Basics of Supply Chain Management
Supply chain management (SCM) is the process of planning, organizing, implementing, and controlling the operations of the supply chain for the purpose of satisfying the customers' needs as efficiently as possible. SCM is responsible for all the storage and movements of raw materials, work-in-process inventory, and finished goods inventory from point of origin to point of consumption.
A supply chain network of an organization includes the location as well as movement decisions in respect of procurement of raw materials and other inputs, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. With effective and efficient Supply Chain Management (SCM) company can improve the way it finds the raw components it needs to make a product or service and deliver it to customers. SCM is significant for both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry.
Supply chain management includes five basic activities: planning and strategy formulation, sourcing, transformation process, delivery, and at last handling customer complaints and excess stocks.
Planning and strategy formulation:
Company needs a strategy for managing all the resources that go toward meeting customer demands. Supply chain planning is carried out at corporate level as well as at operation level. Strategy formulated at corporate level is for long term horizon and includes decision on main objectives of supply chain in terms of customer service, formulating policies, designing supply chain, strategic alliances, etc. Operational level planning is for short term, and focuses on activities over a day-to-day basis. The effort is to effectively and efficiently manage the product flow in order to fulfill the strategic goals.
Sourcing:
First generate the list of suppliers supplying the required inputs, evaluate each of them on the basis of relevant criterion as price, quality, delivery time, etc. Now choose the best supplier. Develop a set of pricing, delivery and payment processes with suppliers and make efforts for monitoring and improving the relationships. Also make sure the proper management of inventory of goods and services received from suppliers, including receiving shipments, verifying them, moving them to manufacturing facilities and authorizing supplier payments.
Transformation process:
It includes Scheduling the activities necessary for production, testing, packaging and preparation for delivery and also ensuring the smooth production, high quality levels and improved worker productivity.
Delivery:
This part of supply chain is many times referred as logistics by many companies. It includes coordinating the receipt of orders from customers, developing a network of warehouses, arranging for pick carriers to move products to customers and setting up an invoicing system to receive payments.
Handling customer complaints and excess stocks:
This part of supply chain deal with the problems that originate while carrying out the above activities like receiving defective and excess products back from customers, Wrong order placement, delay in receiving goods, conflicts with suppliers, etc.
Integration of Supply Chain Activities
Traditionally, planning, purchasing organizations, manufacturing, marketing and distribution along the supply chain is operated independently. These activities are carried out by different departments or organizations and each have their own objectives and these are often conflicting. For example, Marketing's objective of high customer service and maximizing sales revenue conflict with manufacturing and distribution goals. Many manufacturing operations are designed to achieve lower costs with small consideration for distribution capabilities and inventory levels. Such conflict makes it necessary to integrate all the functions of supply chain network. Coordination between these functional organizations in the chain is a key to attain a balanced supply chain network.
Major Supply Chain Decisions:
There are four major decision areas related to supply chain management: location, production, inventory, and transportation.
Location
Deciding on the location of manufacturing facilities, storage points, and sourcing points is first step in creating a supply chain. These should be taken carefully with due consideration of the long term plans of the organization. The location of facilities further guide management about how to reach customer market also it has a great impact on revenue, cost, and level of service. These decisions are normally based some of these factors: proximity to raw material source or customer market, production costs, taxes, tariffs, duties and duty drawback, transportation costs, production limitations, etc.
Production
Decisions like what to produce, capacity of plant, production scheduling, equipment maintenance, workload balancing, quality control, etc. These decisions also have a great impact on the revenues, costs and customer service levels of the firm.
Inventory
Inventory includes raw material, semi-finished and finished goods. They can be in-process between locations. The primary purpose is to buffer against any uncertainty that might be in the supply chain. Decision relating to inventory should consider carrying/holding cost, ordering cost, and opportunity cost. As inventory cost constitutes the big part of the total cost, it is critical decision in supply chain operation. It also includes the determination of the optimal levels of order quantities and reorder points, and setting safety stock levels, at each stocking location. These levels are vital as they are primary determinants of customer service levels.
Transportation:
These decisions are closely linked to the inventory decisions, as the decision are based on trade-off between cost involved using the particular mode of transportation and the indirect cost of inventory associated with that mode. For example air shipments may be fast, reliable, and requires lesser safety stocks, they are expensive. While other modes like rail and road are though less costly but requires maintaining high level of safety stock due to high level of uncertainty involved. Also the customer service levels and geographic location influence such decisions.
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