Supply Chain Management (SCM)

Being more socially and environmentally responsible in the current world climate does raise risks that need to be identified and managed. Customer requirements and expectations, maintaining low costs, availability and access to resources and globalization, all create ever-increasing complexity. As well as these evolving factors, managers are expected to improve profit margins, increase income and achieve a larger market share in their market. One critical aspect that needs to be addressed to achieve success is the company's ability to integrate its network of business relationships in a mutually beneficial way. (Lambert, 2008)

The management of this network of relationships is supply chain management. Cross-functional integration within the company and across the network of associated companies that comprise the supply chain is critical to its successful management targets. These targets focus on improvements in performance that should result from improved management of key relationships.

A supply chain is a system of organisations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer.

Another definition of supply chain management is provided by the APICS Dictionary when it defines SCM as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally."

The planning and management of all activities are encompassed within supply chain management and include sourcing, procurement, conversion and logistics management. Crucial components of coordination and collaboration with channel partners are also included in this, and these can be suppliers, intermediaries, third-party service providers, as well as customers. Overall, supply chain management integrates supply and demand management within and across companies. The self-organising network of businesses that are often loosely coupled that cooperate to provide products and services has recently been known as Extended Enterprise.

The term Supply Chain Management (SCM) evolved in the 1980s to express the need to integrate key business processes from the original suppliers to the customer. (Oliver, R.K., Webber, M.D., 1982).

The concept embedded within SCM is that the exchange of information about market fluctuations and production capabilities is critically important for supply companies to ensure an efficient supply chain.

The concept is that if all relevant information is accessible to any associated company, then every company in the supply chain has the potential of seeking to optimise the entire supply chain, rather than to concentrate on issues of local interest. This will lead to better planned overall production and distribution, which can cut costs and give a more attractive final product and lead to better sales and better overall results for the companies involved.

Companies that incorporate SCM successfully experience a new kind of competition on the global market where competition is less important on a company-to-company basis, but more between the success of competing supply chains. The main objective of supply chain management is to meet customer demands through the most efficient use of resources, including distribution capacity, inventory and labour. A successful supply chain should match demand with supply, and with a minimal inventory. Important aspects of the supply chain would include liaison with suppliers to avoid bottlenecks, achieving a balance between lowest material costs and transportation costs, optimising manufacturing flow with techniques such as Just In Time (JIT), identifying optimum location and balance of factories and warehouses to meet customer markets buy using location/allocation, vehicle routing analysis, dynamic programming and traditional logistics optimisation to effect the highest level of distribution efficiency.

The terms supply chain and logistics have led to some confusion and it is necessary to be clear about each aspect. The generally accepted view is that logistics applies to the distribution of a product within one company or organisation. However, a supply chain includes manufacturing and procurement and has a much broader focus, involving multiple enterprises, suppliers, manufacturers and retailers that attempts to meet the needs of customers for products or services.

There are five major aspects that can be observed in the evolution of supply chain management studies: Creation, Integration, and Globalisation (Lavassani et al., 2008a), Specialization Phases One and Two, and SCM 2.0.

Creation Era

Although the term supply chain management was first established in the 1980s by an industry consultant in the U.S.A., the concept of a supply chain in management had already achieved importance by the early part of the 20th Century with the creation of assembly lines in factories. This era of supply chain management development included the requirement for large-scale changes in engineering, cost reduction programmes and close attention to the Japanese style of management at this time.

Integration Era

The basis of supply chain management changed significantly with the development of information technology, particularly throughout the 1960s and a new era of development witnessed the introduction of Electronic Data Interchange (EDI) systems to support supply change management. This was further enhanced in the 1990s by the introduction of Enterprise Resource Planning (ERP) systems. This era has continued to extend and expand supply chain management systems in the 21st Century through internet-based collaborative systems. The evolution of supply chain management throughout this era can be viewed as enhancing value-adding and cost reduction through integration.

