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Supply chain management (SCM) is the management of the flow of goods. It includes the
movement and storage of raw materials, work-in-process inventory, and finished goods from
point of origin to point of consumption. Interconnected or interlinked networks, channels and
node businesses are involved in the provision of products and services required by end
customers in a supply chain.] Supply chain management has been defined as the "design,
planning, execution, control, and monitoring of supply chain activities with the objective of
creating net value, building a competitive infrastructure, leveraging worldwide logistics,
synchronizing supply with demand and measuring performance globally."
SCM draws heavily from the areas of operations management, logistics, procurement,
and information technology, and strives for an integrated approach.

What is Supply Chain Management?

The concept of Supply Chain Management is based on two core ideas. The first is that
practically every product that reaches an end user represents the cumulative effort of multiple
organizations. These organizations are referred to collectively as the supply chain.
The second idea is that while supply chains have existed for a long time, most organizations
have only paid attention to what was happening within their “four walls.” Few businesses
understood, much less managed, the entire chain of activities that ultimately delivered
products to the final customer. The result was disjointed and often ineffective supply chains.
Supply chain management, then, is the active management of supply chain activities to
maximize customer value and achieve a sustainable competitive advantage. It represents a
conscious effort by the supply chain firms to develop and run supply chains in the most
effective & efficient ways possible. Supply chain activities cover everything from product
development, sourcing, production, and logistics, as well as the information systems needed to
coordinate these activities.
The organizations that make up the supply chain are “linked” together through physical flows
and information flows. Physical flows involve the transformation, movement, and storage of
goods and materials. They are the most visible piece of the supply chain. But just as important
are information flows. Information flows allow the various supply chain partners to coordinate
their long-term plans, and to control the day-to-day flow of goods and material up and down
the supply chain.
 Why Do You Need To Know About Supply Chain Management
(SCM)?
Supply chain management is as much a philosophical approach as it is a body of tools and
techniques, and typically requires a great deal of interaction and trust between companies to
work. For right now, however, let’s talk about three major developments that have
brought SCM to the forefront of management’s attention.
 The information revolution
 Increased competition and globalization in today’s markets
 Relationship management

The Information Revolution

In the early 1960s when computers were first developed, a mainframe computer filled an
entire room. With the development of the integrated circuit, the cost and speed of computer
power increased exponentially. Today, a laptop computer exceeds the storage and computing
capacity of mainframe computers made only 15 years ago. With the emergence of the
personal computer, optical fiber networks, and the Internet, the cost and availability of
information resources allows easy linkages and eliminates information-related time delays in
any supply chain network. Wal-Mart’s ability to send daily sales information to its suppliers is
just one example.
Organizations are moving towards a concept known as electronic commerce, where
information transactions are automatically completed via Electronic Data Interchange (EDI),
Electronic Funds Transfer (EFT), Point of Sale (POS) devices, and a variety of other approaches.
The late 1990s and early 2000s saw the emergence of on-line “trading communities” that put
thousands of buyers and sellers in touch with one another . Ariba is just one example of a
business-to-business (B2B) exchange.) The old “paper”-type transactions are becoming
increasingly obsolete. At the same time, the proliferation of new telecommunications and
computer technology has made instantaneous communications a reality. Such information
systems — like Wal-Mart’s satellite network — can link together suppliers, manufacturers,
distributors, retail outlets, and ultimately, customers, regardless of location.

