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Supply chain management

2007 Schools Wikipedia Selection. Related subjects: Business

   Supply chain management (SCM) is the process of planning, implementing,
   and controlling the operations of the supply chain with the purpose to
   satisfy customer requirements as efficiently as possible. Supply chain
   management spans all movement and storage of raw materials,
   work-in-process inventory, and finished goods from point-of-origin to
   point-of-consumption. The term supply chain management was coined by
   consultant Keith Oliver, of strategy consulting firm Booz Allen
   Hamilton in 1982.

   The definition one America professional association put forward is that
   Supply Chain Management encompasses the planning and management of all
   activities involved in sourcing, procurement, conversion, and logistics
   management activities. Importantly, it also includes coordination and
   collaboration with channel partners, which can be suppliers,
   intermediaries, third-party service providers, and customers. In
   essence, Supply Chain Management integrates supply and demand
   management within and across companies.

   Supply chain event management (abbreviated as SCEM) is a consideration
   of all possible occurring events and factors that can cause a
   disruption in a supply chain. With SCEM possible scenarios can be
   created and solutions can be planned.

   Some experts distinguish supply chain management and logistics, while
   others consider the terms to be interchangeable.

   Supply chain management is also a category of software products.

Supply chain management problems

   Supply chain management must address the following problems:
     * Distribution Network Configuration: Number and location of
       suppliers, production facilities, distribution centers, warehouses
       and customers.
     * Distribution Strategy: Centralized versus decentralized, direct
       shipment, Cross docking, pull or push strategies, third party
       logistics.
     * Information: Integrate systems and processes through the supply
       chain to share valuable information, including demand signals,
       forecasts, inventory and transportation etc.
     * Inventory Management: Quantity and location of inventory including
       raw materials, work-in-process and finished goods.

   Supply chain execution is managing and coordinating the movement of
   materials information and funds across the supply chain. The flow is
   bi-directional.

Activities/functions

   Supply chain management is a cross-functional approach to managing the
   movement of raw materials into an organization and the movement of
   finished goods out of the organization toward the end-consumer. As
   corporations strive to focus on core competencies and become more
   flexible, they have reduced their ownership of raw materials sources
   and distribution channels. These functions are increasingly being
   outsourced to other corporations that can perform the activities better
   or more cost effectively. The effect has been to increase the number of
   companies involved in satisfying consumer demand, while reducing
   management control of daily logistics operations. Less control and more
   supply chain partners led to the creation of supply chain management
   concepts. The purpose of supply chain management is to improve trust
   and collaboration among supply chain partners, thus improving inventory
   visibility and improving inventory velocity.

   Several models have been proposed for understanding the activities
   required to manage material movements across organizational and
   functional boundaries. SCOR is a supply chain management model promoted
   by the Supply-Chain Management Council. Another model is the SCM Model
   proposed by the Global Supply Chain Forum (GSCF). Supply chain
   activities can be grouped into strategic, tactical, and operational
   levels of activities.

Strategic

     * Strategic network optimization, including the number, location, and
       size of warehouses, distribution centers and facilities.
     * Strategic partnership with suppliers, distributors, and customers,
       creating communication channels for critical information and
       operational improvements such as cross docking, direct shipping,
       and third-party logistics.
     * Product design coordination, so that new and existing products can
       be optimally integrated into the supply chain, load management
     * Information Technology infrastructure, to support supply chain
       operations.
     * Where to make and what to make or buy decisions
     * Align overall organizational strategy with supply strategy

Tactical

     * Sourcing contracts and other purchasing decisions.
     * Production decisions, including contracting, locations, scheduling,
       and planning process definition.
     * Inventory decisions, including quantity, location, and quality of
       inventory.
     * Transportation strategy, including frequency, routes, and
       contracting.
     * Benchmarking of all operations against competitors and
       implementation of best practices throughout the enterprise.
     * Milestone payments

Operational

     * Daily production and distribution planning, including all nodes in
       the supply chain.
     * Production scheduling for each manufacturing facility in the supply
       chain (minute by minute).
     * Demand planning and forecasting, coordinating the demand forecast
       of all customers and sharing the forecast with all suppliers.
     * Sourcing planning, including current inventory and forecast demand,
       in collaboration with all suppliers.
     * Inbound operations, including transportation from suppliers and
       receiving inventory.
     * Production operations, including the consumption of materials and
       flow of finished goods.
     * Outbound operations, including all fulfillment activities and
       transportation to customers.
     * Order promising, accounting for all constraints in the supply
       chain, including all suppliers, manufacturing facilities.
       distribution centers, and other customers.

