Supply Chain Management

(SCM)
OBJECTIVE

 To have a better understanding with Supply Chain Management

 To know the importance and benefit of SCM.
Lesson 1: What is the Supply Chain Management (SCM)?

 The best companies around the world are discovering a powerful new source of
competitive advantage. It's called supply-chain management and it encompasses
all of those integrated activities that bring product to market and create satisfied
customers.
Supply Chains

A supply chain is the connected network of individuals, organizations, resources, activities, and technologies
involved in the manufacture and sale of a product or service. A supply chain starts with the delivery of raw
materials from a supplier to a manufacturer and ends with the delivery of the finished product or service to
the end consumer.
Supply chain management is the management of the flow of goods and services and includes all processes
that transform raw materials into final products. It involves the active streamlining of a business's supply-side
activities to maximize customer value and gain a competitive advantage in the marketplace.

SCM represents an effort by suppliers to develop and implement supply chains that are as efficient and
economical as possible. Supply chains cover everything from production to product development to the
information systems needed to direct these undertakings.
SCM oversees each touchpoint of a company's product or service, from initial creation to the final sale. With
so many places along the supply chain that can add value through efficiencies or lose value through
increased expenses, proper SCM can increase revenues, decrease costs, and impact a company's bottom line.
 
How Supply Chain Management Works?

Typically, SCM attempts to centrally control or link the production, shipment, and
distribution of a product. By managing the supply chain, companies are able to cut
excess costs and deliver products to the consumer faster. This is done by keeping
tighter control of internal inventories, internal production, distribution, sales, and the
inventories of company vendors.
SCM is based on the idea that nearly every product that comes to market results from
the efforts of various organizations that make up a supply chain. Although supply
chains have existed for ages, most companies have only recently paid attention to
them as a value-add to their operations.
In SCM, the supply chain manager coordinates the logistics of
all aspects of the supply chain which consists of five parts:

 The plan or strategy

 The source (of raw materials or services)
 Manufacturing (focused on productivity and efficiency)
 Delivery and logistics
 The return system (for defective or unwanted products)
The supply chain manager tries to minimize shortages and keep costs down. The job
is not only about logistics and purchasing inventory. supply chain managers, “make
recommendations to improve productivity, quality, and efficiency of operations.”

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

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

Supply chain management is the process of integrating the supply and demand
management, not only within the organization, but also across all the various members
and channels in the supply chain so they work together most efficiently and effectively.
There are five basic components in a supply chain
management system:

1. Planning
To meet customer demands, supply chain managers have to plan ahead. This
means forecasting demand, designing the supply chain intentionally, and determining
how the organization will measure the supply chain to ensure it is performing as
expected in terms of efficiency, delivering value for customers and helping to achieve
organizational goals.
2. Sourcing
Selecting suppliers who will provide the goods, raw materials, or services that create
the product is a critical component of the supply chain. Not only does this include
creating the contracts that govern the suppliers, but also managing and monitoring
existing relationships. As part of strategic sourcing, supply chain managers must
oversee the processes for ordering, receiving, managing inventory and authorizing
invoice payments for suppliers.
3. Making
Supply chain managers also need to help coordinate all the steps involved in creating
the product itself. This includes reviewing and accepting raw materials,
manufacturing the product, quality testing and packaging. Generally, businesses
evaluate the quality, production output and employee productivity to ensure overall
standards are upheld.
4. Delivering
Ensuring the products reach the customers is achieved through logistics and it’s
fundamental to supply chain success. This includes coordinating the orders,
scheduling delivery, dispatching, invoicing, and receiving payments. Generally, a
fleet of vehicles must be managed to ship the products—from tankers bringing
product manufactured overseas to fleet trucks and parcel services handling last mile
delivery. In some cases, organizations outsource the delivery process to other
organizations who can oversee special handling requirements or home delivery.
5. Returning
Supply chain managers also need to develop a network that supports returning
products. In some cases, this may include scrapping or re-producing a defective
product; in others, it may simply mean returning a product to the warehouse. This
network needs to be responsible and flexible to support customer needs.
The foundation for each of these components is a solid network of supporting
processes that can effectively monitor the information across the supply chain and
assure adherence to laws and regulations. This involves a wide number of
departments, including HR, IT, quality assurance, finance, product design and sales,
according to CIO.
Lesson 1.1.1: Importance of Supply Chain Management (SCM)
 In the ancient Greek fable about the tortoise and the hare, the speedy and
overconfident rabbit fell asleep on the job, while the "slow and steady" turtle won
the race. That may have been true in Aesop's time, but in today's demanding
business environment, "slow and steady" won't get you out of the starting gate, let
alone win any races. Managers these days recognise that getting products to
customers faster than the competition will improve a company's competitive
position. To remain competitive, companies must seek new solutions to important
Supply Chain Management issues such as modal analysis, supply chain
management, load planning, route planning and distribution network design.
Companies must face corporate challenges that impact Supply Chain Management
such as reengineering globalisation and outsourcing.
Supply chain management is crucial for any organization because doing it well can
introduce several benefits to the organization; however, poor supply chain management
can result in very expensive delays, quality issues, or reputation. In some cases, poor
supply chain management can also cause legal issues if suppliers or processes are not
compliant. Technology advances have unlocked huge potential for supply chain
management, enabling supply chain managers to work closely – and in real time – with
members of the supply chain. With supply chain management, organizations can:

