What is supply chain management?

Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. It is said that the ultimate goal of any effective supply chain management system is to reduce inventory (with the assumption that products are available when needed). As a solution for successful supply chain management, sophisticated software systems with Web interfaces are competing with Web-based application service providers (ASP) who promise to provide part or all of the SCM service for companies who rent their service. Supply chain management flows can be divided into three main flows:

The product flow The information flow The finances flow

The product flow includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs. The information flow involves transmitting orders and updating the status of delivery. The financial flow consists of credit terms, payment schedules, and consignment and title ownership arrangements. Supply chain management (SCM) is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers. The following are five basic components of SCM. 1. PlanThis is the strategic portion of SCM. Companies need a strategy for managing all the resources that go toward meeting customer demand for their product or service. A big piece of SCM planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers. 2. SourceNext, companies must choose suppliers to deliver the goods and services they need to create their product. Therefore, supply chain managers must develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the

relationships. And then, SCM managers can put together processes for managing their goods and services inventory, including receiving and verifying shipments, transferring them to the manufacturing facilities and authorizing supplier payments. 3. MakeThis is the manufacturing step. Supply chain managers schedule the activities necessary for production, testing, packaging and preparation for delivery. This is the most metric-intensive portion of the supply chainone where companies are able to measure quality levels, production output and worker productivity. 4. DeliverThis is the part that many SCM insiders refer to as logistics, where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments. 5. ReturnThis can be a problematic part of the supply chain for many companies. Supply chain planners have to create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have problems with delivered products.. What is the relationship between ERP, CRM and SCM? Many SCM applications are reliant upon the kind of information that is stored inside enterprise resource planning (ERP) software and, in some cases, to some customer relationship management (CRM) packages. Theoretically a company could assemble the information it needs to feed the SCM applications from legacy systems (for most companies this means Excel spreadsheets spread out all over the place), but it can be terrible to try to get that information flowing on a fast, reliable basis from all the areas of the company. ERP is the battering ram that integrates all that information in a single application, and SCM applications benefit from having a single major source to go to for up-to-date information. Most CIOs who have tried to install SCM applications say they are glad they did ERP first. They call the ERP projects "putting your information house in order." Of course, ERP is expensive and difficult, so you may want to explore ways to feed your SCM applications the information they need without doing ERP first. These days, most ERP vendors have SCM modules, so doing an ERP project may be a way to kill two birds with one stone. In addition, the rise and importance of CRM systems inside companies today puts even more pressure on a company to integrate all of its enterprise wide

software packages. Companies will need to decide if these products meet their needs or if they need a more specialized system. Applications that simply automate the logistics aspects of SCM are less dependent upon gathering information from around the company, so they tend to be independent of the ERP decision. But chances are, companies will need to have these applications communicate with ERP in some fashion. It's important to pay attention to the software's ability to integrate with the Internet and with ERP applications because the Internet will drive demand for integrated information. For example, if a company wants to build a private website for communicating with their customers and suppliers, the company will want to pull information from ERP and supply chain applications together to present updated information about orders, payments, manufacturing status and delivery.

What is supply chain collaboration? Let's look at consumer-packaged goods for an example of collaboration. If there are two companies that have made supply chain a household word, they are Wal-Mart and Procter & Gamble. Before these two companies started collaborating back in the '80s, retailers shared very little information with manufacturers. But then the two giants built a software system that hooked P&G up to Wal-Mart's distribution centers. When P&G's products run low at the distribution centers, the system sends an automatic alert to P&G to ship more. In some cases, the system communicates down to the individual Wal-Mart store, allowing P&G monitor the shelves through real-time satellite link-ups that send messages to the factory whenever a P&G item swoops past a scanner at the register. Within the last couple of years, the relationship has expanded to include radio-frequency identification (RFID) technologies to gain even more insight into ridding inefficiencies in the supply chain. With this kind of minute-to-minute information, P&G knows when to make, ship and display more products at the Wal-Mart stores. There's no need to keep products piled up in warehouses awaiting Wal-Mart's call. Invoicing and payments happen automatically too. The system saves

P&G so much in time, reduced inventory and lower order-processing costs that it can afford to give Wal-Mart "low, everyday prices" without putting itself out of business.

What is the extended supply chain? The extended supply chain is a clever way of describing everyone who contributes to a product. So if a company makes text books, then its extended supply chain would include the factories where the books are printed and bound, the company that sells the paper, the mill where that supplier buys their stock, and so on. It is important for a company to keep track of what is happening in its extended supply chain because a supplier or a supplier's supplier could end up having an impact on you (as the old saying goes, a chain is only a strong as its weakest link). For example, a fire in a paper mill might cause the text book manufacturer's paper supplier to run out of inventory. If the text book company knows what is happening in its extended supply chain it can find another paper vendor.

