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Introduction
Traditionally, marketing, distribution, planning, manufacturing, and the
purchasing organizations along the supply chain operated independently. These
organizations have their own objectives and these are often conflicting.
Purchasing contracts are often negotiated with very little information beyond
historical buying patterns. The result of these factors is that there is not a
single, integrated plan for the organization---there were as many plans as
businesses. Clearly, there is a need for a mechanism through which these
different functions can be integrated together. Supply chain management is a
strategy through which such integration can be achieved.
To comprehend the term "Supply Chain Management" we must first
understand as to what is 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. Supply
chains exist in both service and manufacturing organizations, although the
complexity of the chain may vary greatly from industry to industry and firm to
firm.
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. SCM is typically
viewed to lie between fully vertically integrated firms, where the entire
material flow is owned by a single firm, and those where each channel member
operates independently. Therefore coordination between the various players in
the chain is key in its effective management. It is said that the ultimate goal
of any effective supply chain management system is to reduce inventory (with
the assumption that products are available when needed).
SCM Flows
Supply chain management flows can be divided into three main flows:
The product flow
The information flow
The finances flow
The product flow includes the movement of goods from a supplier to a
customer, as well as any customer returns or service needs. The information
flow involves transmitting orders and updating the status of delivery. The
financial flow consists of credit terms, payment schedules, and consignment and
title ownership arrangements.
Software & Technology
Increasing numbers of companies are turning to Web sites and Web-based
applications as part of the SCM solution. A number of major Web sites offer
procurement marketplaces where manufacturers can trade and even make auction
bids with suppliers.
There are two main types of SCM software: planning applications and execution
applications. Planning applications use advanced algorithms to determine the
best way to fill an order. Execution applications track the physical status of
goods, the management of materials, and financial information involving all
parties.
Some SCM applications are based on open data models that support the sharing of
data both inside and outside the enterprise (this is called the extended
enterprise, and includes key suppliers, manufacturers, and end customers of a
specific company). This shared data may reside in diverse database systems, or
data warehouses, at several different sites and companies. By sharing this data
"upstream" (with a company's suppliers) and "downstream"
(with a company's clients), SCM applications have the potential to improve the
time-to-market of products, reduce costs, and allow all parties in the supply
chain to better manage current resources and plan for future needs.
SCM applications are developed using a number of scalable enterprise-level
technologies like Electronic Data Interchange (EDI), Extensible Markup Language
(XML) and other server application tools.
Processes
Supply Chain Management involves many processes and procedures for efficient
chain management. A few of the processes of Supply Chain Management are:
Procurement:
E-Procurement is the business-to-business purchase and sale of supplies and
services over the Internet. An important part of many B2B initiatives,
e-procurement web sites allow qualified and registered users to look for buyers
or sellers of goods and services. Depending on the approach, buyers or sellers
may specify prices or invite bids. Transactions can be initiated and completed.
Ongoing purchases may qualify customers for volume discounts or special offers.
Outsourcing:
Outsourcing is an arrangement in which one company provides services for
another company that could also be or usually have been provided in-house.
Outsourcing is a trend that is becoming more common in information technology
and other industries for services that have usually been regarded as intrinsic
to managing a business.
E-Fulfillment:
It optimizes customer response by merging several important functions: order
management, storage and delivery of finished goods. Warehouse execution may
involve final assembly and packaging of products. Besides better customer
response, benefits include more efficient inventory management, order entry,
warehousing and transportation management and an optimizing end-to-end
order-fulfillment process.
E-Tailing:
E-tailing is the virtual storefront. As a place for direct retail shopping,
with its 24-hour availability, global reach, ability to interact and provide
custom information and ordering, and multimedia prospects, the Web is rapidly
becoming a multibillion-dollar source of revenue for the world's businesses.
Forecasting:
Seeks to predict levels of weekly or monthly product activity over a time
horizon, typically two years. The statistical methods proven to make such
predictions have been used by manufacturers and distributors since the advent
of MRP II systems. Besides increased availability, the nature of forecasting
also is changing. Forecasting systems are used to increase agility. Companies
are able to consolidate demands from multiple business units, reduce
forecasting cycle times from weeks to days, while simultaneously increasing
forecasting accuracy, eliminating excess inventory, and ensuring that material
is on-hand for scheduled production.
Warehousing:
Integrates work performed within warehouses and distribution centers with a
transactional-type information system. Simple storage and retrieval of
materials is superseded by strategies to increase throughput and productivity
by managing the full range of warehouse resources to effectively manage
warehouse business processes and direct warehouse activities, including
receiving, put away, picking, shipping, and inventory cycle counts. Most
support radio-frequency communications, allowing real-time data transfer
between the system and warehouse personnel.
Logistics:
Logistics is that part of the supply chain process that plans, implements, and
controls the efficient, effective flow and storage of goods, services, and
related information from the point of origin to the point of consumption in
order to meet customers' requirements.
Conclusion & The Future of Supply Chain Management
Supply chain management is poised for a rapid evolution. Over the next few
months, the rush to meet the demands of individual customers is expected to
speed up. Increasing supply chain collaboration will take place at large
enterprises and small- and medium-sized enterprises (SMEs), both of which are
increasing their supply chain investments and pursuing e-business initiatives.
Increasingly, more brick-and-mortar manufacturers are adding e-commerce
capabilities and, as a result, are facing new challenges, such as individual
delivery of products.
The biggest challenge ahead may be to overcome the notion that a single
organization can achieve best-in-class supply chain management. The truth is
that organizations must work together to help each other succeed. Everyone in
the supply chain is a strategic link. Strong links make strong supply chains;
weak links hurt everybody - from the raw material producer to the end customer,
who evaluates how well a supply chain is performing every time he or she makes
a purchase.
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