Increased Competition and Globalization

The second major trend is increased competition and globalization of businesses. The rate of
change in markets, products, and technology is increasing, leading to situations where
managers must make decisions on shorter notice, with less information, and with higher
penalty costs. New competitors are entering into markets that have traditionally been
dominated by “domestic” firms. At the same time, customers are demanding quicker delivery,
state-of-the-art technology, and products and services better-suited to their individual needs.
In some industries, product life cycles are shrinking from years to a matter of two or three
months. One management guru even compared current global markets to the fashion
industry, in which products go in and out of style with the season.
Despite the imposing challenges of today’s competitive environment, some organizations are
thriving. These firms have embraced the changes facing today’s markets, and have put a
renewed emphasis on improving their operations and, in particular, supply chain performance.
For instance, Johnson Controls can now receive an order for seats from a Ford assembly plant,
make the seats, and deliver the order — all within four hours. This requires incredibly flexible
operations within Johnson’s own manufacturing systems, as well as dependable information
links with its supply chain partners.
To survive, many firms today find that they must increase market share on a global basis and
be on the “ground floor” of rapid global economic expansion. Simultaneously, these firms must
vigorously defend their domestic market share from a host of “world class” international
competitors. To meet this challenge, managers are seeking to find ways to rapidly expand their
global presence. They must position inventories so products are available when customers
(regardless of location) want them, in the right quantity, and for the right price. This level of
performance is a constant challenge to organizations, and can only occur when all parties in a
supply chain are “on the same wavelength”.

Relationship Management
The information revolution has given companies a wide range of technologies for better
managing their operations and supply chains. Furthermore, increasing customer demands and
global competition have given firms the incentive to improve these areas. But this is not
enough. Any efforts to improve operations and supply chain performance are likely to be
inconsequential without the cooperation of other firms. As a result, more companies are
putting an emphasis on relationship management.
Of all the activities operations and supply chain managers perform, relationship management
is perhaps the most difficult, and is therefore the most susceptible to break down. A poor
relationship within any link of the supply chain can have disastrous consequences for all other
supply chain members. For example, an unreliable supplier can virtually cripple a plant, leading
to inflated lead times and resulting in problems across the chain, all the way to the final
customer.
To avoid such problems, firms must manage the relationships with their upstream suppliers as
well as their downstream customers. In many American industries, strong supply chain
relationships like those found Japan might not develop readily. Firms are often geographically
distant, and there are not as many small, family-owned suppliers as in Japan. In the case of
high-tech firms, many components may be sole-sourced from overseas suppliers who are
proprietary owners of the required technology. In such environments, it becomes more
important to choose a few, select suppliers, thereby paving the way for informal interaction
and information sharing.

Importance

Organizations increasingly find that they must rely on effective supply chains, or networks, to
compete in the global market and networked economy.[17] In Peter Drucker's (1998) new
management paradigms, this concept of business relationships extends beyond traditional
enterprise boundaries and seeks to organize entire business processes throughout a value
chain of multiple companies.

In recent decades, globalization, outsourcing, and information technology have enabled many
organizations, such as Dell and Hewlett Packard, to successfully operate collaborative supply
networks in which each specialized business partner focuses on only a few key strategic
activities (Scott, 1993). This inter-organisational supply network can be acknowledged as a new
form of organisation. However, with the complicated interactions among the players, the
network structure fits neither "market" nor "hierarchy" categories (Powell, 1990). It is not
clear what kind of performance impacts different supply network structures could have on
firms, and little is known about the coordination conditions and trade-offs that may exist
among the players. From a systems perspective, a complex network structure can be
decomposed into individual component firms (Zhang and Dilts, 2004). Traditionally, companies
in a supply network concentrate on the inputs and outputs of the processes, with little concern
for the internal management working of other individual players. Therefore, the choice of an
internal management control structure is known to impact local firm performance (Mintzberg,
1979).
In the 21st century, changes in the business environment have contributed to the
development of supply chain networks. First, as an outcome of globalization and the
proliferation of multinational companies, joint ventures, strategic alliances, and business
partnerships, significant success factors were identified, complementing the earlier "just-in-
time", lean manufacturing, and agile manufacturing practices.[18] Second, technological
changes, particularly the dramatic fall in communication costs (a significant component of
transaction costs), have led to changes in coordination among the members of the supply
chain network (Coase, 1998).

Many researchers have recognized supply network structures as a new organisational form,
using terms such as "Keiretsu", "Extended Enterprise", "Virtual Corporation", "Global
Production Network", and "Next Generation Manufacturing System".[19] In general, such a
structure can be defined as "a group of semi-independent organisations, each with their
capabilities, which collaborate in ever-changing constellations to serve one or more markets in
order to achieve some business goal specific to that collaboration" (Akkermans, 2001).

