Chapter 10 > Extending the organization – supply chain management

·      A supply chain consists of all parties involved, directly or indirectly, in the procurement of a product or raw material.

·      Supply chain management (SCM) involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability.

·      The supply chain has three main links:

1.    Material flow from suppliers and their upstream suppliers at all levels.

2.    Transformation of materials into semi-finished and finished products, or the organization’s own production processes

3.    Distribution of products to customers and their downstream customers at all levels.

The five basic supply chain management activities

1.    Plans – prepare to manage all resources required to meet demand

2.    Sources – build relationships with suppliers to procure raw materials

3.    Make – manufacture products and create production schedules

4.    Deliver – plan for transportation of goods to customers

5.    Returns – support customers and product returns

Information technology’s role in the supply chain

·      Information technology’s primary role in SCM is creating the integrations or tight process and information linkages between functions within a firms and between firms, which allow the smooth, synchronized flow of both information and product between customers, suppliers, and transportation providers. Information technology also integrates planning, decisions-making processes, business operating processes and information sharing for business performance management.

FACTOR DRIVING SUPPLY CHAIN MANAGEMENT

1.    VISIBILITY

                                               ·     ∫supply chain visibility is the ability to view all areas up and down the supply chain.

2.    CONSUMER BEHAVIOR

                                               ·     Demand planning software generates demand forecasts using statistical tools and forecasting technique.

3.    COMPETITION

                                               ·     Supply chain management software can be broken into supply chain planning software and supply chain execution software-both increase a company’s ability to compete. Supply chain planning software uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain while reducing inventory. Supply chain execution software automates the different steps and stages of the supply chain. This could be as simple as electronically routing orders from a manufacturer to a supplier.

4.    SPEED

                                               ·     New forms of serves, telecommunications, wireless application, and software are enabling companies to perform activities that were once never thought possible. These systems raise accuracy, frequency, and speed of communication between suppliers and customers, as well as between internal users.

Factor fostering supply chain speed

A.   Pleasing customers has become something of corporate obsession. Serving the customer in the best, most efficient, and most effective manner has become critical, and information about issues such as order status, product availability, delivery schedules, and invoices has become a necessary part of the total customer service experience.

B.   Information is crucial to manager’s abilities to reduce inventory and human resource requirements to a competitive level.

C.    Information flows are essential to strategic planning for and deployment of resources.

Seven principles of supply chain management

1. Segment customers by service needs, regardless of industry, and then tailor services to those particular segments.

2. Customize the logistic network and focus intensively on the service requirements and on the profitability of the preidentified customer segments.

3. Listen to signals of market demand and play accordingly. Planning must span the entire chain to detect signals of changing demand.

4.Differentiate product closer to the customer, since companies can no longer afford to hold inventory to compensate for poor demand forecasting.

5.  Strategically manage sources of supply, by working with key suppliers to reduce overall costs of owning materials and services.

6. Develop a supply chain information technology strategy that supports different levels of decisions making and provides a clear view (visibility) of the flow of products, services, and information.

7.  Adopt performance evaluation measures that apply to every link in the supply chain and measure true profitability at every stage.