Supply Chain Management Meaning and Principles
- 1. WHAT IS ‘SUPPLY CHAIN MANAGEMENT-SCM?’ Supply chain management (SCM) is the active streamlining of a business' supply-side activities to maximize customervalue and gain a competitive advantage in the marketplace. SCM represents an effort by suppliers to develop and implementsupply chains that are as efficient and economicalas possible.Supply chains cover everything from production, to product development,to the information systems needed to direct these undertakings. Supply-chain management has beendefined 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. It is the management of the flow of goods and services involves the movementand storage of raw materials, of work-in-process inventory, and of finished goods from point of origin to point of consumption. Interconnected or interlinked networks, channels and node businessescombine in the provision of products and services required by end customers in a supply chain. 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 consumerfaster. 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.
- 2. Supply-Chain Principles If supply-chain management has become top management's new "religion," then it needs a doctrine.Andersen Consulting has stepped forward to provide the needed guidance, espousing what it calls the "Seven Principles" of supply-chain management. When consistentlyand comprehensivelyfollowed,the consulting firm says, these seven principles bring a host of competitive advantages. The seven principles as articulated by AndersenConsulting are as follows: 1. Segmentcustomers based on serviceneeds. Companies traditionally have grouped customers by industry, product, or trade channel and then provided the same level of service to everyone within a segment.Effective supply-chain management, by contrast, groups customers by distinct service needs--regardless of industry--and then tailors services to those particular segments. 2. Customise the SupplyChain Managementnetwork. In designing their Supply Chain Management network, companies need to focus intensely on the service requirements and profitability of the customersegments identified.The conventional approach of creating a "monolithic" Supply Chain Management network runs counter to successfulsupply-chain management. 3. Listen to signals of marketdemand and plan accordingly. Sales and operations planning must span the entire chain to detect early warning signals of changing demand in ordering patterns, customerpromotions,and so forth. This demand-intensive approach leads to more consistent forecasts and optimal resource allocation. 4. Differentiate productcloser to the customer. Companies today no longer can afford to stockpile inventory to compensate forpossible forecasting errors.Instead, they need to postpone productdifferentiation in the manufacturing process closer to actual consumerdemand.
- 3. 5. Strategically manage the sources of supply. By working closelywith their key suppliers to reduce the overall costs of owning materials and services,supply-chain management leaders enhance margins both for themselves and their suppliers. Beating multiple suppliers over the head for the lowest price is out, Andersen advises. "Gain sharing" is in. 6. Develop a supply-chain-wide technologystrategy. As one of the cornerstones of successfulsupply-chain management, information technologymust supportmultiple levels of decision making. It also should afford a clear view of the flow of products, services,and information. 7. Adopt channel-spanningperformancemeasures. Excellent supply-chain measurement systems do more than just monitor internal functions. They adopt measures that apply to every link in the supply chain. Importantly, these measurementsystems embrace both service and financial metrics,such as each account's true profitability. The principles are not easy to implement, the Andersenconsultants say, because they run counter to ingrained functionally oriented thinking about how companies organise, operate, and serve customers.The organisations that do persevere and build a successfulsupply chain have proved convincingly that you can please customers and enjoy growth by doing so.
- 4. Why SCM strategyis importantfor an Organization Supply Chain Strategies are the critical backbone to Business Organizations today. Effective Market coverage,Availability of Products at locations that hold the key to revenue recognition depends uponthe effectivenessof Supply Chain Strategy rolled out. Very simply stated, when a product is introduced in the market and advertised, the entire market in the country and all the sales counters need to have the productwhere the customercan buy and take delivery. Any glitch in the productnot being available at the right time can result in the drop in customerinterest and demand which can be disastrous.Transportation network designand management assume importance to support sales and marketing strategy. Inventory control and inventory visibility are two very critical elements in any operations for these are the costdrivers and directly impact the bottom lines on the balance sheet. Inventory means value and is an asset to the company. Every business has a standard for inventory turnaround that is optimum for the business. Inventory turnaround refers to the number of times the inventory is sold and replaced over a period of twelve months. The health of the inventory turn relates to the health of business. In a global scenario, the finished goods inventory is held at many locations and distribution centers,managed by third parties. A lot of inventory would also be in the pipeline in transportation, besides the inventory with distributors and retail stocking points. Since any loss of inventory anywhere in the supply chain would result in loss of value, effective control of inventory and visibility of inventory gains importance as a key factor of Supply Chain Management function.