Supply chain

management

In commerce, supply chain management (SCM), the management of the flow of goods and
services,[2] between businesses and locations, and includes the movement and storage of raw
materials, of work-in-process inventory, and of finished goods as well as end to end order
fulfillment from point of origin to point of consumption. Interconnected, interrelated or
interlinked networks, channels and node businesses combine in the provision of products and
services required by end customers in a supply chain.[3]

Supply-chain management field of operations: complex and dynamic supply- and demand-networks [1] (cf
Supply-chain management field of operations: complex and dynamic supply- and demand-networks.[ ] (cf.
Wieland/Wallenburg, 2011)

In an efficient supply chain agreements are aligned

Supply-chain management has been defined as the "design, planning, execution, control, and
monitoring of supply-chain activities with the objective of creating net value, building a
competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand
and measuring performance globally".[4][5]
SCM practice draws heavily on industrial engineering,
systems engineering, operations management, logistics, procurement, information technology
and marketing,[6] and strives for an integrated approach. Marketing channels play an important
role in supply-chain management.[6] Current research in supply-chain management is concerned
with topics related to sustainability and risk management,[7] among others. An important
concept discussed in SCM is supply chain resilience. Some suggest that the “people dimension”
of SCM, ethical issues, internal integration, transparency/visibility, and human capital/talent
management are topics that have, so far, been underrepresented on the research agenda.[8]
Supply chain management (SCM) is the broad range of activities required to plan, control and
execute a product's flow from materials to production to distribution in the most economical
way possible. SCM encompasses the integrated planning and execution of processes required
to optimize the flow of materials, information and capital in functions that broadly include
demand planning, sourcing, production, inventory management and logistics -- or storage and
transportation.[9]

Although it has the same goals as supply chain engineering, supply chain management is
focused on a more traditional management and business based approach, whereas supply chain
engineering is focused on a mathematical model based one.[10]

Mission

Supply-chain management, techniques with the aim of coordinating all parts of SC from
supplying raw materials to delivering and/or resumption of products, tries to minimize total
costs with respect to existing conflicts among the chain partners. An example of these conflicts
is the interrelation between the sale department desiring to have higher inventory levels to fulfill
demands and the warehouse for which lower inventories are desired to reduce holding costs.[11]

Origin of the term and definitions

In 1982, Keith Oliver, a consultant at Booz Allen Hamilton introduced the term "supply chain
management" to the public domain in an interview for the Financial Times.[12] In 1983
 WirtschaftsWoche in Germany published for the first time the results of an implemented and so
called "Supply Chain Management project", led by Wolfgang Partsch.[13]

In the mid-1990s, more than a decade later, the term "supply chain management" gained
currency when a flurry of articles and books came out on the subject. Supply chains were
originally defined as encompassing all activities associated with the flow and transformation of
goods from raw materials through to the end user, as well as the associated information flows.
Supply-chain management was then further defined as the integration of supply chain activities
through improved supply-chain relationships to achieve a competitive advantage.[12]

In the late 1990s, "supply-chain management" (SCM) rose to prominence, and operations
managers began to use it in their titles with increasing regularity.[14][15][16]

Other commonly accepted definitions of supply-chain management include:

The management of upstream and downstream value-added flows of materials, final goods,
and related information among suppliers, company, resellers, and final consumers.[17]
 The systematic, strategic coordination of traditional business functions and tactics across all
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[18]

A customer-focused definition is given by Hines (2004:p76): "Supply chain strategies require a

total systems view of the links in the chain that work together efficiently to create customer
satisfaction at the end point of delivery to the consumer. As a consequence, costs must be
lowered throughout the chain by driving out unnecessary expenses, movements, and handling.
The main focus is turned to efficiency and added value, or the end user's perception of value.
Efficiency must be increased, and bottlenecks removed. The measurement of performance
focuses on total system efficiency and the equitable monetary reward distribution to those
within the supply chain. The supply-chain system must be responsive to customer
requirements."[19]

The integration of key business processes across the supply chain for the purpose of creating
value for customers and stakeholders[20][21]

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. It also includes coordination
and collaboration with channel partners, which may be suppliers, intermediaries, third-party
service providers, or customers.[6] Supply-chain management integrates supply and demand
management within and across companies. More recently, the loosely coupled, self-organizing
network of businesses that cooperate to provide product and service offerings has been
called the Extended Enterprise.

A supply chain, as opposed to supply-chain management, is a set of organizations directly linked

by one or more upstream and downstream flows of products, services, finances, or information
from a source to a customer. Supply-chain management is the management of such a chain.[18]

Supply-chain-management software includes tools or modules used to execute supply chain

transactions, manage supplier relationships, and control associated business processes.

Supply-chain event management (SCEM) considers all possible events and factors that can
disrupt a supply chain. With SCEM, possible scenarios can be created and solutions devised.

In some cases, the supply chain includes the collection of goods after consumer use for
recycling or the reverse logistics processes for returning faulty or unwanted products backwards
to producers early in the value chain.
 Functions

Supply-chain management is a cross-functional approach that includes managing the

movement of raw materials into an organization, certain aspects of the internal processing of
materials into finished goods, and the movement of finished goods out of the organization and
toward the end consumer. As organizations strive to focus on core competencies and become
more flexible, they reduce ownership of raw materials sources and distribution channels. These
functions are increasingly being outsourced to other firms that can perform the activities better
or more cost effectively. The effect is to increase the number of organizations involved in
satisfying customer demand, while reducing managerial control of daily logistics operations.
Less control and more supply-chain partners lead to the creation of the concept of supply-chain
management. The purpose of supply-chain management is to improve trust and collaboration
among supply-chain partners thus improving inventory visibility and the velocity of inventory
movement.[22] in this section we have to communicate with all the vendors, suppliers and after
that we have to take some comparisons after that we have to place the order.

