Supply chain
management (SCM) is the active management of supply chain activities to
maximize customer value and achieve a sustainable competitive advantage. It
represents a conscious effort by the supply chain firms to develop and run
supply chains in the most effective & efficient ways possible. Supply chain
activities cover everything from product development, sourcing, production, and
logistics, as well as the information systems needed to coordinate these
activities.
The
concept of Supply Chain Management (SCM) is based on two core ideas:
1. The first is that
practically every product that reaches an end user represents the cumulative
effort of multiple organizations. These organizations are referred to
collectively as the supply chain.
2. The second idea is that
while supply chains have existed for a long time, most organizations have only
paid attention to what was happening within their “four walls.” Few businesses
understood, much less managed, the entire chain of activities that ultimately
delivered products to the final customer. The result was disjointed and often
ineffective supply chains.
The
organizations that make up the supply chain are “linked” together through
physical flows and information flows.
Physical Flows
Physical flows
involve the transformation, movement, and storage of goods and materials. They
are the most visible piece of the supply chain. But just as important are
information flows.
Information Flows
Information
flows allow the various supply chain partners to coordinate their long-term
plans, and to control the day-to-day flow of goods and materials up and down
the supply chain.
Definition
If you go to a
Supermarket and pick up a few items off the shelf from electronics and white
goods or even clothes and look at the labels, the chances are that you will
find them having been manufactured in China or Mexico. The coffee pods you buy
to use for your everyday use comes from Africa. Computers have been shipped out
of South American Factories and Soft furnishings on the shelves are from India
and Hong Kong.
Global markets are expanding beyond borders and re-defining the
way demand and supplies are managed. Global companies are driven by markets
across continents. To keep the cost of manufacturing down, they are forced to
keep looking to set up production centers where the cost
of raw materials and labor is
cheap. Sourcing of raw materials and vendors to supply the right quality,
quantity and at right price calls for dynamic procurement strategy spanning
across countries.
With the above scenario you find companies procuring materials
globally from various vendors to supply raw materials to their factories
situated in different continents. The finished goods out of these different
factory locations then pass through various chains of distribution network
involving warehouses, exports to different countries or local markets,
distributors, retailers and finally to the end customer.
In simple language, managing all of the above activities in
tandem to manage demand and supply on a global scale is Supply Chain
Management. As per definition SCM is the management of a network of all
business processes and activities involving procurement of raw materials,
manufacturing and distribution management of Finished Goods. SCM is also called the art
of management of providing the Right Product, At the Right Time, Right Place
and at the Right Cost to the Customer.
Why SCM strategy is important for 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 upon the effectiveness of 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 product where the customer can buy and take delivery. Any glitch in
the product not being available at the right time can result in the drop in
customer interest and demand which can be disastrous. Transportation network
design and 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 cost drivers 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.