This paper presents a clear picture or overview of Supply Chain Management, its definitions and methods. It also says about the concept behind Logistic and Supply Chain Management and what could be the benefits that it gives to the organization and what would be the return on investment of supply chain management for the organization. It provides what should be the strategies to overcome the problems in SCM and the methodologies for effective implementation.
Intense competition is driving various manufacturing organizations to eradicate old methods of working and switch to more efficient methods by incorporating supply chain management. SCM can be implemented across various kinds of organisations right from manufacturing to service sectors. According to the business the management and complications of the supply chain will vary. It completely depends on the firm or industry. In order to run an efficient and smooth supply chain it is essential that networking is done throughout the supply chain. This integration can be done with the technological advances in the industry and internet, which is a critical tool i enhancing information sharing throughout the value chain network.
Introduction about SCM.
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The concept and idea of SCM has been brought in 20 years ago, but still there is a big debate on what exactly makes up SCM. The better picture and understanding of this has been scientific community would be resumed as follows.
"Supply Chain Management (SCM) is a strategic integrated customer and cooperation oriented management philosophy that ensures an increased sustainable performance and competitiveness for all partners within organizational arrangements called supply chain.
SCM refers to the establishment of long-term supplier and customer relationships between organizations within supply chain networks."
"SCM follows the goal of efficiency of the involved organizations. This can be realized by synchronizing business processes (e.g. procurement and logistics) as well as organizational arrangements by considering both costs as well as service structures.
SCM is the realization of an inter-organizational flow orientation that helps to solve specific connection problems."
"SCM decisions are operative and strategic. They include typically operational questions referring to procurement, transport, inventory, handling as well as strategic management decisions that aim to realize cooperative behavior of a supply chain's part elements.
Management decisions are therefore of particular importance (= coordination function of SCM)."
"SCM is a part discipline of business administration, which means that SCM helps to increase the competitiveness of the firm by lowering costs, increasing profits and customer satisfaction and certainly SCM is a competitive 'weapon' against competition."
Concept behind Logistics and Supply Chain Management:-
During 1960's logistics was consider same as physical distribution. It has got changed over few decades. During 1970's a professors from German has originated the concept of "Betriebswirtschaftliche Logistik" that says logistics as integrated management and in another word movements of the goods and information from one place to another place. During 1985, Reley and Jones came up with the new concept and term that is called Supply Chain Management. It is a tool to manage the whole inventory and also to get competitive advantages. Since then so many thing has came in the market, but still there is nothing like what a Supply Chain Management is.
Recently the council of SCM established the following definition for SCM
"Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party suppliers and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies."
This are few notions of Albach and Weber, They see Supply chain management as a philosophy that can be used to manage independent organizations in a process (= flow) oriented manner and allows all members of the supply chain to gain competitiveness. In that sense, we see SCM as a possible development of logistics. In prior work, Kotzab (2000) has defined SCM as a metalogistical phenomena, a view that has been shared by Ihde (2001). Kotzab and Schnedlitz (1999) and recently Kotzab/Bjerre (2005) have already put SCM into a retail context.
See Figure 1.
Figure 1: A retail specific SCM model
Always on Time
Marked to Standard
Majority of the models of supply chain focus on the flow of materials and document the network structures related to flow of those goods or material. Very less research exists on examining different layers of SCM network (eg - information flow or organizational flow) which is required to show a general theory of how inter organizational networks are managed. Following Normann/Ramirez (1994), SCM can be defined as results of continuous interaction between partners connected internally with productive relationships and a combination of the supply chain management processes which will create value in a multi-directional level, this results in value supply chain.
In 1969, Kotler and Levy wrote an article which broadened the scope of marketing in terms of supply chain management. By taking basic differentiation of the business administration of functions and institutions and manage to develop certain aspects of Supply Chain Management. The goal of SCM research is then to identify the institutional particularities of SCM for service companies mostly with respect to third party logistics providers and functional developments such as future planning and forecasting.
A model of Supply Chain Management:-
Supply chain management focuses on the flow of products and information between supply chain business partners and members. Due to the current market developments in technologies companies have access to information in real time scenarios. They help in easy flow of information and adds visibility in the supply chain and information costs are also reduced due to the advancements. In the integrated supply chain model (Fig.1) bi-directional arrow show the allocation of reverse flows of materials and information. The supply chain Manager must understand that information technology goes beyond computers. Except computer data recognition equipment, communication technologies, automation and other hardware and services are included.
Integrated supply chain model
Supply chain organizational dynamics:
All business partners who are participating in collaboration and supply chain incentives have specific roles to play. They must also share healthy relationships and co operating sharing the belief that each one of them will benefit from the partnership. Power management in the supply chain can be an issue. There is a shift of power from the manufacturing units to the retailing sector over the past couple of decades. Retailers hold a major power force and positions of prominence.
For example : The Wal-Mart & P&G case study show how visibility and sharing od information can benefit both companies mutually. Through sound information technologies Wal-Mart shares information such as its point of sale figures from its various retail outlet directly with P&G and other major suppliers.
Due to the advancements of information systems providing efficient and visible information flow throughout the organization it leads to various benefits like cost reduction, productivity, improvement and strategies relating to product and market.
Barrett and Konsynsik have identified five basic levels of participation of individual firms with in the inter organizational system.
1. Remote Input/Output mode: In this case the member participates from a remote location with in the application system supported by one or more higher-level participants.
2. Application processing node: In this case a member develops and shares a single application such as an inventory query or order processing system.
3. Multi participant exchange node : In this case the member develops and shares a network interlinking itself and any number of lower level participants with whom it has an established business relationship.