Importance

Organizations increasingly find that they must rely on effective supply chains, or networks, to
compete in the global market and networked economy.[23] In Peter Drucker's (1998) new
management 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.

In recent decades, globalization, outsourcing, and information technology have enabled many
organizations, such as Dell and Hewlett Packard, to successfully operate collaborative supply
networks in which each specialized business partner focuses on only a few key strategic
activities.[24] This inter-organisational supply network can be acknowledged as a new form of
organisation. However, with the complicated interactions among the players, the network
structure fits neither "market" nor "hierarchy" categories.[25] 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 and trade-offs that may exist among the players. From a
systems perspective, a complex network structure can be decomposed into individual
component firms.[26] 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 an internal management control structure is known to
impact local firm performance.[27]

In the 21st century, changes in the business environment have contributed to the development
of supply-chain networks. First, as an outcome of globalization and the proliferation of
multinational companies, joint ventures, strategic alliances, and business partnerships,
significant success factors were identified, complementing the earlier "just-in-time", lean
manufacturing, and agile manufacturing practices.[28][29][30][31] Second, technological changes,
particularly the dramatic fall in communication costs (a significant component of transaction
costs), have led to changes in coordination among the members of the supply chain network.[32]

Many researchers have recognized supply network structures as a new organisational form,
using terms such as "Keiretsu", "Extended Enterprise", "Virtual Corporation", "Global Production
Network", and "Next Generation Manufacturing System".[33][34][35] In general, such a structure can
be defined as "a group of semi-independent organisations, 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".[36]

The importance of supply chain management proved crucial in the 2019-2020 fight against the
coronavirus (COVID-19) pandemic that swept across the world. During the pandemic period,
governments in countries which had in place effective domestic supply chain management had
enough medical supplies to support their needs and enough to donate their surplus to front-line
health workers in other jurisdictions.[37][38][39]  Some organizations were able to quickly develop
foreign supply chains in order to import much needed medical supplies.[40][41][42]

Supply-chain management is also important for organizational learning. Firms with

geographically more extensive supply chains connecting diverse trading cliques tend to become
more innovative and productive.[43]

The security-management system for supply chains is described in ISO/IEC 28000 and ISO/IEC
28001 and related standards published jointly by the ISO and the IEC. Supply-Chain Management
draws heavily from the areas of operations management, logistics, procurement, and
information technology, and strives for an integrated approach.

Supply chain resilience

An important element of SCM is supply chain resilience, defined as "the capacity of a supply
chain to persist, adapt, or transform in the face of change".[44] For a long time, the interpretation
of resilience in the sense of engineering resilience (= robustness[45]) prevailed in supply chain
management, leading to the notion of persistence.[44] A popular implementation of this idea is
given by measuring the time-to-survive and the time-to-recover of the supply chain, allowing to
identify weak points in the system.[46]

More recently, the interpretations of resilience in the sense of ecological resilience and social–
ecological resilience have led to the notions of adaptation and transformation, respecitively.[44] A
supply chain is thus interpreted as a social-ecological system that – similar to an ecosystem
(e.g. forest) – is able to constantly adapt to external environmental conditions and – through the
presence of social actors and their ability to foresight – also to transform itself into a
fundamentally new system.[47] This leads to a panarchical interpretation of a supply chain,
embedding it into a system of systems, allowing to analyze the interactions of the supply chain
with systems that operate at other levels (e.g. society, political economy, planet Earth).[47]

For example, these three components of resilience can be discussed for the 2021 Suez Canal
obstruction, when a ship blocked the canal for several days. Persistence means to "bounce
back"; in our example it is about removing the ship as quickly as possible to allow "normal"
operations. Adaptation means to accept that the system has reached a "new normal" state and
to act accordingly; here, this can be implemented by redirecing ships around the African cape or
use alternative modes of transport. Finally, transformation means to question the assumptions
of globalization, outsourcing and linear supply chains and to envision alternatives; in this
example this could lead to local and circular supply chains that do not need global
transportation routes any longer.

Historical developments

Six major movements can be observed in the evolution of supply-chain management studies:
creation, integration, and globalization,[48] specialization phases one and two, and SCM 2.0.

Creation era

The term "supply chain management" was first coined by Keith Oliver in 1982. However, the
concept of a supply chain in management was of great importance long before, in the early 20th
century, especially with the creation of the assembly line. The characteristics of this era of
supply-chain management include the need for large-scale changes, re-engineering, downsizing
driven by cost reduction programs, and widespread attention to Japanese management
practices. However, the term became widely adopted after the publication of the seminal book
Introduction to Supply Chain Management in 1999 by Robert B. Handfield and Ernest L. Nichols,
Jr.,[49] which published over 25,000 copies and was translated into Japanese, Korean, Chinese,
and Russian.[50]

Integration era

This era of supply-chain-management studies was highlighted with the development of

electronic data interchange (EDI) systems in the 1960s, and developed through the 1990s by the
introduction of enterprise resource planning (ERP) systems. This era has continued to develop
into the 21st century with the expansion of Internet-based collaborative systems. This era of
supply-chain evolution is characterized by both increasing value added and reducing costs
through integration.

A supply chain can be classified as a stage 1, 2 or 3 network. In a stage 1–type supply chain,
systems such as production, storage, distribution, and material control are not linked and are
independent of each other. In a stage 2 supply chain, these are integrated under one plan and
enterprise resource planning (ERP) is enabled. A stage 3 supply chain is one that achieves
vertical integration with upstream suppliers and downstream customers. An example of this
kind of supply chain is Tesco.

Globalization era

It is the third movement of supply-chain-management development, the globalization era, can be

characterized by the attention given to global systems of supplier relationships and the
expansion of supply chains beyond national boundaries and into other continents. Although the
use of global sources in organisations' supply chains can be traced back several decades (e.g.,
in the oil industry), it was not until the late 1980s that a considerable number of organizations
started to integrate global sources into their core business. This era is characterized by the
globalization of supply-chain management in organizations with the goal of increasing their
competitive advantage, adding value, and reducing costs through global sourcing.

