What is Supply Chain Management?

By Israr K.Raja
Supply is providing goods and services to the final users when these are required and afforded
by them with an acceptable quality, competitive price, at an accessible location.
To achieve these objectives of supplying, the businesses have to perform several interconnected
steps in a particular order. All these interrelated operations create a chain of actions to fulfill the
objective of supply that is providing goods and services to the end users. For this reason we
called it Supply Chain, in other words, this is a chain which matches the supply according to the
demand of goods and services, and managing all these steps in an efficient and effective way is
called Supply Chain Management.
Now let’s define a formal definition of Supply Chain Management, it is the process of managing
the movement of goods and services to end users from suppliers in shape of raw material to
finished goods in a very efficient and effective way. These all chained activities are glued by
information technology and wheeled by money.
Another simple way to explain the SCM is through Fish Bone Model, Fish Model in Supply Chain
is Bringing scattered Resources together from Suppliers to our facilities which is the tail of the
Fish... which help us to swim...then transform these resources through Operations into product or
service those are required by our customers , this part is the main body of the fish and then send
these product and services to the segment of our customers which the nose of the fish
The main ingredients of supply chain are location, production, inventory, transportation, and
glued by information and greased by cash which are sometimes called cross- functional
ingredients of supply chain.
There are various functions in supply chain management, here some of the main functions of
Supply chain management are, Sourcing, Negotiating, Contracting, purchasing, transportation,
logistics, product designing and development, production, controlling inventory, warehousing,
and distribution and customers relationships.
These are the functions every business does, for this reason some time, we called SCM is equal
to business and no doubt businesses are doing all these functions since centuries, the only
difference is that now these activities are done in a collaborative and coordinated way in the total
chain which includes not only the business itself but other organizations related to the business,
like suppliers, suppliers’ suppliers, which are called upstream and distributors, retailers and
customers, which are called downstream.
For managing Supply Chain more effectively, Supply Chain Managers usually divide the Supply
Chain into three operational areas, one is upstream which includes sourcing, purchasing and
procurement, negotiating, ordering and inbound transportation and logistics, and collectively it is
covered under Suppliers Relationship Management (SRM), the second one in the downstream
which includes setting up distribution network, order fulfilment, and out bound transportation and
logistics, and this comes under the Customers Relationship management (CRM), and the last
one middle stream , which is inside of the organization which deals with receiving, warehousing,
material management, manufacturing scheduling, product development and designing. All these
three streams are connecting through information technology, which creates a clarity and
visibility in the supply chain from one end to another end.
Presently many businesses use Supply Chain as a strategy to have the competitive advantage
over their competitors, this is due to cut throat competition, businesses are becoming more and
more customers or market oriented instead of production oriented, and so supply chain strategy
is the only vehicle suited to satisfy the customers by providing best quality and quick response.
Let’s now talk about the different functions of the Supply Chain management, and start from the
Sourcing,
A simple definition of sourcing, it is to find the source of the product which could be raw material,
a component/part, a semi-finished product or finished good. So this function of Supply Chain
could be performed at every stage of chain. Most of the organization have the sourcing
department headed by Sourcer, who has expertise of the product as well as have all the
information about suppliers and the market locally and globally, His main responsibility is supplier
relationship management including finding best and least-expensive supplier, selecting,
evaluating, classification and engaging of suppliers and vendor development. Basically source
person is the connection between the suppliers and the business and connect the suppliers with
the business.
In some organization the sourcing and purchasing is done by the same person or the department
but the larger organizations or where the product is highly specified, sourcing and purchasing
could be done by separate departments, it also help for better control and quality and
negotiation, and if there are more than one suppliers, then purchase department will make the
final decision. Another major decision in sourcing is to decide whether to buy locally or globally
and develop the sourcing strategy to optimize the value of the supply chain.
Vendor Development is a process in which you work with the upstream segment of the supply
chain to improve the value of your supply chain. This is the part of Supply Chain management in
which you not only managing your internal processes of SC but also try to develop your vendors.
It is a major and strategic part of Suppliers Relationship Management.
Vendor Development is also defined as any activity by buyers of helping vendor to improve its
performance and capabilities regarding designing, product development, costing, quality and
logistics.
In simple language, Vendor development is developing your product/product parts/unfinished
product from vendor(S) for the betterment of the business from aspects like finance, growth,
relationship, manufacturing and supply chain.
Following are the factors you have consider before deciding to develop a vendor.