Globalisation Era

Supply chain management also developed across a third era - that of globalisation, which is characterised by global systems of supplier relationships and the expansion of supply chains across national boundaries and across other continents. Whilst the global aspect of supply chain management can be traced to earlier decades in the 20th Century, such as supply and demand pressures within the oil industry, it was only in the late 1980s that a significant number of organisations began to integrate global sources into their core businesses. This era of supply chain management development is reflected in the emerging globalisation aspect for trade and industry and identified goals of increasing competitive advantage, value-adding and cost reduction through global sourcing.

Specialisation Era—Phase One: Outsourced Manufacturing and Distribution

In the 1990s, many companies began to adopt a specialisation model by focusing on 'core competencies'. Generally, vertical integration models were abandoned and companies sold their non-core operations and outsourced these to other companies. This had a significant impact on supply chain management systems by extending the supply chain operations and distributing management across specialised supply chain partnerships.

Fundamental perspectives of each individual organisation needed to be re-analysed and re-focused over this transition era. OEMs were the brand owners, but needed to ensure that they had detailed knowledge of their supply base, controlling the entire chain from above the chain, rather than from within its own individual organisation. There were now new demands for contract managers to handle bills for materials with different part numbering schemes from multiple OEMs, as well as supporting customer requests for improved visibility of work-in-process aspects and a vendor-managed inventory (VMI).

Multiple, individual supply chains created that were specific to products, suppliers and customers working together to design, manufacture, distribute, market, sell and service a product, established the specialisation model for manufacturing and distribution networks. This resulted in a proliferation of trading partner environments in that the set of partners may change according to a given market, region, or channel, each with its own unique characteristics and demands.

Specialisation Era—Phase Two: Supply Chain Management as a Service

The 1980s saw further developments of specialisation in supply chain management with the introduction of transportation brokerages, warehouse management and non-asset-based carriers. This further specialisation development has evolved beyond transportation and logistics into supply planning, collaboration, execution and performance management.

Market forces can require changes from suppliers, logistics providers, locations and customers at any time, and from any of the specialised participants within supply chain networks. However, this variability can have a significant impact on the supply chain infrastructure, including establishing and managing the electronic communication between trading partners, and configuring the processes and work flows that are essential to the management of the network.

To sum up, this paper has analysed the development of supply chain management by indentifying the definitions and elements recorded through relevant literature. This has shown to be a complex structure where companies and organisations need good understanding of the processes and demands to achieve good results, and successful supply chain management could be described as an intricate quilt. The project manager for supply chain management may also be compared to a magician - continually pulling project management skills from a seemingly endless source in order to address the issues that arise during the project. Magician or manager - the successful company or organisation in the 21st Century will need to have continually evolving supply chain network strategies to meet the needs of its customers and to maintain a positive competitive position in an every-changing world market.

References:

  • Oliver, R.K., Webber, M.D., 1982, "Supply-chain management: logistics catches up with strategy", Outlook, Booz, Allen and Hamilton Inc. Reprinted 1992, in Logistics: The Strategic Issues, ed. M Christopher, Chapman Hall, London, pp. 63-75.
  • Lambert, D. D. (2008). the Supply Chain Management. In D. D. Lambert, Supply Chain Management: Processes, Partnerships, Performance, 3rd edition (pp. 1-2). USA: SCMI.
  • Lavassani, M. K., Movahedi B., Kumar V. (2008a) Transition to B2B e-Marketplace enabled Supply Chain: Readiness Assessment and Success Factors, Information Resources Management (Conf-IRM), 2008, Niagara, Canada.
  • Lavassani, M. K., Movahedi B., Kumar V. (2008b) HISTORICAL DEVELOPMENTS IN THEORIES OF SUPPLY CHAIN MANAGEMENT: THE CASE OF B2B E-MARKETPLACES. Administrative Science Association of Canada (ASAC), 2008, Halifax, Canada.

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