What is the impact of globalization on the supply chain? Just in time manufacturing isn't the only way companies have used their supply chains to reduce cost. Manufacturing in developing countries is substantially cheaper than in the United States because of the low cost of labor. For example, the hourly wage for China's manufacturing and production workers is less than one dollar per hour. But foreign manufacturing brings with it another set of challenges. It isn't as easy to set up real-time data sharing with a factory in, say, China as it is with a factory you own in the United States. And the sheer distance that overseas goods need to travelnot to mention the number of vessels they need to travel on to reach the U.S. increases the chance that they will get delayed. The bottom line is that foreign manufacturing brings back a lot of the uncertainty that supply chain systems were designed to eliminate. The good news is that technology capable of tracking shipments throughout the world is getting better. The bad news is that a lot of this technology is still pretty expensive, that some of the places a company would want to deploy it don't have the necessary infrastructure in place, and, well, there isn't a piece of technology out there that can make up for the whim of a Chinese customs official. Furthermore, labor costs in some places are so low that IT automation and

monitoring projects may add more to costsin terms of software, hardware and still-precious (and unreliable) bandwidththan they save in productivity. Hence, some low-tech or commodity products may not be worth monitoring at all until they hit a ship in a foreign port. In the meantime, the best bet for companies is to use whatever systems they can to gain as much visibility into the global supply chain as possible. It may be impossible to replicate the just in time model on a global scale, but by applying technology , and by choosing the supply chain partners who have the capability to share data with operations, a company can get many of the benefits of just in time while paying low foreign prices.

What is the impact of responsible sourcing, environmental sustainability and the "green" movement on the supply chain? If the technological side of supply chain management wasn't hard enough, the new "corporate social responsibility" (CSR) movement inside 21st century organizations and IT departments adds another layer of complexity. Broadly defined, CSR initiatives for companies include such strategies as being able to show environmental sustainability (i.e. reducing the carbon footprint), responsible sourcing from a wide range of global suppliers, and how "green" an organization is. So how does that affect supply chain management? Visibility. In order to prove that a company has lowered its carbon emissions, isn't dumping hazardous materials into rivers and doesn't buy its materials from suppliers that employ underage workers, company leaders need to be able to gain insight into and track the actions of their suppliers, and their suppliers and their suppliers all the way down the chain into some good and not-so-good parts of the global economy. This ability also becomes critical when tainted goods need to be identified and found quickly in a supply chain, before the goods spread throughout a country's population. Wal-Mart announced in fall 2008 that all of its suppliersincluding the thousand located in Chinawould have to be in compliance with laws and regulations relating to rigorous social, environmental and energy efficiency mandates. Wal-Mart's suppliers would even have to attest that their suppliers received high ratings on environmental and social practices.

The Five Biggest Supply Chain Challenges The recent economic recession had at least one positive effect: It forced companies to take an intense look at their supply chains, question some of their assumptions, and root out major inefficiencies. For example, ad hoc decisions to source low-price products from countries with the lowest labor cost may no longer make sense when the long-term increase in transportation rates, risks of disruption, and weeks of inventory in the pipeline are factored into total landed cost calculations. Of course such analysis and restructuring is an ongoing requirement for effective supply chain management. The following are five key supply chain management challenges. 1) Customer Services 1. Effective supply chain management is all about delivering the right product in the right quantity and in the right condition with the right documentation to the right place at the right time at the right price. SCM provides a framework for measuring and understanding current supply chain conditions and performance and creates a foundation for improvement. It can help supply chain managers evaluate cost/performance tradeoffs, develop strategies for meeting new customer expectations, and respond to domestic and global market growth. 2) Cost Control Supply chain operating costs are under pressure today from rising freight prices, more global customers, technology upgrades, rising labor rates, expanding healthcare costs, new regulatory demands and rising commodity prices. To control such costs there are thousands of potential metrics that supply chain organizations can and do measure. Managers need to zero in on the critical few that drive total supply chain costs within their organizations. 3) Planning and Risk Management Supply chains must periodically be assessed and redesigned in response to market changes, including new product launches, global sourcing, new acquisitions, credit availability, the need to protect intellectual property, and the ability to maintain asset and shipment security. In addition, supply chain risks must be identified and quantified. A report shows that less than half of their organizations have metrics and procedures for assessing, controlling, and mitigating such risk 4) Supplier/Partner Relationship Management Different organizations, even different departments within the same organization, can have different methods for measuring and communicating performance expectations and results. Trust begins when managers let go of internal biases and make a conscious choice to follow mutually

agreed upon standards to better understand current performance and opportunities for improvement. 5) Talent As experienced supply chain managers retire, and organizations scale up to meet growing demand in developing markets, talent acquisition, training, and development is becoming increasingly important. Supply chain leaders need a thorough understanding of the key competencies required for supply chain management roles, specific job qualifications, methods for developing future talent and leaders, and the ability to efficiently source specific skill sets.