Anticipate problems
Dynamically adjust prices
Improve inventory and fulfillment
Effective supply chain management systems minimize cost, waste and time in the
production cycle. The industry standard has become a just-in-time supply chain
where retail sales automatically signal replenishment orders to manufacturers. Retail
shelves can then be restocked almost as quickly as product is sold. One way to
further improve on this process is to analyze the data from supply chain partners to
see where further improvements can be made.
• Identifying potential problems. When a customer orders more product than the manufacturer
can deliver, the buyer can complain of poor service. Through data analysis, manufacturers may be
able to anticipate the shortage before the buyer is disappointed.
• Optimizing price dynamically. Seasonal products have a limited shelf life. At the end of the
season, these products are typically scrapped or sold at deep discounts. Airlines, hotels and others
with perishable “products” typically adjust prices dynamically to meet demand. By using analytic
software, similar forecasting techniques can improve margins, even for hard goods.
• Improving the allocation of “available to promise” inventory. Analytical software tools help
to dynamically allocate resources and schedule work based on the sales forecast, actual orders and
promised delivery of raw materials. Manufacturers can confirm a product delivery date when the
order is placed — significantly reducing incorrectly-filled orders.
The organizations that make up the supply chain are “linked” together
through physical flows and information flows.

 Physical flows involve the transformation, movement, and storage of goods and
materials. They are the most visible piece of the supply chain. But just as
important are information flows.
 Information flows allow the various supply chain partners to coordinate their
long-term plans, and to control the day-to-day flow of goods and materials up and
down the supply chain.
Why is it so important for companies to get products to their customers
quickly?
Faster product availability is key to increasing sales. "There's a substantial profit advantage for the
extra time that you are in the market and your competitor is not. If the company be there first, they
are likely to get more orders and more market share." The ability to deliver a product faster also
can make or break a sale. "If two alternative [products] appear to be equal and one is immediately
available and the other will be available in a week, which would you choose? Clearly, "Supply Chain
Management has an important role to play in moving goods more quickly to their destination. "

Supply chain management is important because it can help achieve several business objectives. For
instance, controlling manufacturing processes can improve product quality, reducing the risk of
recalls and lawsuits while helping to build a strong consumer brand. At the same time, controls
over shipping procedures can improve customer service by avoiding costly shortages or periods of
inventory oversupply. Overall, supply chain management provides several opportunities for
companies to improve their profit margins, and is especially important for companies with large
and international operations.
Important Aspects of SCM Strategy
The supply chain network structure:
This considers physical structures, such as manufacturing facilities, warehousing, outlets, and customer locations, as well as logistics
and the organizational philosophy as to where and how each are structured and handled.

