Supply Chain Management - an Introduction

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					Supply Chain Management - an Introduction
The principle of 'Survival of the fittest' remains valid in the present
global economy characterized by the presence of ever changing business
environment. Every modern company needs to struggle for the existence &
growth under such a competitive environment. One surest way to achieve
this is to offer best quality of product at reasonable rate, which suits
well to the requirements of target customer. To impart a feeling of
delight in the minds of consumers and provide quality product at
reasonable price manufacturer has to bring shift in his emphasis from
mere cost ascertainment to cost reduction to reduce cost of production.
Thus, cost reduction is the main managerial mantra as once quoted by
well-known strategist Michael.E.Porter in his landmark book "Competitive
Strategy". There are number of strategic cost management techniques
available like Supply Chain Management (SCM) , Business Process Re-
engineering (Value Re-engineering), Total Productive Maintenance to
reduce cost. Of these Supply Chain Management is prominent tool to reduce
cost. In this backdrop the present paper aims to highlight the conceptual
framework of SCM, Modus Operandi and its relevance for corporate world in
the new millennium.
Supply Chain Management has become a very powerful technique as it
increases the responsiveness to the changing business conditions and
enhances the competitiveness of the organization. In today's intense
competition, and increasingly global economy, to survive and grow,
organization must enhance their market responsiveness and become cost
competitive. The supply Chain framework is a method of breaking down the
linked set of value creating activities from basic raw material/component
supplier to the supply of the end product to customer/consumer.
A supply chain is a business process that links manufacturers, retailers,
customers and suppliers in the form of a chain to, develop and deliver
products as a single virtual organization of pooled skills and resources.
Supply chain management is process of synchronizing the flow of physical
goods and associated information from the production line of low level
component suppliers to the end consumer, resulting in the provision of
early notice of demand fluctuations and synchronization of business
processes among all the co-operating organizations in this supply chain.
Definitions from well-respected references have varied during the past
decade. For example, Supply Chain Yearbook 2000 described SCM as, "A
chain of processes that facilitates business activities between trading
partners, from the purchase of raw goods and materials for manufacturing
to delivery of a finished product to an end user." APICS-The Performance
Advantage, offered this definition in January 1999: "The global network
used to deliver products and services from raw materials to end customers
through an engineered flow of information, physical distribution and
This is a little change from the 1997 definition, Logistics Management
offered, describing SCM as, "The delivery of enhanced customer and
economic value through synchronized management of the flow of physical
goods and associated information from sourcing to consumption." The
definition evolution continues as European Logistics Association, in 1995
suggested SCM was, "The organization, planning, control and execution of
the goods flow from development and purchasing through production and
distribution to the final customer in order to satisfy the requirements
of the market at minimum cost and minimum capital use."
One of the first to pinpoint an accurate description of SCM,
International Journal of Logistics Management, in 1990, called it, "An
integrative philosophy to manage the total flow of a distribution channel
from the supplier to the ultimate user."
Several themes appear consistent among most definitions of SCM:

• The scope extends from sources of supply to final customers

• In addition to products and services, information and financial flows
are included

• The objective is to satisfy customer demand at the lowest possible cost

• A global and integrative approach is needed to manage the process
Cost Reduction & SCM
There are number of cost reduction techniques available for management to
reduce cost which ranges from Man Power Reduction , Strict supervision ,
compromise with quality , Overtime work etc . But cost reduction at the
cost of quality is mere waste strategy. SCM aims at cost reduction
without affecting quality. SCM strategy is to reduce cost by eliminating
all non value added activities in the flow of goods from Raw material
supplier to End consumer. The Objective of SCM is to increase the
competitive advantage of the channel as a whole. The means to accomplish
this objective is through creating customer value superior to the
competitot's value offering and ,thus, to enhance customer satisfaction ,
either through improving efficiency (lower cost) or effectiveness (added
values at the same cost).
Decisions in supply chain management:1
Decisions for supply chain management can be classified into two broad
categories - strategic and operational. As the term implies, strategic
decisions are made typically over a longer time horizon. These are
closely linked to the corporate strategy and guide supply chain policies
from a design perspective. On the other hand, operational decisions are
short term, and focus on activities over a day-today basis. The effort in
these types of decisions is to effectively and efficiently manage the
product flow in the " strategically" planned supply chain.
Four major decision areas on supply chain management are:

(1) Location

(2) Production

(3) Inventory

(4) Transportation (distribution)
And there are both strategic and operational elements in each of these
decision areas.
Location decisions: The geographic placement of production facilities,
stocking points, and sourcing points is the natural first step in
creating a supply chain. The location of facilities involves a commitment
of resources to a long-term plan. Once the size, number, and location of
these are determined, so are the possible paths by which the product
flows through to the final customer. Although location decisions are
primarily strategic, they also have implications on an operational level.
Production decisions: The strategic decisions include what product to
produce, and which plant to produce them in, allocation of suppliers to
plants, plants to Distribution Channel's(DC), and DC's to customers
markets. These decisions have a big impact on the revenues, costs and
customers service level of the firm. These decisions include the
construction of the master production schedules, scheduling production on
machines, and equipment maintenance. Other considerations include
workload balancing, and quality control measures at a production
Inventory decisions: These refer to means by which inventories are
managed. Inventories exist at every stage of the supply chain as either
raw material, semi-finished or finished goods. They can also be in
process between Locations. Their primary purpose to buffer against any
uncertainty that might exist in the supply chain. Since holding of
inventories can cost anywhere between 20 to 40 percent of their value,
their efficient management is critical in supply chain operations. It is
strategic in the sense that top management sets goals.
Transport decisions: The mode choice aspect of these decisions are the
more strategic ones. These are closely linked to the inventory decisions,
since the best choice of mode is often found by trading-off the cost of
using the particular mode of transport with the indirect cost of
inventory associated with that mode. Customer service levels, and
geographic location play vital roles in such decisions. Since
transportation is more than 30 percent of the logistics costs, operating
efficiently makes good economic sense. Shipment sizes (consolidated bulk
shipments versus Lot-for-Lot), routing and scheduling of equipment are
key in effective management of the firm's transport strategy.
Why Supply Chain.
The importance and need of SCM will increase in the future. Customers
will demand faster, timelier delivery of orders. Manufacturing will
expect greater knowledge of order requirements to better plan its
operations and procurement processes. Similar expectations apply to
external entities. This need for increased coordination among customers,
suppliers and service providers dictates greater visibility and
collaboration throughout the supply chain.
Dynamic business environment characterized with Time-based competition,
Synchronization with other corporate functions, Service customized to
specific markets and customers, Increased consolidation of suppliers and
service providers, Further privatization and deregulation, Continued
emphasis on outsourcing, Development of performance measures encompassing
supply chain partners, Increased collaboration between supply chain
partners, and Electronic commerce to enable communications throughout the
supply chain will increase the need of of supply chain.
Evolution of Supply Chain Management:
Span of Responsibility
Earlier: The components of SCM traditionally were viewed as "functional
silos" and typically included outbound transport-tation (i.e., customer
delivery); field warehousing and finished goods inventory management.
Present: Today's SCM executive generally has a much broader range of
responsibilities. that the majority of these executives have respon-
sibility for transportation, ware-housing, inventory management ,
customer service , purchasing / sourcing, demand planning, production
planning/scheduling and international logistics.
2.Organizational Position:
Earlier: SCM traditionally was viewed as a cost center, adding little or
no tangible value to bottom line results. Individuals responsible for SCM
were typically at the manager level, reporting to directors or vice
presidents responsible for operations, marketing or other functional
Present: SCM executives are now well positioned. Executives in charge of
marketing / sales, manufacturing and other departments are now generally
peers rather than reporting officials. In recent survey it is observed
that In U.S. companies, 52 percent of SCM executives report to an
Executive Vice President or COO/CEO. In Asia, this percentage was
slightly lower (48 percent); in Europe this percentage was only 31
3. Education and Training
Earlier: Historically, relatively few universities offered SCM education.
In these institutions, the academicians who taught SCM coursework were
usually housed within a larger department, e.g., Operations or Marketing.
Some schools offered continuing education and seminars in SCM, but these
forums generally focused on a specific aspect of SCM, such as carrier
negotiations, inventory management techniques, warehousing and material
handling systems and international trade
Present: Today, there are numerous, well-recognized universities--in the
U.S. and abroad--offering degrees at all levels in the field of SCM. A
recent CLM listing identified nearly 50 institutions with SCM-related
curricula. Continuing education seminars and workshops with SCM themes
4. Contributions to Corporate Performance
Earlier: Historically viewed as a cost center, SCM contributions at the
corporate level were judged to be minimal. Since reporting systems
focused on managing operational-level activities, any strategic value
associated with SCM was difficult to quantify.
Present: Leading-edge manufacturers report SCM costs between 4 percent
and 5 percent of sales, compared to the industry average of 7 percent to
10 percent Successful SCM can improve delivery performance by 25%, reduce
inventory levels by as much as one-half and enhance overall productivity
by at least 15 percent.
To conclude, In this dynamic market place, the equations are kept
changing very fast with the leaders of yesterday being displaced by the
fast-paced and agile new entrants. Intense competition, demanding
customers, shrinking product life cycles, rapid advances in technology-
all these factors are fast changing the competitive dynamics in global
environment. This volatile business environment is making it harder than
ever for marketers compete effectively. The traditional approaches are
too slow to keep pace with the evolving global complexity. These
developments are putting pressure on business community to look at the
each and every components of business like procurement, logistics,
marketing etc. Effective linking of functions of these processes puts
companies in strategic position. Every link in SCM can add up to a
competitive advantage. Time was when companies looked at their supply
chains as a means of focusing on their own core competencies, of
leveraging those of vendors, of lowering their costs, and of becoming
more responsive to customers. Those goals won't be swept away by the
supply chain in the new millennium. But they will be superseded by a
singly super-objective: competing on the basis of how well companies'
manage their supply-chain.
1 An Introduction to Supply Chain Management by Ram Ganeshan and Terry P
Harrison accessed at
Dr. Rakesh Ainapur
Education : M.Com., MBA(Finance), Ph.D (Supply Chain Management)
Experience : 15 Years
Area : Finance and ERP Consulting
Current Designation : AGM - Business Application
Organization : JSoft Solutions - JSW Group Company.