Supply chain management

   Organizations increasingly find that they must rely on effective supply
   chains, or networks, to successfully compete in the global market and
   networked economy. In Peter Drucker's (1998) management's new
   paradigms, this concept of business relationships extends beyond
   traditional enterprise boundaries and seeks to organize entire business
   processes throughout a value chain of multiple companies.

   During the past decades, globalization, outsourcing and information
   technology have enabled many organizations such as Dell and Hewlett
   Packard, to successfully operate solid collaborative supply networks in
   which each specialized business partner focuses on only a few key
   strategic activities (Scott, 1993). This inter-organizational supply
   network can be acknowledged as a new form of organization. However,
   with the complicated interactions among the players, the network
   structure fits neither "market" nor "hierarchy" categories (Powell,
   1990). It is not clear what kind of performance impacts different
   supply network structures could have on firms, and little is known
   about the coordination conditions and trade-offs that may exist among
   the players. From a system's point of view, a complex network structure
   can be decomposed into individual component firms (Zhang and Dilts,
   2004). Traditionally, companies in a supply network concentrate on the
   inputs and outputs of the processes, with little concern for the
   internal management working of other individual players. Therefore, the
   choice of internal management control structure is known to impact
   local firm performance (Mintzberg, 1979).

   In the 21st century, there have been few changes in business
   environment that have contributed to the development of supply chain
   networks. First, as an outcome of globalization and proliferation of
   multi-national companies, joint ventures, strategic alliances and
   business partnerships were found to be significant success factors,
   following the earlier " Just-In-Time", "Lean Management" and "Agile
   Manufacturing" practices. Second, technological changes, particularly
   the dramatic fall in information communication costs, a paramount
   component of transaction costs, has led to changes in coordination
   among the members of the supply chain network (Coase, 1998).

   Many researchers have recognized these kinds of supply network
   structure as a new organization form, using terms such as " Keiretsu",
   "Extended Enterprise", "Virtual Corporation", Global Production
   Network", and "Next Generation Manufacturing System". In general, such
   a structure can be defined as "a group of semi-independent
   organizations, each with their capabilities, which collaborate in
   ever-changing constellations to serve one or more markets in order to
   achieve some business goal specific to that collaboration" (Akkermans,
   2001).

Supply chain business process integration

   Successful SCM requires a change from managing individual functions to
   integrating activities into key supply chain processes. An example
   scenario: the purchasing department places orders as requirements
   become appropriate. Marketing, responding to customer demand,
   communicates with several distributors and retailers, and attempts to
   satisfy this demand. Shared information between supply chain partners
   can only be fully leveraged through process integration.

   Supply chain business process integration involves collaborative work
   between buyers and suppliers, joint product development, common systems
   and shared information. According to Lambert and Cooper (2000)
   operating an integrated supply chain requires continuous information
   flows, which in turn assist to achieve the best product flows. However,
   in many companies, management has reached the conclusion that
   optimizing the product flows cannot be accomplished without
   implementing a process approach to the business. The key supply chain
   processes stated by Lambert (2004) are:
     * Customer relationship management
     * Customer service management
     * Demand management
     * Order fulfillment
     * Manufacturing flow management
     * Supplier relationship management
     * Product development and commercialization
     * Returns management

