Supply chain Management is an arrangement that connects an organization with its customers and suppliers. SCM involves the management of all important business processes across a number of supply chains. The management must know about different supply chain processes having an integrated SCM.
The supply chain management is a system that associates an organization with its customer and suppliers. The information of forecasted demand flows from customers to both the enterprise and suppliers. This information obtained is refined through planning into specific manufacturing and purchasing objectives. A value added inventory flow is initiated as materials and products are purchased resulting in ownership transfer of finished product to customers. SCM is the management of all key business process across a number of the supply chains. SCM is an integrated approach that is highly interactive and intricate and requires simultaneous consideration of many trade-offs. For a Supply Chain Management system to be successful change is required from managing individual function to integrating activities into key supply chain processes. For creating the best production flows an integrated supply chain must be operated to maintain continuous information flows. The primary focus of the entire process is the customer; however, improved connections with supplies are necessary to control the uncertainty in customer demand, manufacturing processes and supplier performances for effective SCM system.
Supply Chain Drivers
The drivers provide a useful framework in which to think about supply chain capabilities. Decisions made about how they operate will determine the mix of responsiveness and efficiency a supply chain is capable of achieving. They are as
- Production – This driver can be made very responsive by building factories that have a lot of excess capacity and use flexible manufacturing techniques to produce a wide range of items. To be even more responsive, a company could do their production in many smaller plants that are close to major groups of customers so delivery times would be shorter. If efficiency is desirable, then a company can build factories with very little excess capacity and have those factories optimized for producing a limited range of items. Further efficiency can also be gained by centralizing production in large central plants to get better economies of scale, even though delivery times might be longer.
- Inventory – Responsiveness can be had by stocking high levels of inventory for a wide range of products. Additional responsiveness can be gained by stocking products at many locations so as to have the inventory close to customers and available to them immediately. Efficiency in inventory management would call for reducing inventory levels of all items and especially of items that do not sell as frequently. Also, economies of scale and cost savings can be gotten by stocking inventory in only a few central locations such as regional distribution centers (DCs).
- Location – A location decision that emphasizes responsiveness would be one where a company establishes many locations that are close to its customer base. For example, a fast-food chain like McDonald’s uses location to be very responsive to their customers by opening up lots of stores in high volume markets. Efficiency can be achieved by operating from only a few locations and centralizing activities in common locations. An example of this is the way Dell serves large geographical markets from only a few central locations that perform a wide range of activities.
- Transportation – Responsiveness can be achieved by a transportation mode that is fast and flexible such as trucks and airplanes. Many companies that sell products through catalogs or on the Internet are able to provide high levels of responsiveness by using transportation to deliver their products often within 24 hours. FedEx and UPS are two companies that can provide very responsive transportation services. And now Amazon is expanding and operating its own transportation services in high volume markets to be more responsive to customer desires. Efficiency can be emphasized by transporting products in larger batches and doing it less often. The use of transportation modes such as ship, railroad, and pipelines can be very efficient. Transportation can also be made more efficient if it is originated out of a central hub facility or distribution center (DC) instead of from many separate branch locations.
- Information – The power of this driver grows stronger each year as the technology for collecting and sharing information becomes more wide spread, easier to use, and less expensive. Information, much like money, is a very useful commodity because it can be applied directly to enhance the performance of the other four supply chain drivers. High levels of responsiveness can be achieved when companies collect and share accurate and timely data generated by the operations of the other four drivers. The supply chains that serve the electronics markets are some of the most responsive in the world. Companies in these supply chains from manufacturers, to distributors, to the big retail stores collect and share data about customer demand, production schedules, and inventory levels.
The crucial characteristics of supply chain management in service industries, are
- the human factor – People and their work serve as a major component in the value delivery process. The work of employees not only involves the labor involved in production, but also customer service interactions.
- variations in output – Variations in output occur because people are variable. It’s unrealistic to expect everyone to always work at the same pace or be able to produce identical results.
- managing efficiency – Efficiency in service supply chains relies on coordination and communication between various employees and teams in order to get products out in a timely fashion. Efficiency can be a challenge for the service industry because it relies on people. It requires people management, effective communication, and information sharing.
- capacity – Capacity in service organizations refers to the level of service a company can provide with its resources. The larger its capacity, the greater the level of service it can provide.
Integrated Supply Chain Management procedure
The key processes under integrated Supply Chain Management System are
Customer Relationship Management
Customer Relationship Management (CRM) process pertains to identifying the key customers. With the growing importance of the customer in today’s world the companies have begun to treat a customer as a value independent entity. The companies no longer view sales as selling of their products, but as selling of relationships, solutions, support and care. The Customer relationship management teams develop and execute partnering program with key customer. Product and service conformity is established specifying the level of performance with these key customers.
Demand Management
The largest source of variability arises due to the irregular demand pattern of the customer. Demand management is a key to an effective SCM process. Producers are shifting from a push system to make to order mode, in such case forecasting demand is the key driver on which all of the supply related decision will depend. The demand management process helps in balancing the customer’s requirement with the firm’s supply capabilities. In order to reduce uncertainty a good demand management system uses point of sales and key customer data and allows efficient information flows throughout the supply chain.
Customer Service Management
There is an increasing and intensifying competition in the market has made customer service as an important means for differentiating in a marketing system. Customer service provides the single source of customer information. Customer service is an important business activity governing the attention of both resources and top management. The various forms in which customer service is being offered are post warranty support, fast repairs, speedy response to service calls from customers, easy availability of spares, qualified technicians that are competent and customer friendly.
Customer Order Fulfillment
Order fill rate refers to the percentage of order fulfilled before or on the due date set by the customer. Performing the order fulfillment process effectively requires integration of firms manufacturing, distribution and transportation plans. The key for an effective supply chain management process is to achieve high order fill rate.