Supply Chain Management (SCM) is backbone of any organizations. It is the combination of art and science that goes into improving the way a company finds the raw components it needs to make a product or service and deliver it to customers. Supply chains are difficult to put together but once they are in place, it looks just right. The depth of supply chain increases as organizations explore various dimensions of business.
There are many options available for companies to integrate supply chain as a competitive weapon which has emerged as a strategic business tool for deriving competitive advantage at the global business environment supply chain and is finally finding place as a strategic imperative for an organization. A supply chain manager should use the changes that occur in economic trends as opportunities. Most resources used in the process of delivering a product or services add value but some do not.
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Such resources should be eliminated. The purpose of this paper is to promote an understanding of SCM, Impact of Globalization on SCM, Challenges and Scope and Implementation of ERP at Retail SCM with brief review of its major benefits and implementation at Reliance Retail.
Keywords: Supply Chain Management; Globalization; SCM Retail. *=Students of Institute Of Management and Computer Studies (IMCOST), Masters of Management Studies.
Supply chain management (SCM) is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers The concept of supply chain management is of great use as it enables you see how you can manage the supply chain to optimize revenues, cash flow, and customer satisfaction. Companies need better SCM for reducing costs, improving their cash flow, and making sure materials and products are in stock when needed to meet ustomer demand. Whether it is a big company or a small company it needs to focus on the SCM as it tells them what inventory to keep and information about reorder level and the lead time. It saves time and money and proper resource utilization.
Objectives of this paper are:
- To give overview on SCM
- To show importance of ERP in SCM
- To show impact of globalization on SCM
Supply Chain Decisions
There are four major decision areas in supply chain management:
- Transportation (distribution), and there are both strategic and operational elements in each of these decision areas.
Supply chain best practices
- Retain only core work (products, services & solutions)
- Improve Supplier Selection process
- Reduce the number of suppliers
- Improve demand forecast accurac
- Increase inventory turns (velocity)
- Decrease outsourcing costs per/unit by leveraging major suppliers for lower prices
- Increase standardization of products, as much as possible and appropriate
- Increase global sourcing, especially in geographic areas of lower labor costs
- Maximize economies of scale
- Seek global demand for products & services
- Increase automation and database integration between business partners using Enterprise Resource Planning (ERP) software tools and web-based trade exchanges.
- Use technology tools to increase speed to market, reduce costs, and obtain real-time accurate information.
Supply chain management and the competitive advantage
Unless the product or the service we offer can be distinguished in some way rom the competitors, there is a likelihood that market will view it as a “commodity “ and so the sale will tend to go the cheapest supplier. This explains the importance of additional values to our offering to mark it out from the competition. SCM provides both cost productivity advantage and value advantage. SCM plays an important role in determining nature of overall corporate response to marketing opportunities.
What is the relationship between ERP and SCM?
Many SCM applications are reliant upon the kind of information that is stored in the most quantity inside ERP software.
Theoretically you could assemble the information you need to feed the SCM applications from legacy systems (for most companies this means Excel spreadsheets spread out all over the place), but it can be nightmarish to try to get that information flowing on a fast, reliable basis from all the areas of the company. ERP is the battering ram that integrates all that information together in a single application, and SCM applications benefit from having a single major source to go to for up-to-date information. Most CIO’s who have tried to install SCM applications say they are glad they did ERP first.
They call the ERP projects "putting your information house in order. " Of course, ERP is expensive and difficult, so you may want to explore ways to feed your SCM applications the information they need without doing ERP first. These days, most ERP vendors have SCM modules so doing an ERP project may be a way to kill two birds with one stone. Companies will need to decide if these products meet their needs or if they need a more specialized system. Applications that simply automate the logistics aspects of SCM are less dependent upon gathering information from around the company, so they tend to be independent of the ERP decision.
But chances are, you'll need to have these applications communicate with ERP in some fashion. It's important to pay attention to the software's ability to integrate with the Internet and with ERP applications because the Internet will drive demand for integrated information. For example, if you want to build a private website for communicating with your customers and suppliers, you will want to pull information from ERP and supply chain applications together to present updated information about orders, payments, manufacturing status and delivery.
