What is SCM?

Supply chain management - delivering the right product to the right place, at
the right time and at the right price - is one of the most powerful engines of
business transformation. It is one of the leading cost saving and revenue
enhancement strategies in use today.

At the end of the continuum of trends that started off from Business Process
Reengineering, Total Quality Management and ERP that have all addressed
only the inner workings of an Organization, SCM aims at integrating the
company's internal systems to those of its suppliers, partners and
customers.

Technologies such as the Internet, electronic data interchange,

transportation and warehouse management software, including software
that manages plant scheduling, demand forecasting, procurement, make
SCM a versatile strategy to adopt.

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.”

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 competitor’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 facility.
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 aspects 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 centre, 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 areas.
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 percent.
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 abound.
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.

IMPORTANCE OF SUPPLY CHAIN MANAGEMENT (SCM)

Supply chain management (SCM) is a business practice that aims to improve
the way a business sources its raw materials, and delivers it to end users.
For any product or service offered by any business, there are usually a
number of different business entities involved in the various stages of the
supply chain, including manufacturers, wholesalers, distributors and
retailers; the last group in a supply chain is consumers. SCM is important for
modern business because it coordinates and synchronizes activities of
partner businesses, giving higher efficiency. The principles of supply chain
management are derived from five basic components.
 Plan
1. Planning is the first and most important strategic function in SCM. The
planning process lays down the strategy for managing and handling all
resources that are used in providing the service or product that the
company is involved in. Planning involves developing a set of metrics that
enables the company to maximize efficiency by monitoring the flow of
materials through the supply chain. Timely and effective planning makes a
company's supply chain more responsive and prepared for contingencies.
SCM managers who plan are able to keep costs low, and deliver high quality
and high value to customers in time.

Source
2. Sourcing is the next component that managers consider in SCM.
Sourcing involves studying supplier competencies and selecting one, based
on one or more criteria. When a supplier is chosen, they must be prepared to
deliver goods and services that the businesses need to create their products.
Managers in SCM develop policies for pricing, delivery and payment with
each supplier, and monitor and improve relationship by using metrics. The
SCM managers supervise inventory and execute tasks such as collecting and
verifying shipments, sending them to manufacturing plants and authorizing
payments.

Manufacture
3. The next component involves the actual manufacturing process. SCM
managers schedule activities for manufacturing, quality testing, packaging
and shipping by coordinating the actions of each and every entity involved
in the various related processes. In SCM, manufacturing makes the most use
of the metric system, enabling managers to measure quality, output of
production and productivity of workers. These are important parameters
that can be evaluated, and remedied (if performance is sub-par) to enhance
efficiency.

Deliver
4. After the manufacturing process comes delivery. SCM managers in the
delivery process must synchronize activities of partner businesses involved
in the transportation of goods. Sometimes referred to as logistics, delivery is
an involved stage requiring large amounts of data from customer orders,
warehouses and carriers. For most efficient operation, managers make use
of an integrated system, developing a network of warehouses and carrier
companies. For the product to reach their customers in time, their carriage
must be seamless and without incident, each and every time. The delivery
 process also involves preparation of an invoicing system for payment
receipts.

Return
5. Often the trickiest component in SCM is establishing an efficient system
for returns of defective goods. Setting up a responsive and flexible network
is a very important aspect of SCM because excess and defective goods should
ideally be received by the company as quickly as possible. Defects and
excesses are causes for concern for a business's consumers and clients, and
as such, accepting goods back ensures future business relationships.
Companies that are unable to establish fluent transport of goods back to the
warehouse may lose customers and future business opportunities.