Supply chain management
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Categories: Commercial item transport and distribution | Supply chain management | Management | Marketing | Production and manufacturing | Distribution, retailing, and wholesaling
Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.
According to the Council of Supply Chain Management Professionals (CSCMP), a professional association that developed a definition in 2004, Supply Chain Management "encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies."[1]
Supply chain event management (abbreviated as SCEM) is a consideration of all possible occurring events and factors that can cause a disruption in a supply chain. With SCEM possible scenarios can be created and solutions can be planned.
Some experts distinguish supply chain management and logistics management, while others consider the terms to be interchangeable. From the point of view of an enterprise, the scope of supply chain management is usually bounded on the supply side by your supplier's suppliers and on the customer side by your customer's customers.
Supply chain management is also a category of software products.
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Supply chain management problems
Supply chain management must address the following problems:
- Distribution Network Configuration: Number and location of suppliers, production facilities, distribution centers, warehouses and customers.
- Distribution Strategy: Centralized versus decentralized, direct shipment, cross docking, pull or push strategies, third party logistics.
- Information: Integrate systems and processes through the supply chain to share valuable information, including demand signals, forecasts, inventory and transportation.
- Inventory Management: Quantity and location of inventory including raw materials, work-in-process and finished goods.
Activities/Functions
Supply chain management is a cross-functional approach to managing the movement of raw materials into an organization and the movement of finished goods out of the organization toward the end-consumer. As corporations strive to focus on core competencies and become more flexible, they have reduced their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other corporations that can perform the activities better or more cost effectively. The effect has been to increase the number of companies involved in satisfying consumer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and improving inventory velocity.
Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries. SCOR is a supply chain management model promoted by the Supply-Chain Council. Another model is the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply chain activities can be grouped into strategic, tactical, and operational levels of activities.
Strategic
- Strategic network optimization, including the number, location, and size of warehouses, distribution centers and facilities.
- Strategic partnership with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics.
- Product design coordination, so that new and existing products can be optimally integrated into the supply chain.
- Information Technology infrastructure, to support supply chain operations.
- Where to make and what to make or buy decisions
Tactical
- Sourcing contracts and other purchasing decisions.
- Production decisions, including contracting, locations, scheduling, and planning process definition.
- Inventory decisions, including quantity, location, and quality of inventory.
- Transportation strategy, including frequency, routes, and contracting.
- Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise.
- Milestone Payments
Operational
- Daily production and distribution planning, including all nodes in the supply chain.
- Production scheduling for each manufacturing facility in the supply chain (minute by minute).
- Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers.
- Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers.
- Inbound operations, including transportation from suppliers and receiving inventory.
- Production operations, including the consumption of materials and flow of finished goods.
- Outbound operations, including all fulfillment activities and transportation to customers.
- Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers.
- Performance tracking of all activities
The Bullwhip Effect
The Bullwhip Effect (or Whiplash Effect) is an observed phenomenon in forecast-driven distribution channels. Because customer demand is rarely perfectly stable, businesses must forecast demand in order to properly position inventory and other resources. Forecasts are based on statistics, and they are rarely perfectly accurate. Because forecast errors are a given, companies often carry an inventory buffer called "safety stock". Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. In periods of rising demand, down-stream participants will increase their orders. In periods of falling demand, orders will fall or stop in order to reduce inventory. The effect is that variations are amplified the farther you get from the end-consumer.
Supply chain experts have recognized that the Bullwhip Effect is a problem in forecast-driven supply chains. The alternative is to establish a demand-driven supply chain which reacts to actual customer orders. In manufacturing, this concept is called Kanban. This model has been most successfully implemented in Wal-Mart's distribution system. Individual Wal-Mart stores transmit point-of-sale (POS) data from the cash register back to corporate headquarters several times a day. This demand information is used to queue shipments from the Wal-Mart distribution center to the store and from the supplier to the Wal-Mart distribution center. The result is near-perfect visibility of customer demand and inventory movement throughout the supply chain. Better information leads to better inventory positioning and lower costs throughout the supply chain. Barriers to implementing a demand-driven supply chain include investments in information technology and creating a corporate culture of flexibility and focus on customer demand.
Factors contributing to the Bullwhip Effect:
- Forecast Errors
- Lead Time Variability
- Batch Ordering
- Price Fluctuations
- Product Promotions
- Inflated Orders
Methods intended to reduce uncertainty, variability, and lead time:
- Vendor Managed Inventory (VMI)
- Just In Time replenishment (JIT)
- Strategic partnership
See also
Supply Chain Management and Inaccuracy Problems
According to a survey conducted by Andersen (1996), on a typical afternoon in a U.S. supermarket, 8.2% of the items are out of stock and this number is nearly doubled for items that are advertised. The cost of stockouts in U.S. supermarkets alone are estimated at $7 to $12 billion of sales. In the same study, it was estimated that 33% of out-of-stock items are located in the store, just not in the correct location. Before being stored on store shelves, items pass through several processes, including order processing, fulfillment, staging, shipment, receiving, short-term storage, and finally shelving. Other contributing causes are limited shelf space and service failure at any point in the supply chain.
See also
- APICS
- Beer Distribution Game
- Demand chain management
- distribution
- Information technology management
- Logistic engineering
- Logistics
- Management information systems
- Marketing
- Reverse Auction
- Strategic information system
- Supply Chain Security
- Supply chain
- Vendor Managed Inventory
Notes
- ^ Council of Supply Chain Management Professionals: CSCMP Definition of Supply Chain Management.