Specialization era (phase I): outsourced manufacturing and distribution

In the 1990s, companies began to focus on "core competencies" and specialization. They
abandoned vertical integration, sold off non-core operations, and outsourced those functions to
other companies. This changed management requirements, as the supply chain extended
beyond the company walls and management was distributed across specialized supply-chain
partnerships.

This transition also refocused the fundamental perspectives of each organization. Original
equipment manufacturers (OEMs) became brand owners that required visibility deep into their
supply base. They had to control the entire supply chain from above, instead of from within.
Contract manufacturers had to manage bills of material with different part-numbering schemes
from multiple OEMs and support customer requests for work-in-process visibility and vendor-
managed inventory (VMI).

The specialization model creates manufacturing and distribution networks composed of several
individual supply chains specific to producers, suppliers, and customers that work together to
design, manufacture, distribute, market, sell, and service a product. This set of partners may
change according to a given market, region, or channel, resulting in a proliferation of trading
partner environments, each with its own unique characteristics and demands.

Specialization era (phase II): supply-chain management as a service

Specialization within the supply chain began in the 1980s with the inception of transportation
brokerages, warehouse management (storage and inventory), and non-asset-based carriers, and
has matured beyond transportation and logistics into aspects of supply planning, collaboration,
execution, and performance management.

Market forces sometimes demand rapid changes from suppliers, logistics providers, locations,
or customers in their role as components of supply-chain networks. This variability has
significant effects on supply-chain infrastructure, from the foundation layers of establishing and
managing electronic communication between trading partners, to more complex requirements
such as the configuration of processes and work flows that are essential to the management of
the network itself.

Supply-chain specialization enables companies to improve their overall competencies in the

same way that outsourced manufacturing and distribution has done; it allows them to focus on
their core competencies and assemble networks of specific, best-in-class partners to contribute
to the overall value chain itself, thereby increasing overall performance and efficiency. The ability
to quickly obtain and deploy this domain-specific supply-chain expertise without developing and
maintaining an entirely unique and complex competency in house is a leading reason why
supply-chain specialization is gaining popularity.
Outsourced technology hosting for supply-chain solutions debuted in the late 1990s and has
taken root primarily in transportation and collaboration categories. This has progressed from the
application service provider (ASP) model from roughly 1998 through 2003, to the on-demand
model from approximately 2003 through 2006, to the software as a service (SaaS) model
currently in focus today.

Supply-chain management 2.0 (SCM 2.0)

Building on globalization and specialization, the term "SCM 2.0" has been coined to describe
both changes within supply chains themselves as well as the evolution of processes, methods,
and tools to manage them in this new "era". The growing popularity of collaborative platforms is
highlighted by the rise of TradeCard's supply-chain-collaboration platform, which connects
multiple buyers and suppliers with financial institutions, enabling them to conduct automated
supply-chain finance transactions.[51]

Web 2.0 is a trend in the use of the World Wide Web that is meant to increase creativity,
information sharing, and collaboration among users. At its core, the common attribute of Web
2.0 is to help navigate the vast information available on the Web in order to find what is being
bought. It is the notion of a usable pathway. SCM 2.0 replicates this notion in supply chain
operations. It is the pathway to SCM results, a combination of processes, methodologies, tools,
and delivery options to guide companies to their results quickly as the complexity and speed of
the supply-chain increase due to global competition; rapid price fluctuations; changing oil prices;
short product life cycles; expanded specialization; near-, far-, and off-shoring; and talent scarcity.

Business-process integration

Successful SCM requires a change from managing individual functions to integrating activities
into key supply-chain processes. In an example scenario, a purchasing department places orders
as its requirements become known. The marketing department, responding to customer
demand, communicates with several distributors and retailers as it attempts to determine ways
to satisfy this demand. Information shared between supply-chain partners can only be fully
leveraged through process integration.

Supply-chain business-process integration involves collaborative work between buyers and

suppliers, joint product development, common systems, and shared information. According to
Lambert and Cooper (2000), operating an integrated supply chain requires a continuous
information flow. However, in many companies, management has concluded that optimizing
product flows cannot be accomplished without implementing a process approach. The key
supply-chain processes stated by Lambert (2004)[52] are:

Customer-relationship management

Customer-service management

Demand-management style

Order fulfillment

Manufacturing-flow management

Supplier-relationship management

Product development and commercialization

Returns management

Much has been written about demand management.[53] Best-in-class companies have similar
characteristics, which include the following:

Internal and external collaboration

Initiatives to reduce lead time

Tighter feedback from customer and market demand

Customer-level forecasting

One could suggest other critical supply business processes that combine these processes
stated by Lambert, such as:

Customer service management process

Customer relationship management concerns the relationship between an organization and
its customers. Customer service is the source of customer information. It also provides the
customer with real-time information on scheduling and product availability through interfaces
with the company's production and distribution operations. Successful organizations use the
following steps to build customer relationships:
determine mutually satisfying goals for organization and customers

establish and maintain customer rapport

induce positive feelings in the organization and the customers

Inventory management
 Inventory management is concerned with ensuring the right stock at the right levels, in the
right place, at the right time and the right cost. Inventory management entails inventory
planning and forecasting: forecasting helps planning inventory.
Procurement process
Strategic plans are drawn up with suppliers to support the manufacturing flow management
process and the development of new products.[54] In firms whose operations extend globally,
sourcing may be managed on a global basis. The desired outcome is a relationship where
both parties benefit and a reduction in the time required for the product's design and
development. The purchasing function may also develop rapid communication systems, such
as electronic data interchange (EDI) and internet linkage, to convey possible requirements
more rapidly. Activities related to obtaining products and materials from outside suppliers
involve resource planning, supply sourcing, negotiation, order placement, inbound
transportation, storage, handling, and quality assurance, many of which include the
responsibility to coordinate with suppliers on matters of scheduling, supply continuity
(inventory), hedging, and research into new sources or programs. Procurement has recently
been recognized as a core source of value, driven largely by the increasing trends to outsource
products and services, and the changes in the global ecosystem requiring stronger
relationships between buyers and sellers.[55]
Product development and commercialization
Here, customers and suppliers must be integrated into the product development process in
order to reduce the time to market. As product life cycles shorten, the appropriate products
must be developed and successfully launched with ever-shorter time schedules in order for
firms to remain competitive. According to Lambert and Cooper (2000), managers of the
product development and commercialization process must:
1. coordinate with customer relationship management to identify customer-articulated
needs;

