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What is supply chain management?

Supply Chain Management


There are several definitions of Supply Chain Management available in books and journals. A few of them are as follows According to Jones and Riley SCM focuses on the logistics of supply from the supplier end till it reaches the end user (Jones and Riley, 1985).

In another definition, supply chain management is defined as the

inter relatedness and conjuncture of a number of elements that contribute to production, stock, timely delivery of items etc. along the supply chain that lead to its effectiveness and satisfies the ultimate user (Hugos, 2006).

looking at both the definitions, SCM can be defined as the management of not only raw material or supply but also information throughout the extended enterprise - which is the suppliers supplier to the customers customer

To give an idea of what a supply chain looks like have a look at the diagram below!

Typical supply chain of manufacturing organization (Mentzer et al., 2001)

Co-ordination of different departments in the internal supply chain of a manufacturing organization

If one looks at the previous diagram, the delivery from the supplier is handed to the Procurement department which passes on the supply to the Production department. After the end product is produced it is stocked in the warehouse until it is handed over to the customer.

Motto of supply chain management


To supply the right product of the right quality at the right time and at the right place

History of Supply Chain Management


Cooper et al. in a journal article said the demand for SCM has started to emerge since the last 10 years which was 10 years prior to 1997 when their journal article was published (Cooper et al., 1997).

However it is 2012 now and organizations are still having problems with their supply chains. Moreover, there are organizations in Pakistan which are focusing on SCM to gain the competitive edge but majority of the Pakistani manufacturing organizations are still new to this concept; some have implemented it and are still in the early stages of its implementation while the rest have yet to discover it.

Problems and Barriers in the implementation of Supply Chain Management

supply chains consists of several problems which need to be addressed in order for a manufacturing organization to improve its performance. According to a journal article by Tom Davis, the problems in the supply chain exist because of uncertainties and the only way to reduce these problems in the supply chain is by controlling the uncertainties. (Davis, 1993)

One problem because of the uncertainties in the supply chain is the improper inventory management within the internal supply chain as well as the external supply chain when a product is being manufactured which can be seen in the diagram on the next slide.

Improper inventory management within the supply chain

(Davis,1993)

According to the understanding of the diagram, the triangle () indicates the excess of inventory before many factories and customers which are indicated by a rectangle in the diagram on the previous slide. This excess of inventory has been problematic for the supply chain as it utilizes a lot of space, effects relationships with suppliers, increases the warehousing cost because of which there less space for the finished products to be stocked. This improper inventory management increases the lead time of the products because of which order fill rates, cash to cash cycle time and other supply chain metrics which contribute to improve the supply chain performance of an organization are affected. This also dissatisfies the customer as delivery dates would not be met on time.

So, looking at this inventory management plays a vital role in bringing about a change in the supply chain

In a journal article written by K.V. Mahidhar, he says that there was an incidence at Toyota Japan, when a truck full of raw materials came to Toyota for unloading on which the Toyota officials reacted as it was against the JIT concept at Toyota. This is a problem because if they would have allowed the truck to enter it would have raised the inventory holding cost so they got rid of the cost driver which was the early arrival of raw materials without notice. To them this was a cost driver therefore action had to be taken but does this happen in Pakistan? Regarding the cost drivers Mr Mahidhar says if one cannot measure the cost, they cannot manage the cost.(Mahidhar, 2002)

What are other problems which contribute to make a supply chain problematic for the organisation?

How do you make a supply chain effective?


A good logistics and operations management problem solving with statistics A good storage and warehousing techniques A good transport technique & management A good procurement and inventory management A good understanding of financial analysis and control systems Able to create a profitable e-business A good organisation of people and performance Good bargaining and negotiations

Just in Time
In a definition by Hall, JIT is a philosophy where all goods are to arrive exactly when they are needed, that is, neither too soon nor too late. (Gran, 2001, cited by Hall 1983, 870)

According to Das and Handfield, JIT focuses on removing the wastages from all the business processes or functions in the supply chain. It does not look at one business process; it looks at all the business processes which make up the supply chain ensuring a waste free supply chain. (Das and Handfield, 1997)

However the organizations who are implementing JIT for business excellence should not restrict their organizations to only one strategy. They can use several elements of several business process improvement strategies to enhance their businesses.

The definition given by Das and Handfield and describes JIT in such a way that it can help in systematically improving the business processes of an organization in every way, whether it is supplier relationship management (SRM), customer relationship management (CRM), maintaining the cost drivers in the supply chain, inventory management or any other activity. Looking at this JIT can look at all the other alternative approaches and strategies and supervise them.

Six Sigma
Magnusson et al defines that idea of six sigma is to have proficient production processes on a constant and increasing scale with no deviations that disrupt the flow. With no digression from the actual production procedure, six sigma aims to develop products with excellence which ultimately prove to be profitable. The concept is aimed at not only satisfying the customer but delighting the customer. However the six sigma allows only a variance of 3.4 PPM (parts per million) (Magnusson et al, 2003 cited by Andersson, 2006)

In another definition Peter Pande and Larry Holpp defines six sigma as a customer focused business enhancement tool which gets rid of the non value added elements in all the business operations. This in return improves lead times, flaws in the products and a delighted customer. Pande and Holpp further state that six sigma does not only improves the quality of a product it improves the business.(Pande, 2002) (Pande, 2000)

Supplier Relationship Management


Supplier Relationship Management (SRM) is an important part of SCM which focuses on treating suppliers as partners. Moreover, according to an example of Toyota who is known for treating suppliers as partners as the success factor for their business. Mr. John Hunter writes that Toyota Motors used to procure elbow joints from a small supplier who later on told Toyota Motors regarding the problems which were being faced by him and could not carry on producing elbow joints for Toyota. Toyota keeping in mind that the supplier was a relatively small one and could have let him go instead they pooled in their resources tohelp the supplier in order to eliminate the difficulties. (Hunter, 2005)

According to the Office of Government Commerce (OGC) of United Kingdom, The constant monitoring and adherence to changes in dimension of relationships within ones business is what describes supplier relationship management. The aim of this approach is to develop a successful overall relationship between the supplier and the buying organization apart from just being able to manage solitary contracts. The SRM creates a foundation for your agreements and dealings with your suppliers and helps in determining what type of a relationship the organization has maintained with its fellow suppliers. It helps supplement future contracts by identifying and providing solutions to complications within and outside of ones organization with respect to the suppliers. (Office of Government Commerce, UK)