Introduction
Supply chain management (SCM) utilises science and art in its set-up. It also works to improve process of acquiring raw materials. Additionally, it makes and transports products to consumers. SCM has five basic components, which enables it to improve efficiency in companies.
These include plan, source, make, transport and return. These components of SCM ensure that product chain is managed efficiently. The need for efficiency has also incorporated use of SCM applications. Consequently, each of the named components has its software. This paper will explore SCM (Handfield, 2011).
Supply Chain Management (SCM)
As stated earlier, SCM involves strategic chain of events that begin by acquisition of raw materials and ends when the product is delivered to the consumer. In most cases, these processes are tedious because of the complexities involved.
It is therefore necessary that companies exercise efficiency in SCM. It should also be noted that companies have invested large amounts of resources to improve their supply chain. Management of supply chain is therefore very significant in any business. Efficient supply chain management saves on cost and increases profits.
Additionally, it improves product quality and reduces time spent on products, which effectively cuts on cost. The current market dynamics are quite challenging for businesses. In fact, market dynamics has seen tremendous growth in competition as well as advancement of technology. This has forced companies to resort to new technological mechanisms of managing supply chain. Supply chain is therefore an integral part of company activities.
Definition
SCM can be defined as the management of network of events that begin in acquisition of raw materials and ends in delivery of finished goods or services to customers. In essence, it can refer to the processes involved in acquiring, making and delivering goods or services to customers.
Additionally, it can also refer to the management of linked channels that provide goods and services that are required by consumers in the chain of supply. Furthermore, it refers to the supervision, planning, designing, control and execution of activities in supply chain. The main aim of SCM is to promote product or service value, measure performance, link supply to demand, provide global logistics and establish competitive infrastructures (Wailgum, 2008).
Origin and History of SCM
Keith Oliver coined the term SCM in 1982. He quoted it in an Interview with Financial times. However, the term did not take hold immediately. In fact, it was mentioned again in the mid 1990s when numerous books and articles were written on it. Since then, it has gained prominence. In the process, prominent people, including operations managers to describe their competencies, have utilised it.
During its long period of development, SCM has had numerous definitions, which has been refined in each period. Some of the definitions that were used during its development include management of downstream as well as upstream flow of materials that are value added. Additionally, it referred to the management of information among stakeholders in supply chain as well as management of final products or services. It also involved study of traditional functions of businesses as well as strategies through systematic review in supply chain.
These were aimed at promoting lasting performance of both companies and supply chain. Moreover, CSCMP argues that, SCM involves the entire processes to achieve efficiency. SCM also involves collaboration as well as coordination of chain stakeholders such as customers, intermediaries, service providers as well as suppliers.
SCM, therefore, works to integrate all tools of management like supply and demand. However, it should be noted that supply chain is different from supply chain management. While the former refers to a chain of organisations, which are linked at least one downstream or upstream flow of information, product or services, among others from raw materials to the consumer, the latter manages the former. Supply chain also includes use of supply chain software.
The software encompasses tool utilised to execute transactions of supply chain. Additionally, the software controls linked business processes as well as manage relationship between suppliers along with other stakeholders (CSCMP, 2013).
Major Historical developments in SCM
SCM has encountered six main developments. These include SCM 2.0, specialisation phase I, specialisation phase II, integration, creation and globalisation eras.
Creation era can be traced to the time of Keith Oliver who coined the term SCM. This happened in 1982. Nonetheless, it should be noted that SCM played an important role way back before the term was coined. This was evidenced when assembly line was created in the 20th century. Creation period was signified through reduction in magnitude and the call for changes in administration practices.
The second era that followed was the integration era. This era was characterised by technological developments. It brought about the creation of EDI systems in the 1960s as well as the establishment of modern systems like the ERP systems. It was also characterised by cost reduction efforts and value addition. The era continued into the 21st century. It should also be noted that saw growth in internet-based systems (Haag, Cummings, McCubbrey, Pinsonneault & Donovan, 2006).
The third era that followed was the globalisation era. This era emphasised on global systems this encompassed relationship between suppliers as well as continental expansion of supply chain. However, this era in supply chain had been done much earlier in other sectors like oil industry.
Nonetheless, other businesses intensified its utilisation in the 1990s. This led to integration of global sources in supply chain. It should be noted that this era was characterised by cost reduction, value addition and competitive advantage. The fourth era in this development was the first phase of specialisation era.
This face outsourced distribution and manufacturing. Most businesses focused on specialisation in order to achieve competitive advantage. In the process, they dumped vertical integration. They also outsourced functions of noncore operations. In essence, they majored on core operations. In this period, brand owners required recognition in supply chain. For instance, OEMs wanted visibility in supply base. This created distribution networks, which increased specialisation.
