In commerce, supply chain management (SCM), the management of the flow of goods and services,[2] involves the movement and storage of raw materials, of work-in-process inventory, and of finished goods as well as end to end order fulfillment from point of origin to point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.[3] Supply-chain management has been defined[4] 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."[5] SCM practice draws heavily from the areas of industrial engineering, systems engineering, operations management, logistics, procurement, information technology, and marketing[6] and strives for an integrated approach.[citation needed] Marketing channels play an important role in supply-chain management.[6] Current research in supply-chain management is concerned with topics related to sustainability and risk management,[7] among others. Some suggest that the “people dimension” of SCM, ethical issues, internal integration, transparency/visibility, and human capital/talent management are topics that have, so far, been underrepresented on the research agenda.[8]
Although it has the same goals as supply chain engineering, supply chain management is focused on a more traditional management and business based approach, whereas supply chain engineering is focused on a mathematical model based one.[9]
Functions
Supply-chain management is a cross-functional approach that includes managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods out of the organization and toward the end consumer. As organizations strive to focus on core competencies and become more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other firms that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing managerial control of daily logistics operations. Less control and more supply-chain partners lead to the creation of the concept of supply-chain management. The purpose of supply-chain management is to improve trust and collaboration among supply-chain partners thus improving inventory visibility and the velocity of inventory movement.[citation needed][22] in this section we have to communicate with all the vendors, suppliers and after that we have to take some comparisons after that we have to place the order.
Importance
Organizations increasingly find that they must rely on effective supply chains, or networks, to compete in the global market and networked economy.[23] 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.[24] 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.[25] 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.[26] 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.[27]
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.[28][29][30][31] 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.[32]
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".[33][34][35] 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".[36]
The importance of supply chain management proved crucial in the 2019-2020 fight against the coronavirus (COVID-19) pandemic that swept across the world. During that event, governments in countries that had in place an effective domestic supply chain management had enough medical supplies to support their needs and enough to donate their surplus to front-line health workers in other jurisdictions.[37][38][39] Some organizations were able to quickly develop foreign supply chains in order to import much needed medical supplies.[40][41][42]
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.[43]
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.
Successful SCM requires a change from managing individual functions to integrating activities into key supply-chain processes. In an example scenario, a purchasing department places orders as its requirements become known. The marketing department, responding to customer demand, communicates with several distributors and retailers as it attempts to determine ways to satisfy this demand. Information shared between supply-chain partners can only be fully leveraged through process integration.
Supply-chain business-process integration involves collaborative work between buyers and suppliers, joint product development, common systems, and shared information. According to Lambert and Cooper (2000), operating an integrated supply chain requires a continuous information flow. However, in many companies, management has concluded that optimizing product flows cannot be accomplished without implementing a process approach. The key supply-chain processes stated by Lambert (2004)[48] are:
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Customer-service management
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Demand-management style
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Manufacturing-flow management
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Supplier-relationship management
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Product development and commercialization
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Returns management
Much has been written about demand management.[49] Best-in-class companies have similar characteristics, which include the following:
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Internal and external collaboration
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Initiatives to reduce lead time
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Tighter feedback from customer and market demand
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Customer-level forecasting
One could suggest other critical supply business processes that combine these processes stated by Lambert, such as:
Customer service management process
Customer relationship management concerns the relationship between an organization and its customers. Customer service is the source of customer information. It also provides the customer with real-time information on scheduling and product availability through interfaces with the company's production and distribution operations. Successful organizations use the following steps to build customer relationships:
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determine mutually satisfying goals for organization and customers
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establish and maintain customer rapport
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induce positive feelings in the organization and the customers
Procurement process
Strategic plans are drawn up with suppliers to support the manufacturing flow management process and the development of new products.[50] In firms whose operations extend globally, sourcing may be managed on a global basis. The desired outcome is a relationship where both parties benefit and a reduction in the time required for the product's design and development. The purchasing function may also develop rapid communication systems, such as electronic data interchange (EDI) and Internet linkage, to convey possible requirements more rapidly. Activities related to obtaining products and materials from outside suppliers involve resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling, and quality assurance, many of which include the responsibility to coordinate with suppliers on matters of scheduling, supply continuity (inventory), hedging, and research into new sources or programs. Procurement has recently been recognized as a core source of value, driven largely by the increasing trends to outsource products and services, and the changes in the global ecosystem requiring stronger relationships between buyers and sellers.[51]
Product development and commercialization
Here, customers and suppliers must be integrated into the product development process in order to reduce the time to market. As product life cycles shorten, the appropriate products must be developed and successfully launched with ever-shorter time schedules in order for firms to remain competitive. According to Lambert and Cooper (2000), managers of the product development and commercialization process must:
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coordinate with customer relationship management to identify customer-articulated needs;
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select materials and suppliers in conjunction with procurement; and
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develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the given combination of product and markets.
Integration of suppliers into the new product development process was shown to have a major impact on product target cost, quality, delivery, and market share. Tapping into suppliers as a source of innovation requires an extensive process characterized by development of technology sharing, but also involves managing intellectual[52] property issues.
Manufacturing flow management process
The manufacturing process produces and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible in order to respond to market changes and must accommodate mass customization. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency in meeting customer demand. This process manages activities related to planning, scheduling, and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites, and maximum flexibility in the coordination of geographical and final assemblies postponement of physical distribution operations.
Physical distribution
This concerns the movement of a finished product or service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product or service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing. Thus it links a marketing channel with its customers (i.e., it links manufacturers, wholesalers, and retailers).
Outsourcing/partnerships
This includes not just the outsourcing of the procurement of materials and components, but also the outsourcing of services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on those activities in the value chain in which it has a distinctive advantage and outsource everything else. This movement has been particularly evident in logistics, where the provision of transport, storage, and inventory control is increasingly subcontracted to specialists or logistics partners. Also, managing and controlling this network of partners and suppliers requires a blend of central and local involvement: strategic decisions are taken centrally, while the monitoring and control of supplier performance and day-to-day liaison with logistics partners are best managed locally.
Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability. Taking advantage of supplier capabilities and emphasizing a long-term supply-chain perspective in customer relationships can both be correlated with a firm's performance. As logistics competency becomes a critical factor in creating and maintaining competitive advantage, measuring logistics performance becomes increasingly important, because the difference between profitable and unprofitable operations becomes narrower. A.T. Kearney Consultants (1985) noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to experts[according to whom?], internal measures are generally collected and analyzed by the firm, including cost, customer service, productivity, asset measurement, and quality. External performance is measured through customer perception measures and "best practice" benchmarking.
To reduce a company's cost and expenses, warehousing management is concerned with storage, reducing manpower cost, dispatching authority with on time delivery, loading & unloading facilities with proper area, inventory management system etc.
Inventory management
Inventory management entails inventory planning and forecasting. Inventory management is about ensuring the right stock at the right levels, in the right place, at the right time and the right cost. Forecasting helps planning inventory.
Integrating suppliers and customers tightly into a workflow (or business process) and thereby achieving an efficient and effective supply chain is a key goal of workflow management.