Supply Chain Management (SCM)

Supply Chain Management, or simply "SCM", is the management of the two-way flow of materials, equipment, finances, information, and manpower resources within and among organizations to ensure the efficient and fast delivery of goods and services to the end customer. It involves the oversight of synchronized movement of these logistics from the supplier to the manufacturer, wholesaler, and retailer, until the end-product reaches the consumer.

Michael Dell didn't build his multi-billion empire simply by selling computers to consumers. He solved the complex problems of just-in-time manufacturing, inventory reduction, and efficient manufacture and delivery of goods to outdo his competitors. In short, he came out on top because he was a master of supply chain management.

Supply chain management was never a strategic issue in the past, when sourcing and delivery of logistics took a backseat to manufacturing. The emergence of new information technologies, however, changed the business landscape. Now organizations have the necessary tools to do business at a much faster rate. Companies that do not move their goods and information around quickly enough do not survive because they simply don't get their new products to the marketplace before their competitors do.

A basic supply chain management system has five (5) components: 1) the plan, which refers to the over-all strategy of the SCM program including the development of SCM metrics to monitor; 2) the source, which refers to the suppliers who'll provide you with goods and services necessary for you to run your business; 3) the 'make' or manufacturing component, which refers to the execution of processes needed to produce, test, and package your products or services; 4) the delivery, which refers to the system for receiving orders from customers, developing a network of warehouses; getting the products to the customers; invoicing customers and receiving payment from them; and 5) the return, which is the system for processing customer returns and/or supporting customers with problems with the products they received.

The choice of the right software in setting up an effective SCM system is crucial. There are two major classes of SCM software, i.e., supply chain planning (SCP) software and supply chain execution (SCE) software. SCP software is used to determine the best or most logical way to fill customer orders, while SCE software is used to track the physical location or status of goods and materials, and manage their flows effectively. The SCM software package selected must include both the aspects of planning and execution.

Software that can transfer data 'upstream' (or to the company's suppliers) and 'downstream' (or to the company's customers or clients) would allow management of the entire supply chain under a single system. Large companies dealing with a multitude of diverse entities might also do better with SCM software that are based on open models, i.e., those that support sharing of data internally and externally across different database systems or data warehouses at various sites. Web-based SCM software are becoming more and more popular for this purpose.

SCM software are not simple, and are even often fragmented. This is because SCM per se is composed of dozens of independent, specific tasks that are best served with their own software. As a result, most of the SCM-related software in the market are actually individual applications that cater to the various components of SCM. This is why SCP and SCE software are often referred to as supply chain planning and execution applications, respectively. A complete SCM software package that unifies all the necessary SCM components together has yet to be seen.

SCP software employs complex mathematical algorithms to identify the best flow of materials to make the supply chain efficient. SCP itself has various components, the most complex and valuable of which is probably the demand planning software. Demand planning is simply the process of determining which products and how much of these must be produced at which particular point in time so that all customer orders will be fulfilled or served promptly.

Needless to say, the accuracy of SCP software is largely dependent on the accuracy and freshness of the data it is using. Thus, in order to have effective SCP, the system must have a dependable process for collecting up-to-date information about customer orders, production status, and sales and delivery fulfillments.

SCE software are designed to automate the various steps or processes of the supply chain. For instance, one of its components may be an application program that electronically orders goods and services from various suppliers so that the ordered products may be produced, based on the customer orders that need to be filled.

Related to the concept of supply chain management is the concept of supply chain collaboration. Supply chain collaboration (SCC) refers to a strategic partnership between two different companies and organizations that agree to hook up their supply chain management systems together in order to make the delivery of products from the supplying company to the receiving company virtually seamless. Procter and Gamble and Walmart have greatly benefited from such an arrangement, with their SCC system efficiently modulating how P&G restocks Walmart's distribution centers with its products.

An effective SCM program is not easy to implement. Common obstacles to setting up an SCM system include: 1) gaining the trust of suppliers and partners to participate in the SCM program; 2) difficulty of integrating various processes and systems along the supply chain; 3) internal resistance to change due to the perceived additional work that comes with the program; 4) possible discouragement and loss of confidence in the system due to early mistakes during the learning curve.

See Also: Knowledge Management; CRM; TQM; Kaizen

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