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Supply chain management

Supply chain management (SCM) is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers.In many organizations, materials form the largest single expenditure item, accounting for nearly 50 to 65 % of the total expenditure. With competition growing by the day, cost reduction in business operations and yet making available various products to customers, as per their requirement, come into sharp focus. Maintaining a flawless supply chain across all its operations thus becomes absolutely necessary for any business.

Importance of supply chain management need not be over emphasized as it has become the cutting edge of business, after product quality and manufacturing capabilities of any business firm. If your company makes a product from parts purchased from suppliers, and those products are sold to customers, then you have a supply chain. A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers.

Definition Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. It is said that the ultimate goal of any effective supply chain management system is to reduce inventory . As a solution for successful supply chain management, sophisticated software systems with Web interfaces are competing with Web-based application service providers (ASP) who promise to provide part or all of the SCM service for companies who rent their service

Elements of the Supply Chain A simple supply chain is made up of several elements that are linked by the movement of products along it. The supply chain starts and ends with the customer.
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Customer: The customer starts the chain of events when they decide to purchase a product that has been offered for sale by a company. The customer contacts the sales department of the company, which enters the sales order for a specific quantity to be delivered on a specific date. If the product has to be manufactured, the sales order will include a requirement that needs to be fulfilled by the production facility.

Planning: The requirement triggered by the customers sales order will be combined with other orders. The planning department will create a production plan to produce the products to fulfill the customers orders. To manufacture the products the company will then have to purchase the raw materials needed. Purchasing: The purchasing department receives a list of raw materials and services required by the production department to complete the customers orders. The purchasing department sends purchase orders to selected suppliers to deliver the necessary raw materials to the manufacturing site on the required date. Inventory: The raw materials are received from the suppliers, checked for quality and accuracy and moved into the warehouse. The supplier will then send an invoice to the company for the items they delivered. The raw materials are stored until they are required by the production department.

Production: Based on a production plan, the raw materials are moved inventory to the production area. The finished products ordered by the customer are manufactured using the raw materials purchased from suppliers. After the items have been completed and tested, they are stored back in the warehouse prior to delivery to the customer. Transportation: When the finished product arrives in the warehouse, the shipping department determines the most efficient method to ship the products so that they are delivered on or before the date specified by the customer. When the goods are received by the customer, the company will send an invoice for the delivered products.

Features of Supply Chain Management


Features that Give You a Competitive Edge Todays popular supply chain softwares can help companies achieve and maintain a competitive edge by empowering them to streamline and enhance their most important supply chain operations from start to finish. With a supply chain software in place, organizations can maximize cost-efficiency, increase productivity, and give their bottom line a big boost. How do supply chain softwares enable the realization of all these benefits? By offering a broad range of robust features, delivered through a comprehensive suite of tightly integrated modules and applications. This functionality is designed to fully automate and support supply chain processes from end-to-end, and includes: Inventory Management

With a supply chain package, companies can significantly improve the way they track and manage their supplies of raw materials and components needed for production, finished goods to satisfy open sales orders, and spare parts required for field service and support. This eliminates excess and waste, frees up valuable real estate for other important purposes, and minimizes related storage costs. Order Management

A supply chain software can dramatically accelerate the execution of the entire order-to-delivery cycle by helping companies to more productively generate and track sales orders. Supply chain also enables the dynamic scheduling of supplier deliveries to more effectively meet demand, and more rapid creation of pricing and product configurations.

Procurement All activities and tasks associated with sourcing, purchasing, and payables can be fully automated and streamlined across a companys entire supplier network with a supply chain software package. As a result, businesses can build stronger relationships with vendors, better assess and manage their performance, and improve negotiations to leverage volume or bulk discounts and other cost-cutting measures. Logistics As companies expand globally, their supply chains become more and more complex. This makes the coordination of the numerous warehouses and transportation channels involved quite a challenging endeavor without a supply chain software in place. With supply chain, businesses can improve on-time delivery performance and boost customer satisfaction by achieving complete visibility into how finished goods are stored and distributed, regardless of the number of facilities or partners that participate. Forecasting and Planning

With a supply chain software, organizations can more accurately anticipate customer demand, and plan their procurement and production processes accordingly. As a result, they can avoid unnecessary purchases of raw-materials, eliminate manufacturing over-runs, and prevent the need to store excess finished goods, or slash prices to move products off of warehouse shelves. Return Management

A supply chain software can simplify and accelerate the inspection and handling of defective or broken goods on both the buy and sell side of the business and automate the processing of claims with suppliers and distributors, as well as insurance companies.

Many supply chain offerings also include add-on options or modules designed to enhance related activities. Through these features, support is provided for a variety of important processes such as contract management, product lifecycle management, capital asset management, and more.

