What is Supply Chain Management?
Supply is providing goods and services to the final users when these are required and afforded by them with an acceptable quality, competitive price, at an accessible location.
To achieve these objectives of supplying, the businesses have to perform several interconnected steps in a particular order. All these interrelated operations create a chain of actions to fulfill the objective of supply that is providing goods and services to the end users. For this reason we called it Supply Chain, in other words, this is a chain which matches the supply according to the demand of goods and services, and managing all these steps in an efficient and effective way is called Supply Chain Management.
Now let’s define a formal definition of Supply Chain Management, it is the process of managing the movement of goods and services to end users from suppliers in shape of raw material to finished goods in a very efficient and effective way. These all chained activities are glued by information technology and wheeled by money.
Another simple way to explain the SCM is through Fish Bone Model, Fish Model in Supply Chain is Bringing scattered Resources together from Suppliers to our facilities which is the tail of the Fish… which help us to swim for this suppliers and supply are very vital ingredient of the chain otherwise whole model could be collapsed …then next step or phase is transformation of these resources through Operations into product or service those are required by our customers , this part is the main body of the fish and then send these product and services to the segment of our customers which the nose of the fish
The main ingredients of supply chain are
- Information and greased by cash which are sometimes called cross- functional ingredients of supply chain.
Functions of Supply chain management
There are various functions in supply chain management, here some of the main functions of Supply chain management are,
- Product designing and development
- Controlling inventory
- Distribution and customers relationships.
These are the functions every business does, for this reason some time, we called SCM is equal to business and no doubt businesses are doing all these functions since centuries, the only difference is that now these activities are done in a collaborative and coordinated way in the total chain which includes not only the business itself but other organizations related to the business, like suppliers, suppliers’ suppliers, which are called upstream and distributors, retailers and customers, which are called downstream.
For managing Supply Chain more effectively, Supply Chain Managers usually divide the Supply Chain into three operational areas, one is upstream which includes sourcing, purchasing and procurement, negotiating, ordering and inbound transportation and logistics, and collectively it is covered under Suppliers Relationship Management (SRM), the second one in the downstream which includes setting up distribution network, order fulfillment, and out bound transportation and logistics, and this comes under the Customers Relationship management (CRM), and the last one middle stream , which is inside of the organization which deals with receiving, warehousing, material management, manufacturing scheduling, product development and designing. All these three streams are connecting through information technology, which creates a clarity and visibility in the supply chain from one end to another end.
Presently many businesses use Supply Chain as a strategy to have the competitive advantage over their competitors, this is due to cut throat competition, businesses are becoming more and more customers or market oriented instead of production oriented, and so supply chain strategy is the only vehicle suited to satisfy the customers by providing best quality and quick response.
Let’s now talk about the different functions of the Supply Chain management, and start from the Sourcing,
A simple definition of sourcing, it is to find the source of the product which could be raw material, a component/part, a semi-finished product or finished good. So this function of Supply Chain could be performed at every stage of chain. Most of the organization have the sourcing department headed by Sourcer, who has expertise of the product as well as have all the information about suppliers and the market locally and globally, His main responsibility is supplier relationship management including finding best and least-expensive supplier, selecting, evaluating, classification and engaging of suppliers and vendor development. Basically source person is the connection between the suppliers and the business and connect the suppliers with the business.
In some organization the sourcing and purchasing is done by the same person or the department but the larger organizations or where the product is highly specified , sourcing and purchasing could be done by separate departments, it also help for better control and quality and negotiation, and if there are more than one suppliers, then purchase department will make the final decision. Another major decision in sourcing is to decide whether to buy locally or globally and develop the sourcing strategy to optimize the value of the supply chain.
Vendor Development is a process in which you work with the upstream segment of the supply chain to improve the value of your supply chain. This is the part of Supply Chain management in which you not only managing your internal processes of SC but also try to develop your vendors. It is a major and strategic part of Suppliers Relationship Management.
Vendor Development is also defined as any activity by buyers of helping vendor to improve its performance and capabilities regarding designing, product development, costing, quality and logistics.
In simple language, Vendor development is developing your product/product parts/unfinished product from vendor(S) for the betterment of the business from aspects like finance, growth, relationship, manufacturing and supply chain.
Following are the factors you have consider before deciding to develop a vendor.