Quantity is required to be purchased
Availability of the Material in the market
Buying patterns, regular and occasionally buying
Time Availability for getting the material
Economic Viability of the material,
Future Potential of the suppliers
Creditability of the suppliers-Relationship
Location of the Suppliers
Process of Vendor Development:-
Survey: - information on potential vendors
Enquiry: - detailed analysis of supplier’s activities furnished by vendors or collected by the
company.
Compliance, Technical, manufacturing, human resource and Financial capabilities,
responsiveness, reputation of the vendor.
Negotiation & selection: - finalization of vendors
Experience & Evaluation: - Evaluating and appraising the performance and identification of area
to improve the performance of vendors in which they are deficient.
Another issue with vendors is to make that they follow all the compliances.
Compliance is very important issues in SC . . . . Particularly Global SC . . . . First of you have to
convince your vendors the importance of compliance and consequences of noncompliance. .then
detail communication and training about compliances until you both are on same page. .then
implementation and monitoring of compliance same as quality assurance. .then feedback. .and a
chargeback in case of noncompliance.
Role of Suppliers in New Products Development. ..Your first tire suppliers have an important role
in NPD. .by providing ideas of improvement in the product. .providing materials and technology
for NPD. ..Allowing their facilities to make prototype products. ..All these services could be
provided by the suppliers those are very close to you and have long relationships with you. I
have practical experience of collaboration of our suppliers in NPD and collaboration helps us
throughout the life cycle of the product. .it also helps us to reduce the cost of NPD and overall
cost of products and it is all win-win situation for whole supply chain. .
Distribution Channels:-
Distribution Channels are basically paths through which your products reach to the end
customers. The purpose of distribution channels is to make the product available to customers at
right time. Right price. .in right quantity and at acceptable quality.. .it is a major and important
part of the supply chain. .usually called downstream. .and designing an efficient and effective
distribution network is another function of Supply Chain management. ..And there many factors
and variables determined the best channels of distribution network.
There are many huge businesses whose only job is to distribute the goods from manufacturers to
retailers. .and another strategic decision in distribution is to own the distribution network or
outsource. .Each has its own advantages and disadvantages. .Some business are vertically
integrated. .means whole SC is owned and operated by same company. .
Benefits of Demand Forecasting in Supply Chain Management:-
With a more accurate Demand Forecasting we can improve the efficiency and effectiveness of
the functions of the Supply chain management from upstream to Middle stream and from middle
stream to downstream. .
1- Improve the sourcing. Since you are surer what are you looking for? .quality. .Quantity and
timing
2- Improve the negotiations power with vendors...in pricing. ..Quality and delivery time.
3- Better warehouse management and utilization of your space through better scheduling of
inbound and outbound traffic.
4- Improvement in production scheduling to make it more efficient and responsive.
5- Better inventory management through managing less out of stock or extra inventory issues in
the pipe line at all levels of supply chain.
6- Better shipping scheduling and saving in transportation costs.
7- Improve Customer service at B2B and B2C levels by having a smooth and responsive supply
Chain.
For an integrative demand forecasting and timely fulfilment of demand, we use CPFR model
which is a process of collaborative planning among all partners of SC to do demand forecasting
and keep the total supply pipe updated and replenished to serve the customers at all levels in an
integrative way. .
One of the major characteristics of supply chain managers is entrepreneurship; they have to look
beyond their job sphere and care and consider every activity and everyone in the business and
the outside partners as well.... which sometimes look like leadership and parental characteristics
Managing inventory through the whole pipeline of supply is very vital for the success of the
business.
Keeping appropriate inventory is the most complex challenge for every organization. ..And in
business we always stay very vigilant about our inventories. .There are several inventory models
and software have been developed to control the jinni of inventory but we still have not managed
this according to our wishes. .rapid changes in the taste of consumers which resulted in shorter
product life cycle and managers have not enough data to forecast demand and accordingly
manage their supply. On the other hand customers are becoming so demanding that they want
the product of their choice right away. ..At a very competitive price. ..These are the challenges of
supply chain managers. .to fulfill the customers demand very efficiently and effectively. .and
inventory management is one of the keys to achieve this.
One of the strategies to have maximum efficiency in inventory management is the just in time
inventory model.
For just in time, you need a perfect coordination with your suppliers and customers...you have to
start with a very close to perfect sales forecast... production scheduling.. Materials requirements.
Shipping scheduling. To sync inbound and outbound.. a very high visibility of Supply Chain.
Coordinated with suppliers...The ultimate object of JIT inventory mean zero inventory...it also
vendors managed inventory. In this model... your inventory is managed by your vendors.
Suppliers.
(Continued)