The concept of Supply Chain Management is based on two broad ideas. The first is that practically all goods and services that reach an end user represent the cumulative effort of multiple organizations. These organizations are referred to collectively as the supply chain.
The second idea is that while supply chains have existed for a long time, few businesses understood, let alone managed, the entire chain of activities that ultimately delivered products to the final customer. The result was disjointed and often ineffective supply chains. DEFINITION There as many and varied definitions of supply chain management as are the authors. Broadly defined, supply chain management, is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage.
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It represents a deliberate effort by the supply chain firms to develop and run supply chains in the more effective and efficient ways possible. The Institute of Supply Management describes supply chain management as “the design and management of seamless, value added processes across organizational boundaries to meet the needs of the end customer. The development and integration of people and technologies or resources are critical to the successful supply chain management”
The Supply Chain Council defines it as “managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels and delivery to the customer” The Council of Logistics Management defines supply chain management as the “systematic, strategic coordination, of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain for the purpose of improving long term performance of the individual companies and the supply chain as a whole. OBJECTIVE OF THE SUPPLY CHAIN NAD SUPPLY CHAIN MANAGEMENT Organizations exist to make, maintain and increase profits and to generate sufficient funds in order to achieve and maintain both liquidity and solvency. This is wealth maximization. The objective of every supply chain is a build up form the above. It is to maximize the overall value generated. The value is the supply chain profitability or surplus, which is basically the difference between the revenue generated from the customer and the overall cost across the supply chain.
This profitability is measured in terms of the supply chain whole and not individual stages in the chain (as individual stages may lead to a reduction in the overall supply chain profitability). Profitability will not make sense if looked at in isolation from costs. To generate profits in a supply chain, there is constant flow of: •Information – transmitting orders and updating the status of delivery •product – movement of goods or services from a supplier to a customer •funds – payment, credit, finance and consignment arrangements.
These flows generate costs within the supply chain. It is the effective management of these flows which is key to the supply chain success. Effective supply chain management involves the management of supply chain assets products, information and funds flow to maximize supply chain profitability. According to an internet article on supply chain management , the major objectives of supply chain management are to: •Provide an uninterrupted flow of materials, supplies and services required to operate the organisation •Minimize inventory investment and loss Maintain and improve quality •Create relationships with competent suppliers •Set standards for supplies •Get supplies and services at lower cost •Achieve harmonious, productive working relationships with other departments •Keep purchasing administrative costs low •Improve the organisation’s competitive position These major objective combined will increase an organisation’s competitive advantage, which in turn will mean high market share, high profits and overall, satisfy the main objective of wealth maximisation. SUPPLY CHAIN PROCESSES
Various models have been developed to depict the various business processes that form part of the supply chain management. According to Sunil Chopra and Peter Meindl , the supply chain processes can be classified into the following three macro processes; 1. Customer Relations Management (CRM) – These are the processes that focus on the interface between the firm and its customers. The CRM process aims to generate customer demand and facilitate the placement and tracking of orders. 2. Internal Supply Chain Management (ISCM) – All processes that are nternal to the firm. ISCM process aims to fulfil the demand generated by the CRM process in a timely manner and at the lowest possible cost. 3. Supplier Relationship Management (SRM) – All processes that focus on the interface between the firm and its suppliers. The SRM process aims to arrange for and manage supply source for various goods and services. Within the above macro processes, there are broader micro processes as shown below: Supplier Firm Customer
SRM ISCM CRM •Source•Strategic Planning•Market •Negotiate•Demand Planning•Price •Buy•Supply Planning•Sell •Design Collaboration•Fulfilment•Call Centre •Supply Collaboration•Field Service•Order Management Within a firm, all supply chain activities belong to one of the three macro processes above. It is therefore important that there is integration among all three processes for successful supply chain management. Lambert et al identifies the following eight business processes within the supply chain 1.
Customer relationship management (CRM) – Learning about customers’ needs and behaviour and integration of sales, marketing and strategies. 2. Customer service management (CSM) – Providing internal and external customers with high quality products at the lowest cost in a timely and flexible manner. 3. Demand Management – Balancing of requirements of customers with supply chain capabilities 4. Order Fulfilment – Fulfilment of customers’ orders efficiently and effectively at the minimum total cost. 5.
Manufacturing flow management – Concerned with all processes and activities required to transform inputs into outputs. 6. Supplier relationship management (SRM) – concerned with how a firm interacts with its suppliers. 7. Product development and commercialization – concerned with all processes and activities involved in the development and marketing of new or existing products. 8. Returns management – This is basically concerned with reverse logistics; recycling, waste collection and disposal, reconditioning in order to minimise waste.
Both writers have captured the processes within a supply chain, only in a different manner. SUPPLY CHAIN ACTIVITIES Within the supply chain processes, there are some activities that are essential to the effective management of a supply chain. These activities are geared towards achieving the objectives of supply chain management. They include: •Mutual sharing of information •Mutual sharing of risk and rewards •Integrated behaviour •Integrated processes •Cooperation •Same goal and same focus on serving customers •Partners to build and maintain long term relationships
IMPORTANCE OF SUPPLY CHAIN MANAGEMENT. Every organization, be it a service or manufacturing entity needs a robust supply chain management in order to gain and maintain a competitive advantage. Of critical importance is how a firm manages competition through supply chain alliances and partnerships. An independent firm on its own many not have all the resources to match its competitors. But by having an upstream and a downstream arrangement of getting the input, processing it into output and then pushing it to the downstream for distribution with effective chain partners, it can face any usiness challenges. Process integration and other efforts along the supply chain will result in improved quality as higher profit margins shall get reflected in the creation of better facilities for manufacturing, product design, research, enhanced customer service. The benefits too would be reflected in lower costs and better trust among partners. CONCLUSION The supply chain management paradigm cuts across organizational boundaries and it is essential to the survival and competitive advantage of every organization.
While integration within an organization can be good and well organized, it is the integration with outside organizations that needs careful planning and that is where supply chain management comes into play. If an organization concentrates on its internal operations while ignoring others outside its boundaries, the result will be inefficiency in the movement of its goods and services right from suppliers, to the processing unit and to the end customer. Effective supply chain management is a recipe for success while the opposite is true when supply chain management is poorly managed.