- Quantity is required to be purchased
- Availability of the Material in the market
- Buying patterns, regular and occasionally buying
- Time Availability for getting the material
- Economic Viability of the material,
- Future Potential of the suppliers
- Creditability of the suppliers-Relationship
- Location of the Suppliers
Process of Vendor Development:-
- Survey: – information on potential vendors
- Enquiry: – detailed analysis of supplier’s activities furnished by vendors or collected by the company. Compliance, Technical, manufacturing, human resource and Financial capabilities, responsiveness, reputation of the vendor.
- Negotiation & selection: – finalization of vendors
- Experience & Evaluation: – Evaluating and appraising the performance and identification of area to improve the performance of vendors in which they are deficient.
Another issue with vendors is to make that they follow all the compliances.
Compliance is very important issues in SC. .particularly Global SC. .first of you have to convince your vendors the importance of compliance and consequences of noncompliance. .then detail communication and training about compliances until you both are on same page. .then implementation and monitoring of compliance same as quality assurance. .then feedback. .and a chargeback in case of noncompliance.
Role of Suppliers in New Products Development
Your first tire suppliers have an important role in NPD. .by providing ideas of improvement in the product. .providing materials and technology for NPD. ..allowing their facilities to make prototype products. ..all these services could be provided by the suppliers those are very close to you and have long relationships with you. I have practical experience of collaboration of our suppliers in NPD and collaboration helps us through out the life cycle of the product. .it also helps us to reduce the cost of NPD and overall cost of products and it is all win win situation for whole supply chain. .
Distribution Channels are basically paths through which your products reach to the end customers ..The purpose of distribution channels is to make the product available to customers at right time. Right price. .in right quantity and at acceptable quality .. .it is a major and important part of the supply chain. .usually called downstream. .and designing an efficient and effective distribution network is another function of Supply Chain management. ..and there many factors and variables determined the best channels of distribution network.
There are many huge businesses whose only job is to distribute the goods from manufacturers to retailers. .and another strategic decision in distribution is to own the distribution network or outsource. .Each has it’s own advantages and disadvantages. .Some business are vertically integrated. .means whole SC is owned and operated by same company. .
Benefits of Demand Forecasting in Supply Chain Management :
With a more accurate Demand Forecasting we can improve the efficiency and effectiveness of the functions of the Supply chain management from upstream to Middle stream and from middle stream to downstream.
- Improve the sourcing. Since you are more sure what are you looking for. .quality. .Quantity and timing
- Improve the negotiations power with vendors…in pricing. ..quality and delivery time.
- Better warehouse management and utilization of your space through better scheduling of inbound and outbound traffic.
- Improvement in production scheduling to make it more efficient and responsive.
- Better inventory management through managing less out of stock or extra inventory issues in the pipe line at all levels of supply chain.
- Better shipping scheduling and saving in transportation costs.
- Improve Customer service at B2B and B2C levels by having a smooth and responsive supply Chain.
For an integrative demand forecasting and timely fulfilment of demand, we use CPFR model which is a process of collaborative planning among all partners of SC to do demand forecasting and keep the total supply pipe updated and replenished to serve the customers at all levels in an integrative way. .
One of the major characteristics of supply chain managers is entrepreneurship; they have to look beyond their job sphere and care and consider every activity and everyone in the business and the outside partners as well…. which sometimes look like leadership and parental characteristics
Managing inventory through the whole pipeline of supply is very vital for the success of the business.
Keeping appropriate inventory is the most complex challenge for every organization. ..and in business we always stay very vigilant about our inventories. .There are several inventory models and software have been developed to control the jinni of inventory but we still have not managed this according to our wishes. .rapid changes in the taste of consumers which resulted in shorter product life cycle and managers have not enough data to forecast demand and accordingly manage their supply. On the other hand customers are becoming so demanding that they want the product of their choice right away. ..at a very competitive price. ..These are the challenges of supply chain managers. .to fulfill the customers demand very efficiently and effectively. .and inventory management is one of the keys to achieve this.
One of the strategies to have maximum efficiency in inventory management is the just in time inventory model.
For just in time.. you need a perfect coordination with ur suppliers and customers…you have to start with a very close to perfect sales forecast… production scheduling.. materials requirements..shipping scheduling..to sync inbound and outbound .. a very highvisibility of Supply Chain..coordinated with suppliers…The ultimate object of jit inventory mean zero inventory…it also vendors managed inventory..in this model… your inventory is managed by your vendors..suppliers
As we have discussed earlier about the role of Information technology in Supply Chain, it is the mother of Supply chain management and Logistics