2. select materials and suppliers in conjunction with procurement; and

3. develop production technology in manufacturing flow to manufacture and integrate into

the best supply chain flow for the given combination of product and markets.

Integration of suppliers into the new product development process was shown to have a major
impact on product target cost, quality, delivery, and market share. Tapping into suppliers as a
source of innovation requires an extensive process characterized by development of technology
sharing, but also involves managing intellectual[56] property issues.

Manufacturing flow management process

The manufacturing process produces and supplies products to the distribution channels
based on past forecasts. Manufacturing processes must be flexible in order to respond to
market changes and must accommodate mass customization. Orders are processes
operating on a just-in-time (JIT) basis in minimum lot sizes. Changes in the manufacturing
flow process lead to shorter cycle times, meaning improved responsiveness and efficiency in
meeting customer demand. This process manages 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 geographical and final assemblies postponement of
physical distribution operations.
Physical distribution
This concerns the movement of a finished product or service to customers. In physical
distribution, the customer is the final destination of a marketing channel, and the availability of
the product or service is a vital part of each channel participant's marketing effort. 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 (i.e., it links
manufacturers, wholesalers, and retailers).
Outsourcing/partnerships
This includes not just the outsourcing of the procurement of materials and components, but
also the 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 in
which it has a distinctive advantage and outsource everything else. This movement has been
particularly evident in logistics, where the provision of transport, storage, and inventory control
is increasingly subcontracted to specialists or logistics partners. Also, managing and
controlling this network of partners and suppliers requires a blend of central and local
involvement: strategic decisions are taken centrally, while the monitoring and control of
supplier performance and day-to-day liaison with logistics partners are best managed locally.
Performance measurement
Experts found a strong relationship from the largest arcs of supplier and customer integration
to market share and profitability. Taking advantage of supplier capabilities and emphasizing a
long-term supply-chain perspective in customer relationships can both be correlated with a
firm's performance. As logistics competency becomes a critical factor in creating and
maintaining competitive advantage, measuring logistics performance becomes increasingly
important, because the difference between profitable and unprofitable operations becomes
narrower. A.T. Kearney Consultants (1985) noted that firms engaging in comprehensive
performance measurement realized improvements in overall productivity. According to
 experts, internal measures are generally collected and analyzed by the firm, including cost,
customer service, productivity, asset measurement, and quality. External performance is
measured through customer perception measures and "best practice" benchmarking.
Warehousing management
To reduce a company's cost and expenses, warehousing management is concerned with
storage, reducing manpower cost, dispatching authority with on time delivery, loading &
unloading facilities with proper area, inventory management system etc.
Workflow management
Integrating suppliers and customers tightly into a workflow (or business process) and thereby
achieving an efficient and effective supply chain is a key goal of workflow management.

Theories

There are gaps in the literature on supply-chain management studies at present (2015): there is
no theoretical support for explaining the existence or the boundaries of supply-chain
management. A few authors, such as Halldorsson et al.,[57] Ketchen and Hult (2006),[58] and
Lavassani et al. (2009), have tried to provide theoretical foundations for different areas related to
supply chain by employing organizational theories, which may include the following:

Resource-based view (RBV)[59]

Transaction cost analysis (TCA)

Knowledge-based view (KBV)

Strategic choice theory (SCT)

Agency theory (AT)

Channel coordination

Institutional theory (InT)

Systems theory (ST)

Network perspective (NP)

Materials logistics management (MLM)

Just-in-time (JIT)

Material requirements planning (MRP)

Theory of constraints (TOC)

 Total quality management (TQM)

Agile manufacturing

Time-based competition (TBC)

Quick response manufacturing (QRM)

Customer relationship management (CRM)

Requirements chain management (RCM)

Dynamic Capabilities Theory

Dynamic Management Theory

Available-to-promise (ATP)

Supply Chain Roadmap[60]

Optimal Positioning of the Delivery Window (OPDW)[61][62]

However, the unit of analysis of most of these theories is not the supply chain but rather another
system, such as the firm or the supplier-buyer relationship. Among the few exceptions is the
relational view, which outlines a theory for considering dyads and networks of firms as a key unit
of analysis for explaining superior individual firm performance (Dyer and Singh, 1998).[63]

Organization and governance

The management of supply chains involve a number of specific challenges regarding the
organization of relationships among the different partners along the value chain. Formal and
informal governance mechanisms are central elements in the management of supply chain.[64]
Research in supply chain management has noted the importance of using the appropriate
combination of contracts and relational norms to mitigate the risks and prevent conflicts
between supply chain partners.[65] In turn, particular combinations of governance mechanisms
may impact the relational dynamics within the supply chain.

Supply chain centroids

In the study of supply-chain management, the concept of centroids has become a useful
economic consideration. In mathematics and physics, a centroid is the arithmetic mean position
of all the points in a plane figure.[66] For supply chain management, a centroid is a location with a
high proportion of a country's population and a high proportion of its manufacturing, generally
within 500 mi (805 km). In the US, two major supply chain centroids have been defined, one near
Dayton, Ohio, and a second near Riverside, California.

