efficient management is critical in supply chain operations. since the best choice of mode is often found by trading-off the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode.

Operations or Marketing.. demand planning.Earlier: The components of SCM traditionally were viewed as functional silos and typically included outbound transport-tation (i. SCM contributions at the corporate level were judged to be minimal. production planning/scheduling and international logistics. 2. ware-housing. companies. relatively few universities offered SCM education. inventory management techniques.. In Asia. this percentage was slightly lower (48 percent).e. and abroad offering degrees at all levels in the field of SCM. manufacturing and other departments are now generally peers rather than reporting officials. adding little or no tangible value to bottom line results. marketing or other functional areas. inventory management . Individuals responsible for SCM were typically at the manager level. the academicians who taught SCM coursework were usually housed within a larger department. Continuing education seminars and workshops with SCM themes abound. field warehousing and finished goods inventory management. warehousing and material handling systems and international trade Present: Today. purchasing / sourcing.g. Present: Today s SCM executive generally has a much broader range of responsibilities. in Europe this percentage was only 31 percent. there are numerous.Organizational Position: Earlier: SCM traditionally was viewed as a cost centre. Present: SCM executives are now well positioned. but these forums generally focused on a specific aspect of SCM. such as carrier negotiations. A recent CLM listing identified nearly 50 institutions with SCM-related curricula. 3. Executives in charge of marketing / sales.S. customer service . 4. that the majority of these executives have respon-sibility for transportation. e. Some schools offered continuing education and seminars in SCM. well-recognized universities in the U. reporting to directors or vice presidents responsible for operations. Since reporting systems focused . Contributions to Corporate Performance Earlier: Historically viewed as a cost center.S. In these institutions. Education and Training Earlier: Historically. 52 percent of SCM executives report to an Executive Vice President or COO/CEO. customer delivery). In recent survey it is observed that In U.

Time was when companies looked at their supply chains as a means of focusing on their own core competencies. of leveraging those of vendors. giving higher efficiency. . any strategic value associated with SCM was difficult to quantify. SCM is important for modern business because it coordinates and synchronizes activities of partner businesses. These developments are putting pressure on business community to look at the each and every components of business like procurement. For any product or service offered by any business. Effective linking of functions of these processes puts companies in strategic position.all these factors are fast changing the competitive dynamics in global environment. Those goals won t be swept away by the supply chain in the new millennium. there are usually a number of different business entities involved in the various stages of the supply chain. of lowering their costs. logistics. The traditional approaches are too slow to keep pace with the evolving global complexity. and of becoming more responsive to customers. and delivers it to end users. IMPORTANCE OF SUPPLY CHAIN MANAGEMENT (SCM) Supply chain management (SCM) is a business practice that aims to improve the way a business sources its raw materials. The principles of supply chain management are derived from five basic components. including manufacturers. rapid advances in technology. In this dynamic market place. Every link in SCM can add up to a competitive advantage. wholesalers. reduce inventory levels by as much as one-half and enhance overall productivity by at least 15 percent. To conclude. compared to the industry average of 7 percent to 10 percent Successful SCM can improve delivery performance by 25%. But they will be superseded by a singly super-objective: competing on the basis of how well companies manage their supply-chain. Present: Leading-edge manufacturers report SCM costs between 4 percent and 5 percent of sales. the equations are kept changing very fast with the leaders of yesterday being displaced by the fast-paced and agile new entrants. marketing etc. the last group in a supply chain is consumers. demanding customers. shrinking product life cycles.on managing operational-level activities. Intense competition. This volatile business environment is making it harder than ever for marketers compete effectively. distributors and retailers.

Sometimes referred to as logistics. output of production and productivity of workers. quality testing. managers make use of an integrated system. and monitor and improve relationship by using metrics. In SCM. SCM managers schedule activities for manufacturing. Sourcing involves studying supplier competencies and selecting one. Managers in SCM develop policies for pricing. packaging and shipping by coordinating the actions of each and every entity involved in the various related processes. each and every time. and deliver high quality and high value to customers in time. developing a network of warehouses and carrier companies.Plan 1. warehouses and carriers. sending them to manufacturing plants and authorizing payments. For the product to reach their customers in time. The next component involves the actual manufacturing process. These are important parameters that can be evaluated. their carriage must be seamless and without incident. based on one or more criteria. The delivery . When a supplier is chosen. delivery and payment with each supplier. delivery is an involved stage requiring large amounts of data from customer orders. manufacturing makes the most use of the metric system. Deliver 4. Source 2. and remedied (if performance is sub-par) to enhance efficiency. Timely and effective planning makes a company's supply chain more responsive and prepared for contingencies. SCM managers who plan are able to keep costs low. After the manufacturing process comes delivery. For most efficient operation. SCM managers in the delivery process must synchronize activities of partner businesses involved in the transportation of goods. Planning is the first and most important strategic function in SCM. The planning process lays down the strategy for managing and handling all resources that are used in providing the service or product that the company is involved in. Planning involves developing a set of metrics that enables the company to maximize efficiency by monitoring the flow of materials through the supply chain. enabling managers to measure quality. Manufacture 3. The SCM managers supervise inventory and execute tasks such as collecting and verifying shipments. they must be prepared to deliver goods and services that the businesses need to create their products. Sourcing is the next component that managers consider in SCM.

and as such. accepting goods back ensures future business relationships. Often the trickiest component in SCM is establishing an efficient system for returns of defective goods. Setting up a responsive and flexible network is a very important aspect of SCM because excess and defective goods should ideally be received by the company as quickly as possible.process also involves preparation of an invoicing system for payment receipts. Defects and excesses are causes for concern for a business's consumers and clients. Return 5. . Companies that are unable to establish fluent transport of goods back to the warehouse may lose customers and future business opportunities.

Sign up to vote on this title
UsefulNot useful