What are the roadblocks to installing supply chain software?
Gaining trust from your suppliers and partners. Supply chain automation is uniquely difficult because its complexity extends beyond company’s walls. People will need to change the way they work and so will the people from each supplier that you add to your network. Only the largest and most powerful manufacturers can force such radical changes down suppliers' throats. Most companies have to sell outsiders on the system.
Internal resistance to change
If selling supply chain systems is difficult on the outside, it isn't much easier inside. Operations people are accustomed to dealing with phone calls, faxes and hunches scrawled on paper, and will most likely want to keep it that way. If you can't convince people that using the software will be worth their time, they will easily find ways to work around it. You cannot disconnect the telephones and fax machines just because you have supply chain software in place 3. Many mistakes at first. There is a diabolical twist to the quest for supply chain software acceptance among employees.
New supply chain systems process data as they are programmed to do, but the technology cannot absorb a company's history and processes in the first few months after an implementation. Forecasters and planners need to understand that the first bits of information they get from a system might need some tweaking. If they are not warned about the system's initial naivete, they will think it is useless.
What is supply chain collaboration?
Let's look at consumer packaged goods for an example of collaboration. If there are two companies that have made supply chain a household word, they are Reliance Retail and HUL(Hindustan Unilever Limited).
Before these two companies started collaborating retailers shared very little information with manufacturers. But then the two giants built a software system that hooked HUL up to Reliance Retail distribution centers. When HUL's products run low at the distribution centers, the system sends an automatic alert to HUL to ship more products. In some cases, the system goes all the way to the individual Reliance Retail store. It lets HUL monitor the shelves through real-time satellite link-ups that send messages to the factory whenever a HUL item swoops past a scanner at the register.
Managing complex supply chain In this age and time, when web enabled information is high, we are far closer to customer needs. Yet, the paradox is that we are far from realistic assessment of business impact of these demands. As organizations offer choices to customer in the hope that they will fit customer requirements, the breadth of supply chain tends to increase. The dimensions of this entire functionality can be recognized as follows:
- Products, stock keeping units and service offerings form one dimension of this entire functionality.
- Mechanics of channel and velocity makes up another dimension. The depth of supply chain increases as organizations explore this dimension of business. Product and services are made up of more than one input and multistage conversion processes.
The impact starts to fan out like a Christmas tree from its apex to its base which forms the third dimension. Supply chain planners need to understand these dimensions and the velocity increases that get maintained as a product or service moves through various stages- from assembly of inputs, their conversion, their transfer and their consumption or sale.
In these times customers are simply unwilling to pay anything more than a competitive price and hence the profit that company makes come from how well organizations manage cost. Does the cost deliver competitive edge? This assessment needs to be made on a framework that tests competitive edge on following criteria:
- Imitability: Does it give no chance for competition to duplicate?
- Durability: Does it ensure that it can last long and deliver sustained value?
- Appropriability: Is it appropriate to context and is the context changing?
- Substitutability: Does it have a change of being substituted by something for more efficient?
- Competitive superiority: Is it superior to supply chain of competition significantly?
- IT enablement: There must be constant give and take among Supply Chain managers and their partners in IT.
- IT is better to work on pilot scale and run many prototypes simultaneously rather than doing a full scale change which is risky and time consuming.
- Aggregation of demand which means that probability of getting it right when demand appears is far higher than it would be otherwise.
- Systems must have the capability to detect deviations in completeness because working on a wrongly identified root cause is one of the key reasons for rework and unpredictability in supply chains.
- SCM-A strategic tool in Global Business Environment The ‘Logistic management’ is the support service for smooth and efficient working of supply chain.
Logistic management consists of five important activities: IT hardware, software and brain ware, transportation management, warehouse management, material handling and packaging. The SCM should be designed and implemented in such a manner that it is ‘customer responsive’, ‘agile’, ‘lean’ and fast.