The second phase, which is also known as the second specialisation era, integrated supply chain management as an independent service. This brought about warehouse management, logistics, collaboration and planning, among others. The helped companies to withstand rapid changes are necessitated by demand.
This era was characterised by the need to increase competencies. Moreover, it enabled companies to focus on core competencies. This has moved outsourced technology from ASP to SaaS models. The latter is still used in supply chain management. The last category of eras in management of supply chain is the SCM 2.0. This term was coined to integrate new methods of managing supply chain processes.
This system has brought with it new collaborative platforms utilised by companies such as TradeCard, among others. Moreover, it allows for increased creativity and collaboration as well as sharing of information among stakeholders. SCM 2.0 delivers results rapidly; it is also flexible and promotes business outsourcing. It also allows for no-touch, mid-touch and high-touch models.
Issues addressed by SCM
SCM addresses many issues. For instance, it addresses distribution strategies network configurations. This spans through all stakeholders ranging from suppliers to consumers. Moreover, distribution strategies addresses problems of delivery scheme, transportation mode, control of operations and control of transport, among others.
SCM also addresses problems that concerns information, which includes sharing of data that pertains to record, among other areas. Additionally, SCM addresses issues in logistical activities namely, tradeoffs, among others. Moreover, it provides methodologies of controlling cash flow in supply chain. In this regard, funds can be exchanged through controlled networks, which help in aiding payment issues.
SCM has the function of managing inventory. This also addresses issues surrounding inventory management. It therefore controls movement of information and materials through the chain. It also gives updated analytical systems utilised to this flow. It is also necessary to note that SCM is bi-directional concerning flow of materials or information.
Functions of SCM
SCM performs numerous functions or activities. These include management of raw materials once they are acquired, management of manufacturing processes, and management of delivery to the company’s customers. In the process, SCM performs various complex tasks aimed at achieving efficiency and timely delivery of goods or services.
Its approach can be termed as cross-functional, since it encompasses numerous processes from the raw materials to delivery. Because organisations try to emphasise in core competencies and to be flexible, SCM works to enable them to achieve flexibility and competence in the fastest and efficient way.
Organisations, therefore, outsource various functions to other companies, which are specialised in that area and cost effective. In essence, SCM works to increase the number of firms drawn in to satisfy customer needs. Moreover, SCM works to reduce operational logistics involved in daily running of activities. Due to the collaboration numerous firms to satisfy customer needs, SCM has a function of promoting collaboration and trust among partners.
Significance of SCM
Because of numerous complexities involved in business management, organisations have placed more focus on instituting credible supply management systems.
Furthermore, in order for such companies to compete effectively in an increasingly dynamic global market, they need a reliable SCM system. In essence, SCM play an important role in increasing competencies in businesses. Additionally, specialisation increases quality of products or services delivered to customers. It is also necessary to note that SCM aids in fast delivery of products or services to customers.
Besides, it ensures that products made or services provided are adapted to consumer requirements. SCM has played a significant role in increasing velocity of the inventory. It has also modernised inventory management, which can now be accessed on a common platform. SCM has been central to collaboration efforts between associated partners. In addition, it has increased trust and dynamism in supply chain. No wonder, it has become the focus of business management.
Business process integration
Supply chain can be done individually or through integration of activities. However, going by the amount f processes to be monitored, SCM requires change from the former to the latter. For instance, markets make efforts to know consumer needs through communication with retailers and distributors. In essence, integration process must be utilised to achieve company goal. Essentially, it requires teamwork between suppliers and buyers. This ensures that products are tailored to the latter’s need.
Moreover, information is shared between them in common systems for an inclusive product development process. To achieve integration, information must flow continuously. Supply chain processes involved in integration include returns management, order fulfilment, customer service, manufacturing flow, product development, product commercialisation, demand management and customer relationship, among others.
Other processes that have been suggested in this section include procurement, outsourcing, performance and warehousing management. In essence, these processes must be integrated in a common system to enable business to achieve SCM goals.
Customer service process involves exploration of the relationship between customers and the organisation. It ensures that the organisation receive real time information on customer needs. This ensures that customer rapport is maintained and positive feeling is ensured between the two stakeholders.
Procurement process also works to ensure smooth delivery of raw materials to the company. Moreover, global companies are also able to source their materials globally whenever required. Product development is another process, which is integrated in supply chain. It ensures that the company fulfils the needs of customer concerning product development. Other processes include distribution of goods or services to consumers.
