Supply chain acts as a connecting chain of materials from the suppliers to the manufacturer to the distributor to the retailer to the ultimate customers. In a supply chain the flow of demand information is in a direction opposite to the flow of materials. Thus, the information flow on demand is from the customer to the retailer to the distributor to the manufacturer to the supplier.
It may be noted that the supply chain is not a linear chain but takes the form of a network. It consists of a network of facilities and distribution options that perform the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers in the right time and of the right quantity and quality.
The complete SCM has three sections at the macro level Supply Relationship Management: The segment of the chain which is concerned with the supply of raw materials ,components and sub-assemblies .This segment is called the SRM which plays the role of supplier relations. The Conversion system within a factory which is done by the production and operations management function. This macro system is often called the Internal Supply Chain Management or ISCM.
CRM or customer relations management macro system. The CRM Sytem takes care of the market, Selling, Call centre and order management. The management of the three macro level systems have been very efficiently taken care by leading software corporations like the SAP. ,Oracle ,BAAN and other Enterprise Resource Planning Systems. Since the Customer Relationship management is focused towards the marketing ,Sales and service.
Supply chain management can be seen as the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory and related information flows through the organization and its marketing channels in such a way that current and future profitability are maximized through the cost effective fulfillment of orders.
Supply chain management (SCM), thus , is the process of trying to appropriately manage this network of activities and flows. More formal definitions of SCM include the following points:
SCM coordinates and integrates all the supply chain activities into a seamless process and links all of the partners in the chain, including departments within an organization as well as the external suppliers, transporters, third-party companies, and information system providers.
SCM enables manufacturers to actively plan and collaborate across a distributed supply chain, to ensure that all parties are aware of commitments and schedules. By actively collaborating as a virtual corporation, manufacturers and their suppliers can source, produce, and deliver products with minimal lead time and expense.
Conceptual Model of SCM
In sum, we can say that SCM works in a demand driven situation, encourages flow-type production with small batches, reduces idle inventory and idle time in any business by improving overall customer- centric approach.
The conceptual model of SCM is based on the five basic elements called Pillars of SCM. It includes:
- Customization philosophy
- Outsourcing of items in which the supplier has competency
- Multi-tier supplier partnership
- Third or Fourth party logistics
- Use of modern IT systems