Supply Chain Management

Supply chain concerns organizational aspects of integrating legally separated firms as well as coordinating materials and information flows within a procurement-production-distribution network. A supply chain consists of 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.

A supply chain consists of all the activities starting from sourcing of raw materials or components till delivery of the finished product to the customer. Supply chain management is, therefore, the management of these activities so as to maximize benefit to the organization.

Flows

in SCM

Goods Flow

So, the main item of flow in the value chain of SCM is goods or inventory, which is the heart of the total system. The flow of goods are always in a forward direction, ensuring better customer service smooth flow results in greater market dominance and higher market share. Raw materials flow from suppliers or vendors to the producer, the work-in-process flows between the various production subsystems and finished goods flow from the last production price to the ultimate users of a distribution warehouse and distribution channel. Smooth flow of goods from vendors to consumers prevent stock-out situation for any item of inventory.

Cash Flow

Flow of cash in the value chain in SCM has commercial significance. Cash flows in a backward direction (against the value and goods flow) to keep the total business system alive and activated. Cash flow basically deals with the money paid for goods and services received by a supply chain member. For instance, the end user pays money to a retailer against the product received by him. Similarly, the retailer pays to wholesaler, the wholesaler to the companys distribution warehouse; distribution warehouse to the head office; the companys head office to the suppliers of the raw materials.

Information Flow

Information flow is as significant in the supply chain like a backbone in human body. The flow of information in the value chain of SCM is a both direction for activation and improvement of the total supply chain system. The nature of backward information flow facilitates coordination activities consisting of quality feedback, customer order and specification, procurement quantity with specification and timing, However, the forward information flow refers to operational activities consisting of availability of goods, order processing and management, order status, invoice, transportation and shipping advices, quality assurance, warranty card, operating manual, etc.

Value Flow

The flow of value is always in a forward direction in the supply chain process as each supply chain participant adds some value in the goods or source received by him from his proceeding member before making delivery to the next party.

Value Flow (contd.)

The value addition may be in the form of quality, costs, quick response, availability and consistency of the logistical system.

KEY ISSUES/MAJOR DRIVERS OF SUPPLY CHAIN

1) Production: This is typically related to issues on what to produce, how to produce (which manufacturing process) and when to produce.

2) Inventory: Here the decisions and issues may be concerned with how much to make and how much to store as inventory and where to store these items (at the plant itself, warehouse, or at the retailer etc.)

3)

Location: A number of issues regarding location such as where to locate a plant, where to locate a warehouse facility etc. may have significant bearing on the dynamics of the supply chain and in turn may affect the overall costs.

4) Transportation: The issues may be related to how to move a product from one location to another and by what mode of transportation. One needs to evaluate economies of scale on one hand and the desired level of customer satisfaction on the other hand.

5) Information: Information is a binding force having critical implications for the supply chain. Information acts as basis for making various decisions in the supply chain. It also acts as an integrator. Unless information flows are handled properly, one may not be able to derive benefits from the supply chain integration.

The information requirements include the

following

Information about Supplier Where to acquire materials & components? Information about Manufacturing Where to produce & assemble goods? How much to produce? When to produce? Information about Warehouse Where to store finished goods? Where to store spare parts? How much to store? How to retrieve from storage? Information about Customer What markets to serve? What level of service? What level of service cost?

6) Quality: The quality of products and services should be virtually defect-free line. In some cases, 10 or fewer defective parts per million (PPM). At many firms, over 50 percent of all quality defects can be traced back to purchased materials.

7) Cost: The focus must be on strategic cost management; the process of reducing the total cost of acquiring, moving, holding, converting and supporting products containing purchased materials and services throughout the supply chain.

8) Time: Total cycle time requires the examination of every aspect of the firms operation, meticulously eliminating all redundant of non-valueadded, but time-consuming activities from the supply chain.

9) Technology: technology affects the firms core competencies (the thing that gives the firm its unique reason for being). It is to be carefully controlled when dealing with outside suppliers and customers.

Benefits
1)

2) 3) 4)

5)
6)

Supply chain integration helps to supply superior quality goods faster, with more efficient process Reduced inventory at all sites of the supply chain. Reduced costs. Faster processing speeds Reduced lead times Reduced warehouse costs

Benefits (contd.)
7)
8)

9) 10)

11)

Reduced obsolescence Greater responsiveness to customer changes and display of status of ordered product. Electronic links to suppliers and customers Continuous flow of products and information Speeding up the product development and delivery cycle