Benefits of Supply Chain Management


Four Key Benefits of Supply Chain Management Software A supply chain software can offer tremendous value to any company that relies on the smooth planning and execution of related operations to achieve long-term profitability and maintain a solid competitive edge. Thats why more and more organizations are purchasing and implementing supply chain applications. In fact, the market for supply chain and related softwares has reached $7.4 billion in 2008, according to a report by ARC Advisory Group. What are the key benefits of todays leading supply chain software? Improve Your Supply Chain Network

Supply chain softwares provide complete, 360 degree visibility across the entire supply chain network something that cannot be easily achieved with disjointed manual processes. With supply chain, users can monitor the status of all activities across all suppliers, production plants, storage facilities, and distribution centers. This enables more effective tracking and management of all related processes, from the ordering and acquisition of raw materials, through manufacturing and shipping of finished goods to customers or retail outlets. So the status of mission-critical activities can be tracked at all times, and potential inefficiencies or problems can be identified and corrected immediately, before they become unmanageable. Minimized Delays

Many supply chains particularly those that havent been enhanced with a supply chain application are plagued by delays that can result in poor relationships and lost business. Late shipments from vendors, slow downs on production lines, and

logistical errors in distribution channels are all common issues that can negatively impact a companys ability to satisfy customer demand for its products. With supply chain software, all activities can be seamlessly coordinated and executed from start to finish, ensuring much higher levels of on-time delivery across the board. Enhanced doing at all times and vice versa. Supply chain softwares make that possible, bridging the gap between disparate business softwares at remote locations to dramatically improve collaboration among supply chain partners. With supply chain softwares, all participants can dynamically share vital information such as demand trend reports, forecasts, inventory levels, order statuses, and transportation plans in real-time. This type of instantaneous, unhindered communication and data-sharing will help keep all key stakeholders informed, so supply chain processes can run as flawlessly as possible. Reduced Costs Collaboration

Imagine having the ability to know exactly what your suppliers and distributors are

A supply chain software can help reduce overhead expenses in a variety of ways. For example, it can:


Improve inventory management, facilitating the successful implementation of just-in-time stock models, and eliminating the strain on real estate and financial resources caused by the need to store excess components and finished goods

Enable more effective demand planning, so production output levels can be set to most effectively address customer requirements without the shortages that result in lost sales, or the waste that drains budgets

Improve relationships with vendors and distributors, so purchasing and logistics professionals can identify cost-cutting opportunities such as volume discounts.

Stages or component of supply chain mgt A supply chain is the collection of steps that a company takes to transform raw components into the final product. Typically, supply chain management is comprised of five stages: plan, develop, make, deliver, and return. Plan-: A plan or strategy must be developed to address how a given good or service will meet the needs of the customers. A significant portion of the strategy should focus on planning a profitable supply chain. . A big piece of SCM planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers. Develop -: It involves building a strong relationship with suppliers of the raw materials needed in making the product the company delivers. This phase involves not only identifying reliable suppliers but also planning methods for shipping, delivery, and payment. SCM managers can put together processes for managing their goods and services inventory, including receiving and verifying shipments, transferring them to the manufacturing facilities and authorizing supplier payments. Make -: At this stage the product is manufactured, tested, packaged, and scheduled for delivery. This is the manufacturing step. This is the most metric-intensive portion of the supply chainone where companies are able to measure quality levels, production output and worker productivity.

Deliver -: This stage, at the logistics phase, customer orders are received and delivery of the goods is planned. This is the part that many SCM insiders refer to as logistics, where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments. Return -: As the name suggests, during this stage, customers may return defective products. The company will also address customer questions in this stage. This can be a problematic part of the supply chain for many companies. Supply chain planners have to create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have problems with delivered products.

Supply Chain Decisions We classify the decisions for supply chain management into two broad categories -- strategic and operational. As the term implies, strategic decisions are made typically over a longer time horizon. These are closely linked to the corporate strategy and guide supply chain policies from a design perspective. On the other hand, operational decisions are short term, and focus on activities over a day-to-day basis. There are four major decision areas in supply chain management: 1) location, 2) production, 3) inventory, and 4) transportation (distribution), and there are both strategic and operational elements in each of these decision areas. Location Decisions The geographic placement of production facilities, stocking points, and sourcing points is the natural first step in creating a supply chain. The location of facilities involves a commitment of resources to a long-term plan. Once the size, number, and location of these are determined, so are the possible paths by which the product flows through to the final customer. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost, and level of service. These decisions should be determined by an optimization routine that considers production costs, taxes, duties and duty drawback, tariffs, local content, distribution costs, production limitations, etc.