The centroid near Dayton is particularly important because it is closest to the population center
of the US and Canada. Dayton is within 500 miles of 60% of the US population and
manufacturing capacity, as well as 60% of Canada's population.[67] The region includes the
interchange between I-70 and I-75, one of the busiest in the nation, with 154,000 vehicles
passing through per day, of which 30–35% are trucks hauling goods. In addition, the I-75 corridor
is home to the busiest north-south rail route east of the Mississippi River.[67]

A supply chain is the network of all the individuals, organizations, resources, activities and
technology involved in the creation and sale of a product. A supply chain encompasses
everything from the delivery of source materials from the supplier to the manufacturer through
to its eventual delivery to the end user. The supply chain segment involved with getting the
finished product from the manufacturer to the consumer is known as the distribution channel.[68]

Wal-Mart strategic sourcing approaches

In 2010, Wal-Mart announced a big change in its sourcing strategy. Initially, Wal-Mart relied on
intermediaries in the sourcing process. It bought only 20% of its stock directly, but the rest were
bought through the intermediaries.[69] Therefore, the company came to realize that the presence
of many intermediaries in the product sourcing was actually increasing the costs in the supply
chain. To cut these costs, Wal-Mart decided to do away with intermediaries in the supply chain
and started direct sourcing of its goods from the suppliers. Eduardo Castro-Wright, the then Vice
President of Wal-Mart, set an ambitious goal of buying 80% of all Wal-Mart goods directly from
the suppliers.[70] Walmart started purchasing fruits and vegetables on a global scale, where it
interacted directly with the suppliers of these goods. The company later engaged the suppliers
of other goods, such as cloth and home electronics appliances, directly and eliminated the
importing agents. The purchaser, in this case Wal-Mart, can easily direct the suppliers on how to
manufacture certain products so that they can be acceptable to the consumers.[71] Thus, Wal-
Mart, through direct sourcing, manages to get the exact product quality as it expects, since it
engages the suppliers in the producing of these products, hence quality consistency.[70] Using
agents in the sourcing process in most cases lead to inconsistency in the quality of the
products, since the agent's source the products from different manufacturers that have varying
qualities.
Wal-Mart managed to source directly 80% profit its stock; this has greatly eliminated the
intermediaries and cut down the costs between 5-15%, as markups that are introduced by these
middlemen in the supply chain are cut. This saves approximately $4–15 billion.[69] This strategy
of direct sourcing not only helped Wal-Mart in reducing the costs in the supply chain but also
helped in the improvement of supply chain activities through boosting efficiency throughout the
entire process. In other words, direct sourcing reduced the time that takes the company to
source and stocks the products in its stock.[70] The presence of the intermediaries elongated the
time in the process of procurement, which sometimes led to delays in the supply of the
commodities in the stores, thus, customers finding empty shelves. Wal-Mart adopted this
strategy of sourcing through centralizing the entire process of procurement and sourcing by
setting up four global merchandising points for general goods and clothing. The company
instructed all the suppliers to bring their products to these central points that are located in
different markets.[71] The procurement team assesses the quality brought by the suppliers, buys
the goods, and distributes them to various regional markets. The procurement and sourcing at
centralized places helped the company to consolidate the suppliers.

The company has established four centralized points, including an office in Mexico City and
Canada. Just a mere piloting test on combining the purchase of fresh apples across the United
States, Mexico, and Canada led to the savings of about 10%. As a result, the company intended
to increase centralization of its procurement in North America for all its fresh fruits and
vegetables.[69] Thus, centralization of the procurement process to various points where the
suppliers would be meeting with the procurement team is the latest strategy which the company
is implementing, and signs show that this strategy is going to cut costs and also improve the
efficiency of the procumbent process.

Strategic vendor partnerships is another strategy the company is using in the sourcing process.
Wal-Mart realized that in order for it to ensure consistency in the quality of the products it offers
to the consumers and also maintain a steady supply of goods in its stores at a lower cost, it had
to create strategic vendor partnerships with the suppliers.[69] Wal-Mart identified and selected
the suppliers who met its demand and at the same time offered it the best prices for the goods.
It then made a strategic relationship with these vendors by offering and assuring the long-term
and high volume of purchases in exchange for the lowest possible prices.[70] Thus, the company
has managed to source its products from same suppliers as bulks, but at lower prices. This
enables the company to offer competitive prices for its products in its stores, hence, maintaining
a competitive advantage over its competitors whose goods are a more expensive in comparison.
Another sourcing strategy Wal-Mart uses is implementing efficient communication relationships
with the vendor networks; this is necessary to improve the material flow. The company has all
the contacts with the suppliers whom they communicate regularly and make dates on when the
goods would be needed, so that the suppliers get ready to deliver the goods in time.[72] The
efficient communication between the company's procurement team and the inventory
management team enables the company to source goods and fill its shelves on time, without
causing delays and empty shelves.[73] In other words, the company realized that in ensuring a
steady flow of the goods into the store, the suppliers have to be informed early enough, so that
they can act accordingly to avoid delays in the delivery of goods.[70] Thus, efficient
communication is another tool which Wal-Mart is using to make the supply chain be more
efficient and to cut costs.

Cross-docking is another strategy that Wal-Mart is using to cut costs in its supply chain. Cross-
docking is the process of transferring goods directly from inbound trucks to outbound trucks.[69]
When the trucks from the suppliers arrive at the distribution centers, most of the trucks are not
offloaded to keep the goods in the distribution centers or warehouses; they are transferred
directly to another truck designated to deliver goods to specific retail stores for sale. Cross-
docking helps in saving the storage costs.[74] Initially, the company was incurring considerable
costs of storing the suppliers from the suppliers in its warehouses and the distributions centers
to await the distribution trucks to the retail stores in various regions.

