| An Introduction to Supply Chain Management | | | | as cross docking, direct shipping, and third-party |
| Supply chain management (SCM) is the | | | | logistics. |
| management of a network of interconnected | | | | - Product life cycle management so that new and |
| businesses involved in the ultimate provision of | | | | existing products can be optimally integrated into the |
| product and service packages required by end | | | | supply chain and capacity management activities. |
| customers. Supply Chain Management spans all | | | | - information technology infrastructure to support |
| movement and storage of raw materials, | | | | supply chain operations. |
| work-in-process inventory, and finished goods from | | | | - Where-to-make and what-to-make-or-buy decisions. |
| point of origin to point of consumption (supply chain). | | | | - Aligning overall organizational strategy with supply |
| A simple supply chain is made up of several | | | | strategy. |
| elements that are linked by the movement of | | | | Tactical: Tactical decisions focus on adopting |
| products along it. The supply chain starts and ends | | | | measures that will produce cost benefits such as |
| with the customer. | | | | using industry best practices, developing a purchasing |
| Customer: The customer starts the chain of events | | | | strategy with favored suppliers, working with logistics |
| when they decide to purchase a product that has | | | | companies to develop cost effect transportation and |
| been offered for sale by a company. The customer | | | | developing warehouse strategies to reduce the cost |
| contacts the sales department of the company, | | | | of storing inventory: |
| which enters the sales order for a specific quantity | | | | - Sourcing contracts and other purchasing decisions. |
| to be delivered on a specific date. If the product has | | | | - Production decisions, including contracting, scheduling, |
| to be manufactured, the sales order will include a | | | | and planning process definition. |
| requirement that needs to be fulfilled by the | | | | - Inventory decisions, including quantity, location, and |
| production facility. | | | | quality of inventory. |
| Planning: The requirement triggered by the | | | | - Transportation strategy, including frequency, routes, |
| customer’s sales order will be combined with | | | | and contracting. |
| other orders. The planning department will create a | | | | - Benchmarking of all operations against competitors |
| production plan to produce the products to fulfill the | | | | and implementation of best practices throughout the |
| customer’s orders. To manufacture the products | | | | enterprise. |
| the company will then have to purchase the raw | | | | - Milestone payments. |
| materials needed. | | | | - Focus on customer demand. |
| Purchasing: The purchasing department receives a list | | | | Operational: Decisions at this level are made each day |
| of raw materials and services required by the | | | | in businesses that affect how the products move |
| production department to complete the | | | | along the supply chain. Operational decisions involve |
| customer’s orders. The purchasing department | | | | making schedule changes to production, purchasing |
| sends purchase orders to selected suppliers to deliver | | | | agreements with suppliers, taking orders from |
| the necessary raw materials to the manufacturing | | | | customers and moving products in the warehouse: |
| site on the required date. | | | | - Daily production and distribution planning, including all |
| Inventory: The raw materials are received from the | | | | nodes in the supply chain. |
| suppliers, checked for quality and accuracy and | | | | - Production scheduling for each manufacturing facility |
| moved into the warehouse. The supplier will then | | | | in the supply chain (minute by minute). |
| send an invoice to the company for the items they | | | | - Demand planning and forecasting, coordinating the |
| delivered. The raw materials are stored until they are | | | | demand forecast of all customers and sharing the |
| required by the production department. | | | | forecast with all suppliers. |
| Production: Based on a production plan, the raw | | | | - Sourcing planning, including current inventory and |
| materials are moved inventory to the production | | | | forecast demand, in collaboration with all suppliers. |
| area. The finished products ordered by the customer | | | | - Inbound operations, including transportation from |
| are manufactured using the raw materials purchased | | | | suppliers and receiving inventory. |
| from suppliers. After the items have been completed | | | | - Production operations, including the consumption of |
| and tested, they are stored back in the warehouse | | | | materials and flow of finished goods. |
| prior to delivery to the customer. | | | | - Outbound operations, including all fulfillment activities, |
| Transportation: When the finished product arrives in | | | | warehousing and transportation to customers. |
| the warehouse, the shipping department determines | | | | - Order promising, accounting for all constraints in the |
| the most efficient method to ship the products so | | | | supply chain, including all suppliers, manufacturing |
| that they are delivered on or before the date | | | | facilities, distribution centers, and other customers. |
| specified by the customer. When the goods are | | | | Supply Chain Management Technology |
| received by the customer, the company will send an | | | | Organizations increasingly find that they must rely on |
| invoice for the delivered products. | | | | effective supply chains, or networks, to successfully |
| Supply Chain Management | | | | compete in the global market and networked |
| To ensure that the supply chain is operating as | | | | economy. In Peter Drucker's (1998) new |
| efficient as possible and generating the highest level | | | | management paradigms, this concept of business |
| of customer satisfaction at the lowest cost, | | | | relationships extends beyond traditional enterprise |
| companies have adopted Supply Chain Management | | | | boundaries and seeks to organize entire business |
| processes and associated technology. Supply Chain | | | | processes throughout a value chain of multiple |
| Management has three levels of activities that | | | | companies. |
| different parts of the company will focus on: | | | | If a company expects to achieve benefits from their |
| strategic; tactical; and operational. | | | | supply chain management process, they will require |
| Strategic: At this level, company management will be | | | | some level of investment in technology. The |
| looking to high level strategic decisions concerning the | | | | backbone for many large companies has been the |
| whole organization, such as the size and location of | | | | vastly expensive Enterprise Resource Planning (ERP) |
| manufacturing sites, partnerships with suppliers, | | | | suites, such as SAP and Oracle. |
| products to be manufactured and sales markets: | | | | Since the wide adoption of Internet technologies, all |
| - Strategic network optimization, including the | | | | businesses can take advantage of Web-based |
| number, location, and size of warehousing, distribution | | | | software and Internet communications. Instant |
| centers, and facilities. | | | | communication between vendors and customers |
| - Strategic partnerships with suppliers, distributors, | | | | allows for timely updates of information, which is key |
| and customers, creating communication channels for | | | | in management of the supply chain. |
| critical information and operational improvements such | | | | |