The first thing one needs to understand is that SCM doesn’t replace what we’ve learned about management over the last 50 years; it builds upon it.
The analogy that a chain is only as strong as its weakest link holds here as well. Thus the Supply Chain concept remains the same.
Organizations must first be able to provide quality products or services in a timely, cost-effective manner if they want to tackle broader supply chain issues.
Therefore, programs such as Total Quality Management, Just-in-Time manufacturing, concurrent product development, and the like are just as relevant today as they were in the past. In fact, it’s interesting to note that many of the firms that have emerged as SCM leaders had already established their reputations in other areas beforehand.
The second thing to understand about SCM is that it often requires significant changes in the firm’s organizational structure. SCM issues cut across functional areas and even business entities. Therefore, the responsibility and authority for implementing SCM must be placed at the highest levels of an organization.
Firms that attempt to imbed SCM within a functional unit (such as purchasing, operations, or logistics) usually have limited success.
Third, SCM requires firms to put in place information systems and metrics that focus on performance across the entire supply chain.
This is because individual units that seek to maximize their performance without regard to the broader impact on the supply chain can cause problems. For example, a manufacturing unit’s decision to minimize its inventory levels may reduce delivery performance to the end user.
Likewise, a distributor’s decision to chase highly seasonal demand may “bullwhip” its upstream partners, causing significant cost overruns. Putting in place the information systems and metrics needed to make intelligent decisions in the face of such trade-offs presents a significant challenge to supply chain partners.
The organizations that make up the supply chain are “linked” together through physical flows and information flows. Physical flows involve the transformation, movement, and storage of goods and materials. They are the most visible piece of the supply chain. But just as important are information flows. Information flows allow the various supply chain partners to coordinate their long-term plans, and to control the day-to-day flow of goods and material up and down the supply chain.
Finally, SCM adds another layer of complexity to a firm’s strategy development efforts. Years ago, firms could succeed by being particularly good in one functional area, such as marketing, finance, or operations. Then firms recognized that they had to have sufficient capabilities across multiple functional areas in order to survive. Nowadays, much competition occurs between multi-firm supply chains, not just between individual firms.
In addition to their debates about functional: and business-level strategies, then, managers must now address how they will partner with other firms in order to compete.
Some experts distinguish Supply Chain Management with Logistics while others consider the term to be interchangeable.
From the point of view of an enterprise, the scope of supply chain management is usually bounded on the supply side to the supplier’s supplier and on the customer side by your customer’s customer.
Supply chain management concept is as much a philosophical approach as it is a body of tools and techniques, and typically requires a great deal of interaction and trust between companies to work.
For right now, however, let’s talk about three major developments that have brought SCM to the forefront of management’s attention:
- The information revolution
- Increased competition and globalization
- Relationship management
Issues in SCM
Supply chain managers face issues on a daily basis which require direct attention and quick response. With supply chain being at the core of business operations, these issues can directly affect the company in substantial ways.
Managing inventory goes beyond counting how many boxes are sitting in your warehouse. It’s a balancing act. Keeping enough inventory on hand so that all customer and client expectations are met. Appropriate timing prevents delays. Appropriate quantity prevents insufficient inventory while reducing effect on profits.
Along with managing inventory comes managing suppliers. Supply chain managers are responsible for knowing how many suppliers are needed, how to handle delays, and how orders are received. Each step requires thought and a process that suits the business. They’re also responsible for finding suppliers with consistent and reliable service at a price that doesn’t hurt your bottom line.
Maintaining Safety and Quality
The globalization of supply chain brings concerns about the quality of products that are made in other countries. Particularly when components of a product need to meet regulatory standards. This puts companies at risk of recalls. This means that supply chain managers are responsible for ensuring suppliers and their products maintain safety and quality standards. Recalls or safety issues can damage a company’s reputation and affect things like cash flow.
Companies that are too reliant on one supplier are vulnerable if that supplier can’t meet demands. Supply chain managers must mitigate risks so that an earthquake in Asia doesn’t halt the production line in North America. Adequate backup plans help ensure that the company’s supply chain is flexible to handle changes. For example, if one supplier goes bankrupt, the company’s supply chain continues on without profits being affected.