In today’s highly competitive global marketing environment, the organization cannot increase the price inspite increase the raw material in price . A slight increase in price leads to substantial drop in sales of organization in buyer’s market prevailing now. The only way organization can survive and excel in their performance by throughput or speed of complexity working cycle. A working complex cycle is completed between making payment to supplier to the point of recovering the money from customer. 4. What is the extended supply chain? Extended supply chain is a clever way of describing everyone who contributes to a product.
So if you make text books, then your extended supply chain would include the factories where the books are printed and bound, but also the company that sells you the paper, the mill where that supplier buys their stock, and so on. It is important to keep track of what is happening in your extended supply chain because with a supplier or a supplier’s supplier could end up having an impact on you (as the old saying goes, a chain is only a strong as its weakest link). For example, a fire in a paper mill might cause the text book manufacturer’s paper supplier to run out of inventory. If the text book company knows what is the happening in its extended supply chain it can find another paper vendor.
What is the impact of globalization on the Supply Chain?
Just in time manufacturing isn't the only way companies have used their supply chains to reduce cost. Manufacturing in developing countries is substantially cheaper than in the U. S. because of the low cost of labor. For example, the median wage at a Chinese manufacturing plant is 1,000 Yuan, or about $120, per month, according to a 2005 survey by The MPI Group.
But foreign manufacturing brings with it another set of challenges. It isn't as easy to set up real-time data sharing with a factory in, say, China as it is with a factory you own in the United States. And the sheer distance that overseas goods need to travel – not to mention the number of vessels they need to travel on – in order to reach the U. S. increases the chance that they will get delayed. The bottom line is that foreign manufacturing brings back a lot of the uncertainty that supply chain systems were designed to eliminate.
The good news is that technology capable of tracking shipments throughout the world is getting better. The bad news is that a lot of this technology is still pretty expensive, that some of the places you would want to deploy it don't have the necessary infrastructure in place, and well, there isn't a piece of technology out there that can make up for the whim of a Chinese Customs official. Furthermore, labor costs in some places are so low that IT automation and monitoring projects may add more to costs—in terms of software, hardware and still-precious (and unreliable) bandwidth—than they save in productivity.
Hence, some low-tech or commodity products may not be worth monitoring at all until they hit a ship in a foreign port. In the meantime, the best bet is to use whatever systems you can to gain as much visibility into the global supply chain as possible. It may be impossible to replicate the just in time model on a global scale, but by applying whatever technology you can, and by choosing the supply chain partners who have the capability to share data with you, you can get many of the benefits of just in time while paying low foreign prices.
Forces driving Global Supply Chain
The following forces are driving the Global Supply Chain.
- Global market forces: Global market forces involve pressured created by foreign competitors as well as opportunities created by them. To survive and excel in today’s market, companies have to constantly innovate, develop products and enhance leading edge technologies.
- Technological forces: Various components, parts and different technologies are available at different parts of the world. Successful firm integrates these resources quickly in a cost effective manner to derive competitive edge in the market.
- Global Cost Factors: Availability of productive work force, cheaper skilled labor, cheaper cost of land, abundant power availability and good infrastructure leads to cheaper cost of production.
- Political and Economic factors: The factors like stable government, its policies are conducive for trade and commerce in a country. Duty concessions, subsidies, export promotion zones and purchasing power of a country’s population, are thet political and economic factors. It therefore can be concluded that SCM is the key driver for the business success I today’s highly competitive global business environment.
SCM and India’s Future
The SCM market in India is still to mature and get organized. The process seems to have started but it has a long way to go. Various factors related to globalization have now rendered implementation of SCM an imperative even for the SMEs. The need for SCM is more than ever before because of the challenges unleashed on the competitiveness of the Indian industry by deregulation and globalization. True, competition has now acquired a cross-border dimension and cost will play a key role with regards to competitiveness.
Effective and efficient SCM can help Indian SMEs to reduce their cost and compete aggressively in the international markets. The mammoth challenge for SMEs is to maintain the balance between demand and supply and, while doing so, provide the best possible products or services at the lowest possible cost. SMEs, obviously, do not have enough resources to employ at various stages of the chain. Hence, they often concentrate on individual components for optimizing their internal operations. But this is just a starting point and is never enough in the long run.