Tax-efficient supply-chain management

Tax-efficient supply-chain management is a business model that considers the effect of tax in
the design and implementation of supply-chain management. As the consequence of
globalization, cross-national businesses pay different tax rates in different countries. Due to
these differences, they may legally optimize their supply chain and increase profits based on tax
efficiency.[75]

Sustainability and social responsibility in supply

chains

Supply chain networks are the veins of an economy, but the health of these veins is dependent
on the well-being of the environment and society.[76] Supply-chain sustainability is a business
issue affecting an organization's supply chain or logistics network, and is frequently quantified
by comparison with SECH ratings, which uses a triple bottom line incorporating economic,
social, and environmental aspects.[77] SECH ratings are defined as social, ethical, cultural, and
health' footprints. Consumers have become more aware of the environmental impact of their
purchases and companies' SECH ratings and, along with non-governmental organizations
(NGOs), are setting the agenda for transitions to organically grown foods, anti-sweatshop labor
codes, and locally produced goods that support independent and small businesses. Because
supply chains may account for over 75% of a company's carbon footprint, many organizations
are exploring ways to reduce this and thus improve their SECH rating.

For example, in July 2009, Wal-Mart announced its intentions to create a global sustainability
index that would rate products according to the environmental and social impacts of their
manufacturing and distribution. The index is intended to create environmental accountability in
Wal-Mart's supply chain and to provide motivation and infrastructure for other retail companies
to do the same.[78]

It has been reported that companies are increasingly taking environmental performance into
account when selecting suppliers. A 2011 survey by the Carbon Trust found that 50% of
multinationals expect to select their suppliers based upon carbon performance in the future and
29% of suppliers could lose their places on 'green supply chains' if they do not have adequate
performance records on carbon.[79]

The US Dodd–Frank Wall Street Reform and Consumer Protection Act, signed into law by
President Obama in July 2010, contained a supply chain sustainability provision in the form of
the Conflict Minerals law. This law requires SEC-regulated companies to conduct third party
audits of their supply chains in order to determine whether any tin, tantalum, tungsten, or gold
(together referred to as conflict minerals) is mined or sourced from the Democratic Republic of
the Congo, and create a report (available to the general public and SEC) detailing the due
diligence efforts taken and the results of the audit. The chain of suppliers and vendors to these
reporting companies will be expected to provide appropriate supporting information.

Incidents like the 2013 Savar building collapse with more than 1,100 victims have led to
widespread discussions about corporate social responsibility across global supply chains.
Wieland and Handfield (2013) suggest that companies need to audit products and suppliers and
that supplier auditing needs to go beyond direct relationships with first-tier suppliers. They also
demonstrate that visibility needs to be improved if supply cannot be directly controlled and that
smart and electronic technologies play a key role to improve visibility. Finally, they highlight that
collaboration with local partners, across the industry and with universities is crucial to
successfully managing social responsibility in supply chains.[80]
 Circular supply-chain management

Circular Supply-Chain Management (CSCM) is "the configuration and coordination of the

organisational functions marketing, sales, R&D, production, logistics, IT, finance, and customer
service within and across business units and organizations to close, slow, intensify, narrow, and
dematerialise material and energy loops to minimise resource input into and waste and
emission leakage out of the system, improve its operative effectiveness and efficiency and
generate competitive advantages". By reducing resource input and waste leakage along the
supply chain and configure it to enable the recirculation of resources at different stages of the
product or service lifecycle, potential economic and environmental benefits can be achieved.
These comprise e.g. a decrease in material and waste management cost and reduced
emissions and resource consumption.[81]

Components

Management components

SCM 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 of
components added to the link.[82][83] Consequently, adding more management components or
increasing the level of each component can increase the level of integration of the business
process link.

Literature on business process reengineering,[84][85][86] buyer-supplier relationships,[87][88][89][90]

and SCM[21][91][92] suggests various possible components that should receive managerial
attention when managing supply relationships. Lambert and Cooper (2000) identified the
following components:

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 attitude

However, a more careful examination of the existing literature[26][93][94][95][96][97][98][99][100] leads to

a more comprehensive understanding of what should be the key critical supply chain
components, or "branches" of the previously identified supply chain business processes—that is,
what kind of relationship the components may have that are related to suppliers and customers.
Bowersox and Closs (1996) state that the emphasis on cooperation represents the synergism
leading to the highest level of joint achievement. A primary-level channel participant is a
business that is willing to participate in responsibility for inventory ownership or assume other
financial risks, thus including primary level components.[101] A secondary-level participant
(specialized) is a business that participates in channel relationships by performing essential
services for primary participants, including secondary level components, which support primary
participants. Third-level channel participants and components that support primary-level
channel participants and are the fundamental branches of secondary-level components may
also be included.

Consequently, Lambert and Cooper's framework of supply chain components does not lead to
any conclusion about what are the primary- or secondary-level (specialized) supply chain
components[102] —that is, which supply chain components should be viewed as primary or
secondary, how these components should be structured in order to achieve a more
comprehensive supply chain structure, and how to examine the supply chain as an integrative
one.

Reverse supply chain

Reverse logistics is the process of managing the return of goods and may be considered as an
aspect of "aftermarket customer services".[103] Any time money is taken from a company's
warranty reserve or service logistics budget, one can speak of a reverse logistics operation.
Reverse logistics also includes the process of managing the return of goods from store, which
the returned goods are sent back to warehouse and after that either warehouse scrap the goods
or send them back to supplier for replacement depending on the warranty of the merchandise.

