Supply Chain Management Affects Competitiveness
Global Supply Chains Can Become Critical for Business Success
May 7, 2009
Supply chain management or SCM covers materials procurement, their conversion into finished products and the distribution of these products to consumers. The facilities a business sets up for attending to these tasks and the related decisions it makes can determine whether the business is competitive or otherwise.
The Supply Chain
In a simple one product business, the supply chain management can look like the following:
- Estimate monthly sales volumes
- Create production schedules
- Compute materials requirements and required by dates
- Create order placement schedules
- Monitor supplier shipments
- Check the quantity and quality of materials received
- Monitor production activities against schedule and for quality performance
- Arrange shipments in time to distributors or customers
The task in such an environment will consist mainly of ensuring coordination among marketing, production, procurement and warehousing departments. For example, if the production department focuses on maximizing throughputs with a view to lowering costs, it can lead to excessive inventories. If the purchasing department enters into supply contracts going by historical buying patterns, materials availability might get out of synch with production requirements.
SCM and incidental logistics become quite complex when there are:
- Multiple products
- Shared components, facilities and capacities used by these products
- Multiple locations to carry out production activities and to stock goods for distribution
- Different modes of transport for transporting raw materials and finished goods
In such an environment, the flow of materials can become very complicated, and optimizing the flows can become a complex exercise.
Managing the Supply Chain
SCM typically involves decisions regarding:
- Location of production, stocking and sourcing points: The decisions affect the ability to service different markets, as well as costs and revenues.
- Production issues such as the particular products to produce, their mix, the particular plants where the production takes place, sourcing of supplies for each plant and distribution of products from each.
- Inventory and transport issues are closely related. Faster transport options can lead to lower inventories, but can prove quite expensive, e.g. air cargo.
The decisions above are strategic in nature, with long-term implications. Techniques like network modeling are used to arrive at the best possible decisions. SCM modules are important components of ERP software tools.
At operational level, techniques like production scheduling, fixing reorder levels and quantities, deciding on shipment sizes and route planning are used to enhance the efficiency of supply chain management tasks.
Supply chain management involves purchasing, production and distribution operations. These are the core operations of businesses, and controlling costs and improving efficiency in these areas can determine how successful a business is. SCM has hence received a great of deal of attention from managers, management experts and software developers.
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