   One could suggest other key critical supply business processes
   combining these processes stated by Lambert such as:
    1. Customer service management
    2. Procurement
    3. Product development and commercialization
    4. Manufacturing flow management/support
    5. Physical distribution
    6. Outsourcing/partnerships
    7. Performance measurement

   a) Customer service management process

   Customer Relationship Management concerns the relationship between the
   organization and its customers.Customer service provides the source of
   customer information. It also provides the customer with real-time
   information on promising dates and product availability through
   interfaces with the company's production and distribution operations.
   Successful organizations use following steps to build customer
   relationships:
     * determine mutually satisfying goals between organization and
       customers
     * establish and maintain customer rapport
     * produce positive feelings in the organization and the customers

   b) Procurement process

   Strategic plans are developed with suppliers to support the
   manufacturing flow management process and development of new products.
   In firms where operations extend globally, sourcing should be managed
   on a global basis. The desired outcome is a win-win relationship, where
   both parties benefit, and reduction times in the design cycle and
   product development is achieved. Also, the purchasing function develops
   rapid communication systems, such as electronic data interchange (EDI)
   and Internet linkages to transfer possible requirements more rapidly.
   Activities related to obtaining products and materials from outside
   suppliers. This requires performing resource planning, supply sourcing,
   negotiation, order placement, inbound transportation, storage and
   handling and quality assurance. Also, includes the responsibility to
   coordinate with suppliers in scheduling, supply continuity, hedging,
   and research to new sources or programmes.

   c) Product development and commercialization

   Here, customers and suppliers must be united into the product
   development process, thus to reduce time to market. As product life
   cycles shorten, the appropriate products must be developed and
   successfully launched in ever shorter time-schedules to remain
   competitive. According to Lambert and Cooper (2000), managers of the
   product development and commercialization process must:
    1. coordinate with customer relationship management to identify
       customer-articulated needs;
    2. select materials and suppliers in conjunction with procurement, and
    3. develop production technology in manufacturing flow to manufacture
       and integrate into the best supply chain flow for the
       product/market combination.

   d) Manufacturing flow management process

   The manufacturing process is produced and supplies products to the
   distribution channels based on past forecasts. Manufacturing processes
   must be flexible to respond to market changes, and must accommodate
   mass customization. Orders are processes operating on a just-in-time
   (JIT) basis in minimum lot sizes. Also, changes in the manufacturing
   flow process lead to shorter cycle times, meaning improved
   responsiveness and efficiency of demand to customers. Activities
   related to planning, scheduling and supporting manufacturing
   operations, such as work-in-process storage, handling, transportation,
   and time phasing of components, inventory at manufacturing sites and
   maximum flexibility in the coordination of geographic and final
   assemblies postponement of physical distribution operations.

   e) Physical distribution

   This concerns movement of a finished product/service to customers. In
   physical distribution, the customer is the final destination of a
   marketing channel, and the availability of the product/service is a
   vital part of each channel participant's marketing effort. It is also
   through the physical distribution process that the time and space of
   customer service become an integral part of marketing, thus it links a
   marketing channel with its customers (e.g. links manufacturers,
   wholesalers, retailers).

   f) Outsourcing/partnerships

   This is not just outsourcing the procurement of materials and
   components, but also outsourcing of services that traditionally have
   been provided in-house. The logic of this trend is that the company
   will increasingly focus on those activities in the value chain where it
   has a distinctive advantage and everything else it will outsource. This
   movement has been particularly evident in logistics where the provision
   of transport, warehousing and inventory control is increasingly
   subcontracted to specialists or logistics partners. Also, to manage and
   control this network of partners and suppliers requires a blend of both
   central and local involvement. Hence, strategic decisions need to be
   taken centrally with the monitoring and control of supplier performance
   and day-to-day liaison with logistics partners being best managed at a
   local level.

   g) Performance measurement

   Experts found a strong relationship from the largest arcs of supplier
   and customer integration to market share and profitability. By taking
   advantage of supplier capabilities and emphasizing a long-term supply
   chain perspective in customer relationships can be both correlated with
   firm performance. As logistics competency becomes a more critical
   factor in creating and maintaining competitive advantage, logistics
   measurement becomes increasingly important because the difference
   between profitable and unprofitable operations becomes more narrow.
   A.T. Kearney Consultants (1985) noted that firms engaging in
   comprehensive performance measurement realized improvements in overall
   productivity. According to experts internal measures are generally
   collected and analyzed by the firm including
    1. Cost
    2. Customer Service
    3. Productivity measures
    4. Asset measurement, and
    5. Quality.