This process works to link marketing routes to consumers. On the other hand, outsourcing ensures that cost reduction efforts are achieved in manufacturing of goods. Moreover, the company is able to measure performance through performance measurement process. This assists in monitoring of supply chain activities. Besides, business process integration helps companies to manage their warehousing systems from a common platform, which again enhances inventory management.
SCM Theories
Various theorists such as Lavassani, Hult and Ketchen, among others, have tried to give information on fundamental theories concerning different fields in supply chain. Notably, they have employed organisational theories to achieve this feat.
Among the theories proposed, include agency, institutional, strategic choice, systems, customer relationship management, time based competition, and agile manufacturing theories. Still others include just in time, SCM share, PIPS, PIRMS, TOC, MLM, RCM, NP, and ATP theories, among others. However, it is important that these theories are m=not directly linked to supply chain although they give information on processes involved in SCM.
For instance, some theories give information on relationship between supplier and buyer, which affects customer relationship management in SCM. It should also be noted that theories such as relational review provides theories on networks and dyads to outline successful firm performance. Therefore, majority of the theories postulated try to define various integrated processes of SCM (SCMR, 2013).
Components of SCM
As mentioned earlier, SCM has five main components. These are plan, source, make, deliver and return. The first component (plan) is sometimes referred to as a strategic potion because it involves layout of metrics aimed at monitoring supply chain. Additionally, it ensures that supply chain is provides quality products as well as increase value of products to customers.
Essentially, it is a strategic plan that manages resources aimed at meeting consumer needs. The next component of SCM is known as source. Companies are tasked with the responsibility of choosing suppliers that bring raw materials. Sourcing component ensures that managers along with their strategic staff set pricing, payment and delivery channels.
Moreover, they should develop metrics aimed at improving as well as monitoring relationships. Source component also helps managers to manage inventory of raw materials acquired from suppliers. Thus, sourcing involves tedious activities, which must be integrated in SCM to process successfully.
The next component of SCM is make, which involves production or manufacturing. At this stage, raw materials are converted into finished products with consideration for customer needs. The processes involved in this section include manufacturing and testing of the products. Additionally, it includes activities such as packing, among others, which are aimed at preparing the product for delivery to customers.
The next component is known as deliver, this component is sometimes known as logistics. It involves the process of arranging and delivering orders made by customers. It also involves integration of networked warehouses as well as carriers, which transport the products to customers.
Additionally, this component enables companies to establish modalities of receiving payments such as invoice, among others. The last component of SCM is known as return. This component deals with defective as well as excess goods or services. It is necessary that companies establish flexible and responsive networks for receiving faulty products from customers. However, it should be noted that this component has posed various challenges to companies.
The Concept of Centroids in SCM
Over the years, Centroids have been noted as a significant concept in SCM. This concept targets areas of high density or populations. For instance, in the United States, centroid is positioned in Dayton. This centroid serves about 60percent of Canada’s population as well as another 60percent of the United States’ population.
A centroid usually targets populations that represent a country. It covers areas of up to 500 miles. Centroids usually target the busiest parts of the world. Moreover, they target areas that show the heist interchange ration. This is evident in Dayton where the interchange rate is about 1-70, which is only second to the one at California. Additionally, centroids are usually placed near population centres.
For instance, Dayton s the population centre for both United States and Canada. It is also estimated that this region sees more than 150000 vehicles per day. Moreover, about 35percent of the vehicles passing each day are trucks, which haul goods. In essence, choosing a centroid is significant to managers in SCM because it provides real time information on customer needs (SCC, 2013).
Tax efficient SCM
Supply chain is a global process. Therefore, its management is also executed across the globe. However, it is necessary to note that different countries have varying tax policies.
That is, some countries offer lower tax than other countries. Supply chain management should therefore be tailored to achieve lower tax rates than in alternative financial processes. This would help solidify it and improve its benefits to both customers and companies. Tax efficient SCM is recommended, therefore, in SCM models because it serves the purpose of cost reduction.
To achieve this, tax effect should be designed and implemented in SCM with close consideration for optimised profits as well as optimised quality of product or service. It should be noted that cross-national trade and globalisation have been fore front in soaring tax rates. However, by considering the benefits of tax efficiency, companies should work to integrate it in SCM. In essence, tax efficient SCM would be beneficial to companies since it would consolidate their funds as well as minimise cost.
Sustainability of SCM
Supply chain is normally quantified by use of SECH model of ratings. This model involves use of social, economic and environmental factors of supply chain. It is therefore necessary that supply chain channels be sustained for businesses to keep benefiting from its functions. SECH ratings involve use of four footprints.