Production Decisions The strategic decisions include what products to produce, and which plants to produce them in, allocation of suppliers to plants etc. As before, these decisions have a big impact on the revenues, costs and customer service levels of the firm. These decisions assume the existence of the facilities, but determine the exact path(s) through which a product flows to and from these facilities. Operational decisions focus on detailed production scheduling. These decisions include the construction of the master production schedules, scheduling production on machines, and equipment maintenance Inventory Decisions Inventories exist at every stage of the supply chain as either raw materials, semifinished or finished goods. They can also be in-process between locations. Their primary purpose to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40 percent of their value, their efficient management is critical in supply chain operations. It is strategic in the sense that top management sets goals. However, most researchers have approached the management of inventory from an operational perspective. These include deployment strategies (push versus pull), control policies --- the determination of the optimal levels of order quantities and reorder points, and setting safety stock levels, at each stocking location. Transportation Decisions The mode choice aspect of these decisions are the more strategic ones. These are closely linked to the inventory decisions, 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. While air shipments may be fast, reliable, and warrant lesser safety stocks, they are expensive. Meanwhile

shipping by sea or rail may be much cheaper, but they necessitate holding relatively large amounts of inventory to buffer against the inherent uncertainty associated with them. Therefore customer service levels, and geographic location play vital roles in such decisions. Shipment sizes , routing and scheduling of equipment are key in effective management of the firm's transport strategy.

Strategic supply chain mgt process The strategic supply chain processes that management has to decide upon will cover the breadth of the supply chain. These include product development, customers, manufacturing, vendors and logistics. Product Development Senior Management has to define a strategic direction when considering the products that the company should manufacture and offer to their customers. As product cycles mature or products sales decline, management has to make strategic decisions to develop and introduce new versions of existing products into the marketplace, rationalize the current product offering or whether develop a new range of products and services. These strategic decisions may include the need to acquire another company or sell existing businesses. However, when making these strategic product development decisions, the overall objectives of the firm should be the determining factor. Customers At the strategic level, a company has to identify the customers for its products and services. When company management makes strategic decisions on the products to manufacture, they need to then identify the key customer segments where company marketing and advertising will be targeted.

Manufacturing At the strategic level, manufacturing decisions define the manufacturing infrastructure and technology that is required. Based on high level forecasting and sales estimates, the company management has to make strategic decisions on how products will be manufactured. The decisions can require new manufacturing facilities to be built or to increase production at existing facilities. However, if the overall company objectives include moving manufacturing overseas, then the decisions may lean towards using subcontracting and third party logistics. Suppliers Company management has to decide on the strategic supply chain policies with regards to suppliers. Reducing the purchasing spends for a company can directly relate to an increase in profit and strategically there are a number of decisions that can be made to obtain that result. Leveraging the total companys purchases over many businesses can allow company management to select strategic global suppliers who offer the greatest discounts. But these decisions have to correspond with the overall company objectives. If a company has adopted policies on quality, then strategic decisions on suppliers will have to fall within the overall company objective. Logistics As well as strategic decisions on manufacturing locations, the logistics function is key to the success of the supply chain. Order fulfillment is an important part of the supply chain and company management need to make strategic decisions on the logistics network. The design and operation of the network has a significant

influence on the performance of the supply chain. Strategic decisions are required on warehouses, distribution centers which transportation modes should be used. If the overall company objectives identify the use of more third party subcontracting, the company may strategically decide to use third party logistics companies in the supply chain.

Supply Chain Management Technology If a company expects to achieve benefits from their supply chain management process, they will require some level of investment in technology. The backbone for many large companies has been the vastly expensive Enterprise Resource Planning (ERP) suites, such as SAP and Oracle. Since the wide adoption of Internet technologies, all businesses can take advantage of Web-based software and Internet communications. Instant communication between vendors and customers allows for timely updates of information, which is key in management of the supply chain.

Supply chain management technology With today's emphasize on cutting costs and streamlining expenses, many companies are looking to improve their bottom lines with more effective supply chains. Unfortunately, many people involved with companies don't have a clear understanding of what a supply chain is or how it fits into the companies overall strategy. Supply Chain Management (SCM) software can have tremendous financial benefits for companies. Some businesses have saved millions just by automating their supply chains, but those savings gain often do not come easily.

Supply chains include a companys entire manufacturing and distribution process. They involve every step of the production from planning to manufacturing to handling defective goods. The overall goal of these chains is to keep the process running smoothly at all times and to keep all of the components (i . e. vendors, warehouses, etc.) connected.