The need is to optimize the supply chain in its totality and derive the highest possible value from it. The objective of every supply chain is to maximize the overall value generated by an enterprise. It consists of all stages involved, directly or indirectly, in fulfilling a customer SCM is an ongoing process that involves precision in demand forecasting, inventory optimization, reduction in warehouse costs and efficient as well as cost-effective handling of both incoming and outgoing stocks. SMEs are now ncreasingly relying on 3PL (Third Party Logistics) specialists to manage their entire supply chains, from procurement of raw materials to distribution of goods, in the domestic market as well as exports, so that they can focus on their core competencies. Although certain factors related to SCM are common to all industries, each industry vertical has its unique set of issues. Naturally, SCM requirement and implementation would differ from vertical to vertical. Globalization has not just thrown up new challenges but has also opened up new opportunities.
Likewise, just as SMEs have certain inherent limitations, they also have definite intrinsic strengths. SCM is all about aligning your strengths to take advantage of the opportunities while overcoming weaknesses and challenges. SMEs can definitely do it. Supply chain management is not up to the mark in India, and the two major reasons responsible for that are inadequate infrastructure and inefficient government bureaucracy. The success of the Indian growth story has resulted in a spurt of activity, and this merits the necessity for a state-of-the-art supply chain in the country.
Potential Supply Chain Moves
How can a supply chain manager use these broad economic trends to advantage? By applying global economic logic to supply chain design and operation. Change creates not only pain but also opportunity—and today's tectonic shifts in the global economic landscape offer many intriguing openings for the enterprising supply chain manager. In a nutshell, supply chain leaders can use applied economics to benefit their companies in four ways:
- Reflecting updated cost-to-serve economics in product prices for specific customer segments and locations. Sourcing closer to point of use, partially reversing past globalization norms, in order to reduce freight intensity.
- Downshifting transportation modes and adding distribution locations to save fuel and reduce cost. These strategies can form the core of a supply chain playbook that will set your company apart from the competition. Rather than merely responding to tough times, the supply chain leader can build strategic advantage through differentiated services and performance.
This is a goal truly worth pursuing. Twelve potential supply chain moves are grouped under four headings around these themes: Pricing, ourcing, making, and moving. In each case, we outline the intelligent supply chain actions to take in light of the major economic trends identified above. Pricing 1. Set the right offer. Costs are rising, margins are squeezed, and sales are tougher to close. This is a good time to review the total offer—products wrapped with related services, including delivery, installation, and warranty. Are there specific customers segments for which we are offering too much? Can we explicitly charge for delivery in certain cases?
Can we change our bracket pricing to drive ordering behavior toward slower, cheaper delivery modes? Are there other aspects of the current offer that raise supply chain costs? These are analyses that take on special urgency and provide opportunity for margin gains in the current difficult economic environment.
- Update pricing with cost-to-serve. Freight and commodity prices have been soaring. It may be time for a significant price rise. A food manufacturer we assisted recently reviewed its zone pricing system. Major fuel price increases had made the zone differentials inadequate.
- This led to a significant increase in product prices particularly for more distant zones. Supply chain managers should lead the charge to review pricing. Don't leave it to sales and marketing, as many of the cost impacts are best known (and first detected) by sourcing and logistics professionals.
- Balance supply and demand by world regions. Regionalization is a critical means to address fluctuating exchange rates and higher fuel costs. Also, fuel costs are generally linked to distance, so a more regional sourcing strategy can yield benefits for certain products and demand profiles.
- Products that are in the mid-range of their lifecycle, but that still experience high demand variability, are well-suited to regional sourcing. 4
- Find sources closer to home. Higher fuel prices and a greener supply chain are encouraging more localized sourcing.
- Seek situations where “far shoring” still works. International sourcing still makes sense in many situations. But the sources are shifting, reflecting wage increases and exchange rate shifts that impact attractiveness.
- Mitigate commodity and exchange risk rate. Fuel is the most obvious commodity for which to consider hedging, but the approach can be valid for other commodities. You needn't be a giant corporation to hedge against commodity price increases.