These are categorised to emphasize on environmental factors, among others. These ratings ensure that companies focus on the four factors in product acquisition, design, manufacturing and delivery. This is increasingly dominant since more than 70percent of carbon footprints come from supply chains. This has forced companies to consider other ways, which can assist minimizing these footprints.
In 2010, some companies were asked to conduct audits on carbon footprint through third party auditors. This shows the responsibility that has been placed on companies to be sustainable. Sustaining SCM requires complete audit of firms to establish their performance. However, it should be noted that despite efforts made to protect consumers as well as the four footprints of SECC, sustainability of SCM has been quite challenging.
Value of SCM
Constructions of these schemes are usually done with focus on product value. This ensures that extra revenue is generated on top of the cost of putting up the network. Usually, value is related to the customer who utilises the product. Moreover, he pays for the product with value in mind.
That is, value should not be considered on the party of producers only, but also on the part of consumer. However, this has caused various debates on modalities of establishing value-measuring models. Additionally centralisation of tasks such as data sharing and product creation assists in promoting inclusive involvement of partners. However, it is highly challenging. Therefore, measurement of value should encompass customer feedbacks to create confidence in value systems.
Certification in SCM
Various associations around the world have worked on significant certification systems, which assists in increasing staff capacity. These include global associations like ISM, APICs, AST & L, ISCEA, and IOSCM. Moreover, there are other organisational like CSCP, CPSM, and CSCM, among others. These organisations work to establish common standards and practices of SCM in each of the processes mentioned earlier.
These certifications emphasise on different processes. In addition, they combine some processes in their certifications. For instance, ISM certifies staff on CPM (certified purchasing manager). This line deals more with procurement activities than sourcing. Moreover, it also emphasise on inventory management as well as transportation, among others. Notably, these certifications do not leave other processes out entirely.
For instance, in CPM, there is some work on warehousing, network design and lot sizing, among others. Consequently, it can be noted that these institutes offer various certifications aimed at developing specific areas of SCM. Therefore, these certifications are essential in maintaining high standards and common platforms for SCM partners. Moreover, they encourage information sharing, which foresters trust among SCM partners.
Challenges and Applications of SCM
SCM has been applied variously in business environment. However, worldwide supply chain has also come with its limitations and challenges. These challenges usually affect value and quality of products or services. Trends encountered in SCM include globalisation, partnerships with inexpensive providers, soaring offshore sourcing, and soaring expenditures due to globalisation, among others. These challenges also affect mid-sized corporations.
Notably, increased focus on shared service centres have also brought about administrative as well as logistical challenges. It is necessary to note that manufactures have gained tremendously from these trends. For instance, they make lowered taxes, enhanced environments as well as big lot sizes.
It should also be noted that global application of SCM pose increased challenges since lead-time is long. Additionally, multi currency policies, which surround exchange rates, have also posed challenges to global SCM. In essence, this has also caused inadequate transparency in working profits and costs. Nonetheless, SCM has been a revelation in business management systems. Its application has traversed all global economic powers (Van-Hoek & Wagner, 2013).
Conclusion
SCM refers simply to management of supply chain. Supply chain refers to the processes of acquiring raw material, modifying it (adding value), and delivering it to customers. However, supply chain involves complex networks that range from procurement to delivery of products or services.
SCM combines science and art to improve ways in which companies acquire raw materials, make them into goods or services and transport them to customers. SCM management has five main components namely plan (which is usually strategic), source, make, deliver, and return.
These components are networked to ensure that SCM achieves efficacy. SCM solves multiple problems for businesses. These include cost reduction through outsourcing, emphasis on core functions through specialisation and development of customer tailored products. It should also be noted that globalisation has brought many challenges to SCM partners. However, this has also come with more cost cutting measures, which increases return.
References
CSCMP (2013). Education and Networking in the Supply Chain Management Profession. Web.
Haag, S., Cummings, M., McCubbrey, D., Pinsonneault, A., & Donovan, R. (2006). Management Information Systems for the Information Age (3rd Canadian Ed.). Ontario, Canada: McGraw Hill Ryerson.
Handfield, R. (2011). What is Supply Chain Management? Web.
SCC (2013). The Five Most Common Supply Chain Challenges. Web.
SCMR (2013). Supply Chain Management. Web.
Van-Hoek, R. & Wagner, B. (2013). Supply Chain Management (SCM): Current Education Provision and Practitioner Future Needs. Supply Chain Management: An International Journal, 18(4). Retrieved from Emerald database.
Wailgum, T. (2008). Supply Chain Management Definition and Solutions. Web.