What is SCM?
A supply chain is a network of organizations that performs the functions of procurement, manufacture, and distribution of finished products to customers. Supply chains exist in both service and product organizations.
SCM basics:
A chain is only as strong as its weakest link. This analogy can be extended to the Supply Chain Management process. The individual organizations must provide quality products or services in a timely, cost-effective manner if they are to be part of a broader supply chain. SCM requires firms to use information systems and metrics to focus on performance across the supply chain. The whole picture is important. It is not prudent for individual units in the Supply Chain to maximize their performance without regard to the broader impact on the supply chain. This can cause problems. A manufacturer in the in Supply Chain might want to minimize its inventory levels. This causes delivery issues in the next phase. A distributer might decide to cater to highly seasonal demands. This results in a bullwhip reaction. Information systems and metrics help make decisions in such situations. They make thorough impact analysis and predict outcomes in case of changes.
How is SCM implemented?
SCM is a long term project. Every firm that wants to be part of a supply chain should:
- Identify the supply chains it wants to compete in.
- Understand how the firm will provide value to the supply chain.
- Select supply chain partners, including suppliers, subcontractors, transportation providers, and distributors.
Supply chain maps with physical flows and information flows help identify the space to compete in. These maps explain how the organization can add value, and what information is required to make the supply chain work effectively and efficiently. The map must coexist with the overall business strategy of the company. The SCM practices must be consistent with purchase, logistics, manufacture and marketing practices of the organization.
Maintaining SCM relationships:
For a supply chain to run seamlessly, it is important to designing specific products for the supply chain. Information of various phases of the supply chain should be made visible to others within the chain. Reverse auctions and exchanges must be factored in the SCM information systems. Cost management must be done across the chain. The components of the SCM should adopt definite standards on quality, systems, practices etc.
The most challenging part of maintaining relationships here is with people management. The easiest here is of course, information management which is entirely automated. Barring sudden technical mishaps, this runs smoothly. Inventory and transport systems are incorporated within the information systems. A lot of issues crop up because of miscommunication between people involved. An SCM relationship runs on mutual trust between component organizations. And this trust factor is built by the people involved. Reliable relationships between suppliers and customers are of paramount importance. In the initial years, there is scope to shuffle around but as the SCM is built, it becomes increasingly difficult to shuffle without significant impact.
