Supply chain management (SCM) manages the flow of goods and services, including all processes that transform raw materials into final products. It is the alignment of firms, bringing products and services to market. It is a global network that delivers products and services from raw materials to end customers through an engineered flow of information, physical distribution and cash.
It is strategic and systemic coordination of business functions and tactics for good business functioning to improve the long term performance of companies and the supply chain as a whole.
The supply chain includes the manufacturers, warehouses, suppliers, transporters, retailers, and customers themselves. It is a network of facilities and options of distribution that performs the functions of materials procurement, transforming this material into finished products and then distributing it to customers.
Basic supply chain :
The essential supply chain has the following entities:
Producers or manufacturers are organizations that make a product. This includes companies that are producers of raw materials and companies that are producers of finished goods.
- Producers of raw materials ( mining for minerals, drilling for oil and gas, and cutting timber).
- Farming the land, raising animals, or catching seafood.
- Producers of finished goods (using subassemblies and raw materials made by other producers and creating products).
- Creating intangible items such as entertainment, music, designs or software.
- A service such as performing surgery, mowing a lawn, or teaching a skill.
Distributors are also known as wholesalers. They sell products in bulk. They basically buffer the fluctuations for producers by stocking inventory and doing sales work to service customers.
Following are some features of distributer :
- Takes ownership of inventories for selling products to consumers
- Taking inventory in bulk and delivering a bundle of related products to the customers
- Fulfil the “Time and Place” function for the customer
- Inventory management, product transportation and warehouse operations
- Broking product between producer and customer without taking ownership of the product
Retailers basically stock inventory and sell in smaller quantities to the general public. This organization closely tracks the and demands preferences of the customers. It advertises and uses a combination of price, product selection, convenience and service as a primary draw to attract customers for selling products.
Consumers are any organization that uses purchases the product. Customer organization purchase to incorporate the product into another one (to sell further)
A customer, on the other hand, is the final end-user of a product.
These organizations provide services to producers, retailers, distributors, and customers. These have developed special expertise that focuses on a particular activity ( needed by a supply chain). Service providers are able to perform services at a better price than producers, distributors, retailers, or consumers more effectively. Common service providers in the supply chain are providers of warehousing services and transportation services. These are known as logistics providers (e.g., trucking companies and public warehouse companies). Financial service providers deliver services, i.e., doing credit analysis, collecting on past invoices and making loans. These are credit rating companies, banks, and collection agencies.
In the Supply chain, service providers are integrated into the ongoing operations of distributors, producers, retailers, and consumers.
Service providers support in :
- Delivering market research and advertising,
- Providing engineering services, product design, management advice, and legal services.
- Offering data collection services and Information technology.
Difference between logistics and supply chain management :
Supply chain typically refers to the network of companies coordinating and working together to deliver the product to market, whereas “Logistics” refers to activities occurring within the sphere of a single organization.
Types of strategies:
Following are the three types of supply chain strategies:
- Stable supply chain strategy
It is related to the chains focused on cost performance, execution and efficiencies. They use connectivity technologies and have less time for real-time information
- Reactive supply chain strategy:
It works when the chain acts in fulfilling demand from the trade partners.
- Efficient reactive supply chain strategy
It focuses on cost management and efficiency on the total delivered cost of finished goods.
Flows in the supply chain:
The Basic Flow:
Basic flows that connect the supply chain entities together are as follows:
- The flow of physical materials and services from suppliers to the end customer
- The flow of cash from the customer to the raw materials supplier
- The flow of information back and forth along the chain
- The reverse flow of product returned
There are four flows in the supply chain :
- Information flow includes :
Invoices, sales literature, specifications, receipts, orders, rules and regulations
- Primary cash flow includes :
Payments of products and supplies,
- Primary product flow includes :
Materials, components, supplies, services and finished products.
- Reverse product flow includes :
Returns for repair, replacements, recycling, and disposals.
Key features of effective supply chain management
There is a proper pattern to the practice of SCM (Supply Chain Management). Each supply chain has its own specific set of operating challenges and market demands, and yet the issues remain the same in every case.
Improvements in both internal operating efficiencies and customer service levels are required in effective supply chain management.
Customer service means high order fill rates, low rate of a product return from customers, and on-time delivery rates.
Internal efficiency in SCM refers to an attractive rate of return on investment in inventory and other basic assets and finding ways to lower the sales expenses and operating.
Decisions have to be taken individually by the companies regarding their actions in the following five areas.
This includes the master production schedule creation that takes into account the workload balance, plant capacity, equipment maintenance and quality control.
It is related to :
- Products the market want
- Which and how much product should be produced
Factories can be built to accommodate one of two approaches to manufacturing:
- Product Focus :
- Functional Focus:
Warehouses are built to accommodate different approaches too. There are three main approaches to be used in warehousing :
- Stock Keeping Unit (SKU) Storage :
- Job Lot Storage
Inventory acts as a buffer against uncertainties in the supply chain. Holding inventory can be expensive, so record points and inventory levels are to be optimized.
It defines :
How much inventory is to be held as semifinished, finished goods or as raw materials.
What inventory is being stocked in each stage of SCM?
- Cycle Inventory :
This is the amount of inventory needed to satisfy the demand for the product in the period between purchases of the product.
- Safety Inventory :
To handle the anticipated or unexpected uncertainty in the forecast ( the costs of extra inventory against the costs of loss due to insufficient inventory ), the uncertainty is covered by holding additional inventory (in case of demand is greater than expected).
- Seasonal Inventory :
It is built up in a predictable increase in demand that happens in certain times of the year.
In order to manage the location of facilities for production and storage, a location which are cost-efficient and deciding whether new or already present facilities are to be used. Location decisions have a firm impact on the performance and cost characteristics of a supply chain. Once the location of facilities is determined, that defines the number of possible paths of product flow on the way to the customer. Location decisions reflect the basic strategy for building and delivering its products to the next level.
It defines how the inventory be moved from one supply chain location to another and when is it better to use which mode of transportation?
There are six basic modes of transport that a company can choose from:
- Electronic Transport
How much data is to be collected, and how much information is to be shared? Accurate and timely information holds the promise of coordination and good decision making. With better information, people can make beneficial decisions about what and how much to produce, about where to locate the inventory, and then how best to transport it.
In Supply Chain Management, information is used for two purposes:
- Coordinating daily activities
- Forecasting and planning are all related to future demands
Importance of Supply Chain Management:
Supply chain management performance directly affects the organization’s overall performance.
It aids a business in gaining an advantage by delivering products in a time when done effectively. Following are the ways in which SCM benefits the company or business
- Gaining long term loyalty of happy customers
- Improving the efficiency of business
- Fast service and satisfaction of customers
- Increase revenues and higher profits
- On-time delivery of products without the inconvenience
- Increased cash flow
- builds partnerships supporting future growth
- Reduces company’s operating expenses
- Lowers the cost of business
- helps balance the product supply with market demand
- It allows efficient and effective customer service
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