   External performance measurement is examined through customer
   perception measures and " best practice" benchmarking, and includes 1)
   customer perception measurement, and 2) best practice benchmarking.

   Components of supply chain management are 1. Standardisation 2.
   Postponement 3. Customisation

Supply chain management components integration

   The management components of SCM

   The SCM management components are the third element of the four-square
   circulation framework. The level of integration and management of a
   business process link is a function of the number and level, ranging
   from low to high, of components added to the link (Ellram and Cooper,
   1990; Houlihan, 1985). Consequently, adding more management components
   or increasing the level of each component can increase the level of
   integration of the business process link. The literature on business
   process reengineering, buyer-supplier relationships, and SCM suggests
   various possible components that must receive managerial attention when
   managing supply relationships. Lambert and Cooper (2000) identified the
   following components which are:
     * Planning and control
     * Work structure
     * Organization structure
     * Product flow facility structure
     * Information flow facility structure
     * Management methods
     * Power and leadership structure
     * Risk and reward structure
     * Culture and attitude

   However, a more careful examination of the existing literature will
   lead us to a more comprehensive structure of what should be the key
   critical supply chain components, the "branches" of the previous
   identified supply chain business processes, that is what kind of
   relationship the components may have that are related with suppliers
   and customers accordingly. Bowersox and Closs states that the emphasis
   on cooperation represents the synergism leading to the highest level of
   joint achievement (Bowersox and Closs, 1996). A primary level channel
   participant is a business that is willing to participate in the
   inventory ownership responsibility or assume other aspects financial
   risk, thus including primary level components (Bowersox and Closs,
   1996). A secondary level participant (specialized), is a business that
   participates in channel relationships by performing essential services
   for primary participants, thus including secondary level components,
   which are supporting the primary ones. Also, third level channel
   participants and components may be included, that will support the
   primary level channel participants, and which are the fundamental
   branches of the secondary level components.

   Consequently, Lambert and Cooper's framework of supply chain
   components, does not lead us to the conclusion about what are the
   primary or secondary (specialized) level supply chain components ( see
   Bowersox and Closs, 1996, p.g. 93), that is what supply chain
   components should be viewed as primary or secondary, and how should
   these components be structured in order to have a more comprehensive
   supply chain structure and to examine the supply chain as an
   integrative one (See above sections 2.1 and 3.1).

   Baziotopoulos reviewed the literature to identify supply chain
   components. Based on this study, Baziotopoulos (2004) suggests the
   following supply chain components (Fig.8):
    1. For customer service management: Includes the primary level
       component of customer relationship management, and secondary level
       components such as benchmarking and order fulfillment.
    2. For product development and commercialization: Includes the primary
       level component of Product Data Management (PDM), and secondary
       level components such as market share, customer satisfaction,
       profit margins, and returns to stakeholders.
    3. For physical distribution, Manufacturing support and Procurement:
       Includes the primary level component of enterprise resource
       planning (ERP), with secondary level components such as warehouse
       management, material management, manufacturing planning, personnel
       management, and postponement (order management).
    4. For performance measurement: This includes the primary level
       component of logistics performance measurement, which is correlated
       with the information flow facility structure within the
       organization. Secondary level components may include four types of
       measurement such as: variation, direction, decision and policy
       measurements. More specifically, in accordance with these secondary
       level components total cost analysis (TCA), customer profitability
       analysis (CPA), and Asset management could be concerned as well. In
       general, information flow facility structure is regarded by two
       important requirements, which are a) planning and Coordination
       flows, and b)operational requirements.
    5. For outsourcing: This includes the primary level component of
       management methods and the company's cutting-edge strategy and its
       vital strategic objectives that the company will identify and adopt
       for particular strategic initiatives in key the areas of technology
       information, operations, manufacturing capabilities, and logistics
       (secondary level components).

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