Even for business individuals who do understand the essence of the supply chain, they may not understand how it fits in or how it is different from another popular technology: ERP (Enterprise Resource Program). In fact, supply chains often work best in conjunction with an ERP system but they are not meant to replace or to use instead of such a system because ERP systems involve a multitude of business activities, including customer service and production planning that are not a part of supply chains. Supply chains are generally concerned with the flow of raw materials, manufacturing, production, and distribution. However, the ERP system does organize a lot of the information supply chains use to run efficiently and without that system most companies run into problems effectively setting up their supply chains.

Technology also plays an important role in the success of supply chain management. Even though the supply chain concept pre-dates the Internet, only through the use of web-based software and communication can it truly reach its full potential. Before the Internet, companies were limited because they were not able to receive or to send updates, feedback, or other important information in a timely fashion. Additionally, companies were limited in their ability to work with global partners because of language barriers and time differences. Using the Internet to handle most of the elements involved in supply change management, including procurement and communication, makes the exchange of data and the running of the supply chain faster.

One of the biggest benefits technology has given to the supply chain concept is the ability for companies to collaborate. These collaborations are designed for the mutual benefit of all parties. For example, a supplier of consumer goods may be

linked up via the Internet to one of its distributors so that when the supply gets too low an order for more of those goods can be placed automatically. In this way, the distributor never has to worry about running out of a product and disappointing customers and the supplier doesn't have to worry about maintaining a large inventory in expectation of demand. Similar systems have also been constructed to send out multiple requests to vendors when an order is placed. Collaborating this way makes better use of existing resources and paves the way for a larger profit margin on all sides of the equation.

While the benefits of supply chain management are many, using technology to achieve those benefits does have some drawbacks: one is resistance from vendors and the other is resistance from employees. Suppliers of goods are often hesitant to jump onboard because of the initial costs involved in setting up their own end of supply chain management system and because most vendors do not have a trusting relationship with their buyers. To overcome this obstacle, the strong relationship must be present and the seller needs to be able to see the profit potential on their end of the arrangement. Resistance from employees and internal stakeholders is one of the biggest problems companies run into when putting an SCM system in place. Employees usually do what feels comfortable to them and generally have a negative view of new technology, especially when it causes major changes to their job. In many offices where a new SCM has been used, employees have taken great pains to circumvent the system and instead, continue using their old-fashioned spreadsheets, fax machines, and telephones to get the job done. Furthermore, many employees who do use the system are ready to abandon it after the first error or problem that they encounter. For example, forecasting aspects of the software are often inaccurate initially because the system needs to be tweaked and needs to have

real data for a period of time. Many companies have had to deal with employees who lose confidence in the system initially after they come face to face with a forecasting error that has resulted from lack of data from implementing the new system. Both of these problems can be prevented by thoroughly preparing their employees for the SCM implementation. Employees will require training that focuses not just on how to use the software to do their job but also on how the software will make their job easier and more efficient. Too often, employees are told how the new software will benefit the company and the company's bottom line, but today's employees are more concerned with how these implementations will directly benefit them. Also, employees need to be prepared for the fact that the software may make a few mistakes initially, but that doesn't mean the software is unreliable or useless. It simply means that it needs some fine-tuning or needs better data. It may also be that the employees need to learn how to use the software better.

Another problem companies discover with SCM is that the software is rarely 100% compatible with their existing ERP systems. In many cases, the ERP will need to be modified or at least tweaked in order to accommodate the new SCM system. These are steps that companies need to be prepared for in advance so that they can be dealt with promptly.

Furthermore, companies that want to use SCM may find it difficult to bring their suppliers on board. Generally, part of the SCM process may involve pushing the ownership of a company's inventory over to its suppliers. Many suppliers, however, are not prepared or willing to make such a change and that leaves the companies with a complicated decision: switch vendors or work with them outside the SCM structure. Of course, businesses can avoid making those decisions simply

by being more effective at convincing suppliers to join their SCM strategy. This may require both communication and salesmanship

Convincing vendors may be easier than many companies think. First, the business must be prepared to send its people into negotiations with the vendors' top people. These are the people who will be making the decisions, so it is critical that they be the ones who take part in the discussions. Dealing with anyone else can be a waste of time. During every meeting, the company must emphasize how the SCM can be beneficial to both parties. Like employees, vendors aren't necessarily interested in how the new program will improve the company's bottom line, they want to know how it will directly help them. One point to keep repeating throughout negotiations is that the vendor's adoption of the SCM will mean that more business from that company will be coming its way. Vendors respond to the increased business potential and are more likely to agree when they know doing so could spell a steady stream of revenue.

The bottom line is that SCM cannot be adopted lightly. It requires carefully planning and preparation. Companies must make sure that their employees, their suppliers, and their existing technology is ready if they want to see the implementation be successful.

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