Supply chain management is also important for organizational learning. Firms with
geographically more extensive supply chains connecting diverse trading cliques tend to
become more innovative and productive.[20]

The security management system for supply chains is described in ISO/IEC 28000 and ISO/IEC
28001 and related standards published jointly by the ISO and the IEC.Supply Chain
Management draws heavily from the areas of operations management, logistics, procurement,
and information technology, and strives for an integrated approach.

Historical developments
Specialization era (phase I): outsourced manufacturing and distribution

In the 1990s, companies began to focus on "core competencies" and specialization. They
abandoned vertical integration, sold off non-core operations, and outsourced those functions
to other companies. This changed management requirements, by extending the supply chain
beyond the company walls and distributing management across specialized supply chain
partnerships.

This transition also refocused the fundamental perspectives of each organization. Original
equipment manufacturers (OEMs) became brand owners that required visibility deep into their
supply base. They had to control the entire supply chain from above, instead of from within.
Contract manufacturers had to manage bills of material with different part-numbering
schemes from multiple OEMs and support customer requests for work-in-process visibility and
vendor-managed inventory (VMI).

The specialization model creates manufacturing and distribution networks composed of

several individual supply chains specific to producers, suppliers, and customers that work
together to design, manufacture, distribute, market, sell, and service a product. This set of
partners may change according to a given market, region, or channel, resulting in a
proliferation of trading partner environments, each with its own unique characteristics and
demands.

Specialization era (phase II): supply chain management as a service

Specialization within the supply chain began in the 1980s with the inception of transportation
brokerages, warehouse management (storage and inventory), and non-asset-based carriers,
and has matured beyond transportation and logistics into aspects of supply planning,
collaboration, execution, and performance management.

Market forces sometimes demand rapid changes from suppliers, logistics providers, locations,
or customers in their role as components of supply chain networks. This variability has
significant effects on supply chain infrastructure, from the foundation layers of establishing
and managing electronic communication between trading partners, to more complex
requirements such as the configuration of processes and work flows that are essential to the
management of the network itself.

Supply chain specialization enables companies to improve their overall competencies in the
same way that outsourced manufacturing and distribution has done; it allows them to focus on
their core competencies and assemble networks of specific, best-in-class partners to
contribute to the overall value chain itself, thereby increasing overall performance and
efficiency. The ability to quickly obtain and deploy this domain-specific supply chain expertise
without developing and maintaining an entirely unique and complex competency in house is a
leading reason why supply chain specialization is gaining popularity.

Outsourced technology hosting for supply chain solutions debuted in the late 1990s and has
taken root primarily in transportation and collaboration categories. This has progressed from
the application service provider (ASP) model from roughly 1998 through 2003, to the on-
demand model from approximately 2003 through 2006, to the software as a service (SaaS)
model currently in focus today.

Supply chain management 2.0 (SCM 2.0)

Building on globalization and specialization, the term "SCM 2.0" has been coined to describe
both changes within supply chains themselves as well as the evolution of processes, methods,
and tools to manage them in this new "era". The growing popularity of collaborative platforms
is highlighted by the rise of TradeCard's supply chain collaboration platform, which connects
multiple buyers and suppliers with financial institutions, enabling them to conduct automated
supply-chain finance transactions.

Web 2.0 is a trend in the use of the World Wide Web that is meant to increase creativity,
information sharing, and collaboration among users. At its core, the common attribute of Web
2.0 is to help navigate the vast information available on the Web in order to find what is being
bought. It is the notion of a usable pathway. SCM 2.0 replicates this notion in supply chain
operations. It is the pathway to SCM results, a combination of processes, methodologies, tools,
and delivery options to guide companies to their results quickly as the complexity and speed of
the supply chain increase due to global competition; rapid price fluctuations; changing oil
prices; short product life cycles; expanded specialization; near-, far-, and off-shoring; and
talent scarcity.