Digitizing supply chains

Consultancies and media expect the performance efficacy of digitizing supply chains to be
high.[104] Additive manufacturing and blockchain technology have emerged as the two
technologies with some of the highest economic relevance. The potential of additive
manufacturing is particularly high in the production of spare parts, since its introduction can
reduce warehousing costs of slowly rotating spare parts.[105] Digitizing technology bears the
potential to completely disrupt and restructure supply chains and enhance existing production
routes.[106]

In comparison, research on the influence of blockchain technology on the supply chain is still in
its early stages. The conceptual literature has argued for a considerably long time that the
highest performance efficacy is expected in the potential for automatic contract creation.[107]
Empirical evidence contradicts this hypothesis: the highest potential is expected in the arenas of
verified customer reviews and certifications of product quality and standards.[108]

In addition, the technological features of blockchains support transparency and traceability of

information, as well as high levels of reliability and immutability of records.[109] Blockchains thus
offer opportunities to foster collaboration in the supply chain.[110]

Systems and value

Supply chain systems configure value for those that organize the networks. Value is the
additional revenue over and above the costs of building the network. Co-creating value and
sharing the benefits appropriately to encourage effective participation is a key challenge for any
supply system. Tony Hines defines value as follows: "Ultimately it is the customer who pays the
price for service delivered that confirms value and not the producer who simply adds cost until
that point".[19]

One can invest in activities in the supply chain that add value to the product and to the place
where raw materials are being produced. Furthermore, one can work with other sustainability
leaders to develop high-risk innovative business models with ecological benefits.[111] An
example of supply chains adding value is SourceUp (https://sourceup.org/) , where companies
can find relevant projects in key sourcing areas where local coalitions are involved in pursuing
the same vision.

Global applications
Global supply chains pose challenges regarding both quantity and value. Supply and value chain
trends include:

Globalization

Increased cross-border sourcing

Collaboration for parts of value chain with low-cost providers

Shared service centers for logistical and administrative functions

Increasingly global operations, which require increasingly global coordination and planning to
achieve global optimums

Complex problems involve also midsized companies to an increasing degree

These trends have many benefits for manufacturers because they make possible larger lot sizes,
lower taxes, and better environments (e.g., culture, infrastructure, special tax zones, or
sophisticated OEM) for their products. There are many additional challenges when the scope of
supply chains is global. This is because with a supply chain of a larger scope, the lead time is
much longer, and because there are more issues involved, such as multiple currencies, policies,
and laws. The consequent problems include different currencies and valuations in different
countries, different tax laws, different trading protocols, vulnerability to natural disasters and
cyber threats,[112] and lack of transparency of cost and profit.

Roles and responsibilities

Supply chain professionals play major roles in the design and management of supply chains. In
the design of supply chains, they help determine whether a product or service is provided by the
firm itself (insourcing) or by another firm elsewhere (outsourcing). In the management of supply
chains, supply chain professionals coordinate production among multiple providers, ensuring
that production and transport of goods happen with minimal quality control or inventory
problems. One goal of a well-designed and maintained supply chain for a product is to
successfully build the product at minimal cost. Such a supply chain could be considered a
competitive advantage for a firm.[113][114]

Beyond design and maintenance of a supply chain itself, supply chain professionals participate
in aspects of business that have a bearing on supply chains, such as sales forecasting, quality
management, strategy development, customer service, and systems analysis. Production of a
good may evolve over time, rendering an existing supply chain design obsolete. Supply chain
professionals need to be aware of changes in production and business climate that affect
supply chains and create alternative supply chains as the need arises.[113]

In a research project undertaken by Michigan State University's Broad College of Business, with
input from 50 participating organisations, the main issues of concern to supply chain managers
were identified as capacity/resource availability, talent (recruitment), complexity,
threats/challenges (supply chain risks), compliance and cost/purchasing issues. Keeping up
with frequent changes in regulation was identified as a particular concern.[115]

Supply-chain consultants may provide expert knowledge in order to assess the productivity of a
supply-chain and, ideally, to enhance its productivity. Supply chain consulting involves the
transfer of knowledge on how to exploit existing assets through improved coordination and can
hence be a source of competitive advantage: the role of the consultant is to help management
by adding value to the whole process through the various sectors from the ordering of the raw
materials to the final product.[116] In this regard, firms may either build internal teams of
consultants to tackle the issue or engage external ones: companies choose between these two
approaches taking into consideration various factors.[117]

The use of external consultants is a common practice among companies.[118] The whole
consulting process generally involves the analysis of the entire supply-chain process, including
the countermeasures or correctives to take to achieve a better overall performance.[119]

Skills and competencies

Supply chain professionals need to have knowledge of managing supply chain functions such as
transportation, warehousing, inventory management, and production planning. In the past,
supply chain professionals emphasized logistics skills, such as knowledge of shipping routes,
familiarity with warehousing equipment and distribution center locations and footprints, and a
solid grasp of freight rates and fuel costs. More recently, supply-chain management extends to
logistical support across firms and management of global supply chains.[120] Supply chain
professionals need to have an understanding of business continuity basics and strategies.[121]

Certification

Individuals working in supply-chain management can attain professional certification by passing

an exam developed by a third party certification organization. The purpose of certification is to
guarantee a certain level of expertise in the field. The knowledge needed to pass a certification
exam may be gained from several sources. Some knowledge may come from college courses,
but most of it is acquired from a mix of on-the-job learning experiences, attending industry
events, learning best practices with their peers, and reading books and articles in the field.[122]
Certification organizations may provide certification workshops tailored to their exams.[123]

University rankings

The following North American universities rank high in their master's education in the SCM
World University 100 ranking, which was published in 2017 and which is based on the opinions
of supply chain managers: Michigan State University, Penn State University, University of
Tennessee, Massachusetts Institute of Technology, Arizona State University, University of Texas
at Austin and Western Michigan University. In the same ranking, the following European
universities rank high: Cranfield School of Management, Vlerick Business School, INSEAD,
Cambridge University, Eindhoven University of Technology, London Business School and
Copenhagen Business School.[124] In the 2016 Eduniversal Best Masters Ranking Supply Chain
and Logistics the following universities rank high: Massachusetts Institute of Technology,
KEDGE Business School, Purdue University, Rotterdam School of Management, Pontificia
Universidad Catolica del Peru, Universidade Nova de Lisboa, Vienna University of Economics and
Business and Copenhagen Business School.[125]

Organizations

A number of organizations provide certification in supply chain management, such as the

