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Supply Chain Management – An Overview:
To start – a thought:
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For Want of a Nail For want of a nail the shoe was lost. For want of a shoe the horse was lost. For want of a horse the rider was lost. For want of a rider the message was lost. For want of the message the battle was lost. For want of a battle the kingdom was lost. And all for the want of a horseshoe nail. |
This short, thought-provoking message makes it very clear just how important each aspect of a supply chain is. Imagine an automotive assembly line that runs out of, or has defective fasteners used to secure the engine to the chassis. Small, inexpensive component, yet it can stop the line – at a very huge cost. So, managing the supply of components, materials and services is very important to the continued well-being of any organization.
INTRODUCTION
This paper is not intended to make the reader an expert in supply chain management (SCM). Rather, it is intended as a primer, the aim of which is to foster thought on how to approach the management of your particular organization’s supply chain.
If one is interested in a deeper dive into this topic, there are several organizations that offer courses: Institute for Supply Management (ISM), offers two programs – Certified Purchasing Manager (CPM) and Certified Professional in Supply Management (CPSM); The Association for Operations Management (APICS) offers two programs – Certified Production and Inventory Management (CPIM) and Certified Supply Chain Professional (CSCP).
DEFINITION
Supply Chain Management is defined as: Those actions undertaken by an organization to manage the upstream and downstream flow of materials, goods and information among suppliers, resellers and final customers. It involves not only goods and services, but also the logistics associated with movement and storage of such items. Depending upon the specific organization’s position in the supply chain, upstream functions can include all actions all the way back to mining of ore or other raw materials. The downstream actions extend all the way to the final (or user) customer.
Examples – simple and complex
Simple:
One automobile manufacturer, purchasing steel stampings from one stamping company; the steel stamping company purchases all of the steel needed from one steel slitting company; the steel slitting company purchases all of its steel from one steel mill; the steel mill purchases its raw iron ore from one mining company. All raw ore, steel coils and slit steel is transported by one logistics organization. Now, imagine that each of these organizations is located within a five-mile radius, and that each supplies 100% of its output to the next downstream company. In other words, the supply chain is 100% dedicated to meeting the needs of the automobile manufacturer. It doesn’t get any simpler than this. Of course, this scenario is unrealistic. No supply chain exists as the single and sole supplier to one entity. But, it does show how the various elements of a supply chain interact with each other.
Complex:
Several manufacturers making different products, all needing a wide variety of materials, components and services. Some of these manufacturers are single-site, others have multiple sites located around the country or globe. Some make seasonal products while others make products with a steady demand cycle. Multiple transportation methods are used, including air, truck, rail and cargo ships. Communication processes include simple phone orders, fax, email, EDI. Inventory management processes include inside and outside storage, ERP initiated orders, schedules in a constant state of flux, and on and on. This scenario is, to one degree or another, more like the norm in everyday business.
Goal of Supply Chain Management
The goal of a supply chain management system is to have products, components, materials and services that meet all requirements, available for use when needed and at a value price.
Things to consider:
The following is a list of considerations that organizations may want to pursue or investigate as it takes steps to improve its level of assurance in its supply chain. Not every topic will fit all organizations. Listed within each topic are considerations that could be evaluated with a view toward balancing cost against assurance. In other words, each organization needs to determine how much of its resources it wants to invest in raising its level of assurance that its supply chain will remain unbroken.
Geographic – domestic or foreign
Distance: This is perhaps one of the key factors for consideration. If the supplier is within a short driving distance, problems associated with delays in shipment are significantly minimized. Conversely, if the distance is substantial, such as in a foreign country, even if that country is adjacent to the country in which the organization is domiciled (e.g., the USA to Canada), then distance can become critical. Think of is this way, the further away the source, and the more borders the supplies have to cross, the higher the risk that needed supplies will not be available when needed. Thus, purchasing from a low-labor-cost country, while having a distinct advantage of lower price, may, in fact, have a higher overall cost, especially when customer satisfaction is placed in jeopardy. Reduction of such risk can be reduced by the organization making the decision to carry higher inventory levels, but this adds costs which need to be compared to the perceived savings of lower price.
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