Legal and ethical standards:

The identification of legal standards related to procurement along with appropriate ethical standards to ensure the organization complies
with its corporate responsibility and environmental pledges.

Supply chain software and technology:

Adoption of systems to monitor stocks, such as using barcoding or IoT devices for tracking locations and movements. Additionally,
software solutions that offer supply chain visibility and the degree of software integration with other corporate systems.

S&OP policies:
Because the supply chain doesn't operate in a vacuum, decisions and strategies should align with the corporate philosophy and be
presented in the same financial language.

Supplier profiles:
The strategy should determine who the company does business with and require certain systems to be used by suppliers to manage
product quality and deliveries.
Typical SCM Key Performance Indices
Key performance indices (KPIs) are crucial elements of a successful SCM strategy. They
identify required performance standards and allow supply chain managers to measure
performance and identify areas needing attention. Additionally, they are useful for
measuring performance improvements. Common KPIs include:

 Cash to cycle time: The time between paying for raw materials and receiving payment for goods
delivered, which is an important factor in determining working capital requirements.

 Perfect order rate: The number of orders delivered without errors, which is a crucial metric for
organizations striving for perfection and often broken down further by function.

 Inventory turnover: The time it takes to sell the total inventory in dollars, which is another factor
that affects working capital.

 GMROI: The gross margin return on investment, measuring the amount of gross profit earned on
the cost of inventory used, which is a metric commonly used in retail.
Benefits of supply chain management
 Supply chain management creates a number of benefits that translate to higher profits, better brand
image and greater competitive advantage. These include the following:
 better ability to predict and meet customer demand;
 better supply chain visibility, risk management and predictive capabilities;
 fewer process inefficiencies and less product waste;
 improvements in quality;
 increased sustainability, both from a societal and an environmental standpoint;
 lower overhead;
 improvements in cash flow; and
 more efficient logistics.
Lesson 1.1.2: Supply Chain Management today
If we take the view that Supply Chain Management is what Supply Chain Management people do,
then in 1997 Supply Chain Management has a firm hand on all aspects of physical distribution and
materials management. Seventy-five percent or more of respondents included the following
activities as part of their company's Supply Chain

Management department functions:

• Inventory management
• Transportation service procurement
• Materials handling
• Inbound transportation
• Transportation operations management
• Warehousing management
Moreover, the Supply Chain Management department is expected to increase its range
of responsibilities, most often in line with the thinking that sees the order fulfilment
process as one co-ordinated set of activities. Thus the functions most often cited as
planning to formally include in the Supply Chain Management department are:

 Customer service performance monitoring

 Order processing/customer service

 Supply Chain Management budget forecasting

On the other hand, there are certain functions which some of us might feel logically
belong to Supply Chain Management which companies feel are the proper domain of
other departments. Most difficult to bring under the umbrella of Supply Chain
Management are:
 Third party invoice payment/audit
 Sales forecasting
 Master production planning
Lesson 1.1.3: Supply Chain Management tomorrow

The future for Supply Chain Management looks very bright. This year, as well as last
year, two major trends are benefiting Supply Chain Management operations. These
are

• Customer service focus

• Information technology

Successful organisations must be excellent in both of these areas, so the importance

of Supply Chain Management and the tools available to do the job right will continue
to expand.
CONCLUSION:
 Supply chain management (SCM) is the centralized management of the flow of
goods and services and includes all processes that transform raw materials into
final products. By managing the supply chain, companies are able to cut excess
costs and deliver products to the consumer faster.
 Good supply chain management keeps companies out of the headlines and away
from expensive recalls and lawsuits.
 Technology advances have unlocked huge potential for supply chain management,
enabling supply chain to be more efficient. Supply chain management creates a
number of benefits that translate to higher profits, better brand image and greater
competitive advantage.
Activity NO.1
Define the following terms: (PDF File Required)
1. Logistics
2. Benchmarking
3. Backhaul
4. Beyond Economic Repair
5. Batch number
6. Bill of material
7. First in, First out
8. On Hand Balance
9. Radio Frequency Identification
10. Turn Around Time