Council of Supply Chain Management Professionals (CSCMP),[126] IIPMR (International Institute
for Procurement and Market Research), APICS (the Association for Operations Management),
ISCEA (International Supply Chain Education Alliance) and IoSCM (Institute of Supply Chain
Management). APICS' certification is called Certified Supply Chain Professional, or CSCP, and
ISCEA's certification is called the Certified Supply Chain Manager (CSCM), CISCM (Chartered
Institute of Supply Chain Management) awards certificate as Chartered Supply Chain
Management Professional (CSCMP). Another, the Institute for Supply Management, is developing
one called the Certified Professional in Supply Management (CPSM) [127] focused on the
procurement and sourcing areas of supply-chain management. The Supply Chain Management
Association (SCMA) is the main certifying body for Canada with the designations having global
reciprocity. The designation Supply Chain Management Professional (SCMP) is the title of the
supply chain leadership designation.

Topics addressed by selected professional supply chain certification programmes

The following table compares topics addressed by selected professional supply chain
certification programmes.[127]
 International
Institute for
Procurement Internat
The
and Market Institute for Supp
Supply Chain Association
Research Supply Chai
Management for
Chartered (IIPMR) Management Educat
Association Operations
Institute of Certified (ISM) Allian
Awarding (SCMA) Management
Procurement Supply Certified (ISCE
Body Supply Chain (APICS)
& Supply Chain Professional Certifi
Management Certified
(CIPS) Specialist in Supply Supp
Professional Supply Chain
(CSCS) and Management Chai
(SCMP) Professional
Certified (CPSM) Manag
(CSCP)
Procurement (CSCM
Professional
(CPP)

Procurement High High High High High High

Strategic
High High High Low High Low
Sourcing

New Product
Low High High High Low Low
Development

Production,
Low Low Low Low Low High
Lot Sizing

Quality High High High High Low Low

Lean Six
Low High Low Low High Low
Sigma

Inventory
High High High High High High
Management

Warehouse
Low Low Low Low Low High
Management

Network
Low Low Low Low High High
Design

Transportation High High Low Low High High

Demand Low High High High High High

Management,
S&OP

Integrated
High High Low High High High
SCM

CRM,
Customer High Low Low High High Low
Service

Pricing High High Low High High Low

Risk
High High High Low Low Low
Management

Project
Low High High Low High Low
Management

Leadership,
People High High High Low High Low
Management

Technology High High Low High High High

Theory of
High Low Low Low High Low
Constraints

Operational
High High High Low High Low
Accounting

See also

Barcode scanner Demand-chain management

Beer distribution game Distribution

Bullwhip effect Document automation

Calculating demand forecast accuracy Ecodesk

Cold chain Enterprise planning systems

Cost to serve Enterprise resource planning

Customer-driven supply chain Fair Stone standard

Customer-relationship management Industrial engineering

Information technology management Procurement

Integrated business planning Procurement outsourcing

Inventory Product quality risk in supply chain

Inventory control Radio-frequency identification

Inventory control system Reverse logistics

Inventory management software Service management

LARG SCM Software configuration management (SCM)

Liquid logistics Stock management

Logistic engineering Strategic information system

Logistics Supply chain engineering

Logistics management Supply-chain-management software

Logistics Officer Supply-chain network

Management accounting in supply chains Supply-chain security

Management information system Supply chain

Master of Science in Supply Chain Supply management

Management
Trade finance
Military supply-chain management
Value chain
Netchain analysis
Vendor-managed inventory
Offshoring Research Network
Warehouse
Operations management
Warehouse management system
Order fulfillment
Associations
INFORMS

Institute of Industrial Engineers

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Further reading

Ferenc Szidarovszky and Sándor Molnár (2002) Introduction to Matrix Theory: With Applications to
Business and Economics, World Scientific Publishing. Description (http://www.worldscientific.com/world
scibooks/10.1142/4595) and preview (http://www.worldscientific.com/doi/suppl/10.1142/4595/suppl
_file/4595_chap01.pdf) .

FAO, 2007, Agro-industrial supply chain management: Concepts and applications. AGSF Occasional
Paper 17 Rome. (http://www.fao.org/ag/ags/publications/docs/AGSF_OccassionalPapers/agsfop17.pd
f)

Haag, S., Cummings, M., McCubbrey, D., Pinsonneault, A., & Donovan, R. (2006), Management Information
Systems For the Information Age (3rd Canadian Ed.), Canada: McGraw Hill Ryerson ISBN 0-07-281947-2

Halldorsson, A., Kotzab, H., Mikkola, J. H., Skjoett-Larsen, T. (2007). Complementary theories to supply
chain management. Supply Chain Management, Volume 12 Issue 4, 284-296.

Hines, T. (2004). Supply chain strategies: Customer driven and customer focused. Oxford: Elsevier.

Hopp, W. (2011). Supply Chain Science. Chicago: Waveland Press.

Kallrath, J., Maindl, T.I. (2006): Real Optimization with SAP® APO. Springer ISBN 3-540-22561-7.

Kaushik K.D., & Cooper, M. (2000). Industrial Marketing Management. Volume29, Issue 1, January 2000,
Pages 65–83

Kouvelis, P.; Chambers, C.; Wang, H. (2006): Supply Chain Management Research and Production and
Operations Management: Review, Trends, and Opportunities. In: Production and Operations Management,
Vol. 15, No. 3, pp. 449–469.
 Larson, P.D. and Halldorsson, A. (2004). Logistics versus supply chain management: an international
survey. International Journal of Logistics: Research & Application, Vol. 7, Issue 1, 17-31.

Simchi-Levi D., Kaminsky P., Simchi-levi E. (2007), Designing and Managing the Supply Chain, third
edition, Mcgraw Hill

Stanton, D. (2017), Supply Chain Management For Dummies, First Edition. Wiley New York. ISBN 978-
1119410195

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