4. Network control node: In this case the member develops and shares a network with diverse application that may be used by many different types of lower level participants.
5. Integrating network node: In this case the member literally becomes a data communications/data processing utility that integrates any number of lower level participants and applications in real times.
The Benefits its Offer to the Company.
Any company who wants smooth planning and execution for their operation to achieve long term profitability and to maintain competitive edge, for them Supply offers tremendous value to it. That is the only reason nowadays more organizations are implementing the supply chain management to their organizations.
These are few benefits that it offers to the organization. Those are:-
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Improve Your Supply Chain Network:-
Supply chain management provides complete visibility to the entire organization network chain, something that was not easily achieved by manual processes. With the help of supply chain now the users can easily monitor the whole activity very easily across all suppliers, distribution centers, storage locations, production plants etc. This enables more effective tracking for all processes and manage the work. So now with the help of SCM the critical activities and issues can be tracked all the times and the problems can be recognized and corrected immediately before they become unmanageable.
Many supply chain those who are not integrated with supply chain application can be stuck for delays that can be result in poor relationship with the customers and lost for the business. Slow down in the production, late shipment from the vendor and some common error in the distribution channel can impact the company business and the ability to satisfy the customer demand for its products.
With the help of Supply Chain application activities and the processes can be easily coordinated and executed from start to finish, insuring higher level of on tine delivery for its customers.
Supply Chain application makes this possible to know what exactly our suppliers and distributors are doing at all times and vice versa.
It makes a bridge and fills the gap between other businesses at remote location to improve collaboration among supply chain. With the help of supply chain all the participants can easily share their information between them such as demand trend reports, order statuses, inventory levels and transportations plans in real time. This type of instant data sharing and communication will keep all stakeholders informed, so the SCM processes can run as cleanly as possible.
A Supply Chain application can help for reducing the cost in a variety of ways. For example, it can:
It helps to improve inventory management, alleviating the successful implementation of just-in-time stock models.
It enables more effective demand planning, so as per that the production output levels can be set effectively addresses customer requirement without the shortages that result in lost sales.
Improves relationship with distributers and the vendors, so logistic and purchasing professionals can identify cost cutting opportunities such as volume discounts.
ROI on SCM:
Management of the entire business processes from production to delivering products or services to the final customer is regarded as SCM. The basic hypothesis of Supply Chain Management is "the more integration - the better the management of the chain", where the integration can be an explicit or implicit assumption.
In the early 1980's SCM was a strategic attempt to make the flows of products and information between firms. The two obvious possibilities for this strategic attempt was to elevate logistics /procurement professionals with other professional groups in the firm or it was an attempt to enlarge the firm i.e. to extend its boundaries from the top management perspective.
Supply Chain Management is used as the integration of business processes for end user through original suppliers providing products, services and information for customers. It is also an integrative philosophy to manage the complete flow of a distribution channel from the supplier to the ultimate user.
Integration is the best way to provide power to the management of the chain rather than the firm populating it. Though it presents itself as a justification, academic research still don't provide satisfactory results on its return of investment into supply chain integration. From a decision maker's point of view, creating network is still a point of consideration as engagement into SCM can be an investment into integration as it would be interesting to know the value of this investment.
Though there are there is no published results that shows the financial benefits of such supply chain integration, it is said have positive effects. They tend to forget the idea of the balance sheet and the return on investment into the supply chain management is an interesting question for the decision maker's.
The Behavioral Aspects of SCM:-
The Supply Chain Management gives much opportunity to think in machine terms. Networks and System have to function after certain rules. However who leads up these rules, who enforces after which logic SCM arrangements. Basically there is a management who is responsible for that, wherewith a behavioral ground is assured. That's is why in 2001 Mentzer given the concept of SCO that stand for Supply Chain Orientation that heads to an integrating of different organizational logistics and supply chain. A relationship orientation is needed to have SCM work. Supply Chain Orientation or relationship orientation includes possible variable of trust, commitment and mutual understanding, which means that organizational issues will be always in focus when it is from management or from supply chain.
A lot of knowledge concerning theses issues is not available easily even more so with respect to meaning of organizational arrangement as recommended by SCM. The business community must make an effort to incorporate SCM into different organisations.The entire concept of SCM is build on the primary notions of Ouchi's (1980) clan approach. This approach also states that its important to examine closely the essence and different styles of SCM approaches
Why is this relevant? Figure 2 shows the results of an implementation study which has been conducted in Denmark (Friis et al. 2004).
Figure 2: Results of the SCM-implementation Performance index for Danish business organizations
It shows that the overall performance level of SCM implementation within Danish business organizations can be evaluated as being medium as all performance indices are in a range between 39 and 57. There is still room for improvement when it comes to SCM putting into place.
Due to phenomena's such as globalization and advancements technologies the world has dissolved its boundaries and physical barriers. Current market customers also hold high expectations and demand better and faster services. Companies on the other side are facing several risks due to these increasing demands and volatile environment. Companies realize that the earlier styles and methods of working will not let them sustains today's competition and they have to expand their boundaries. New innovations in the strategical and technological aspects of SCM have a substantial impact on how business will procure and sell in near future. Strong planning and planned vision technical insight into the Internet's capabilities are required in order to completely optimize the internet's and IT's potential for the business and its supply chain management to gain an competitive advantage. for would be necessary to ensure that companies maximize the Internet's potential for better supply chain management and ultimately improved competitiveness. Companies must understand the importance of collaborating with their business partners also in order to best and cost effective methods for product delivery storage.