- Maximize plant utilization. For manufacturers, weaker demand and higher input costs mean re-examining production economics. If plant utilization has declined, choices include taking on work for others to better use installed capacity, downsizing to smaller (and more modern) facilities, or selling plant and equipment in order to outsource.
- Move closer to market. Adding a plant or a co-packer closer to the major markets makes sense, given higher fuel costs—as long as scale economies are respected. Network modeling for a food manufacturer selling nationally showed that no amount of distribution tweaking could generate the freight savings that a second plant, on the opposite coast, could produce.
- Export to growing markets: The supply chain manager should be the first to suggest an export focus and the one to explain how this can be done efficiently and economically.
- Move freight more slowly and cheaply by downshifting modes. Slowing down the movement of freight is a rational economic response to higher fuel prices. Rail, for example, is roughly three times as fuel efficient as truck.
- Get closer to customers with more DCs. The optimal network equilibrium between cost and service shifts with higher fuel cost. Many U. S. distribution networks were designed and implemented five or ten years ago when fuel was one-fifth its current level. The new tradeoff favors more distribution centers in order to partially offset the new, higher fuel charges embedded in transport costs. Supply chain managers should take the current opportunity to dust off their network models, re-optimize the number and location of DCs, and then put warehousing and transportation out to bid. Weakness in the trucking sector makes this a good time for RFPs, and new rates will be needed in any case if additional DC locations are added.
- Create a more flexible distribution network. While no one can predict the future accurately, we can be confident that more change lies ahead.
Thus, whatever changes are made to supply networks, globally and domestically, and to transportation modes and nodes, flexibility must be designed into the system. Supply chain managers can take the lead here by promoting solutions that are inherently adaptable and scalable.
What are some emerging technologies that will affect the Supply Chain?
The most notable is Radio Frequency Identification, or RFID. RFID tags are essentially barcodes on steroids. Whereas barcodes only identify the product, RFID tags can tell what the product is, where it has been, when it expires, whatever information someone wishes to program it with.
RFID technology is going to generate mountains of data about the location of pallets, cases, cartons, totes and individual products in the supply chain. It's going to produce oceans of information about when and where merchandise is manufactured, picked, packed and shipped. It's going to create rivers of numbers telling retailers about the expiration dates of their perishable items—numbers that will have to be stored, transmitted in real-time and shared with warehouse management, inventory management, financial and other enterprise systems.
In other words, it is going to have a really big impact. Another benefit of RFIDs is that, unlike barcodes, RFID tags can be read automatically by electronic readers. Imagine a truck carrying a container full of widgets entering a shipping terminal in China. If the container is equipped with an RFID tag, and the terminal has an RFID sensor network, that container’s whereabouts can be automatically sent to Widget Co. without the truck ever slowing down. It has the potential to add a substantial amount of visibility into the extended supply chain.
Right now the two biggest hurdles to widespread RFID adoption are the cost of building the infrastructure and the lack of agreed-upon industry standards.
Seven deadly supply chain wastes
Most resources used in the process of delivering a product or services add value—some do not. Those resources consumed that do not add value—be they people, time, or equipment—should be eliminated. Taiichi Ohno created the TPS in the mid-20th century. Ohno founded the system on five core principles that, if consistently applied, could improve production quality and most importantly reduce or eliminate waste.
- Muda: A Japanese word referring to anything that is wasteful and doesn't add value.
- Process Focus: Managers work cross-organizationally to develop and sustain robust business processes.
- Genchi Genbutsu: A Japanese phrase that refers to collecting facts and data at the actual site of the work or problem.
- Kaizen: A Japanese word for continuous and incremental process improvement.
- Mutual Respect: Toyota values a strong relationship between management, employees, and business partners.
By grasping these core ideas you can begin to apply them to make your supply chain lean and efficient. Most importantly, you will be able to identify what we call “Seven Deadly Supply Chain Sins”—the wastes that keep supply chain management from achieving its full business potential. These “sins” are overproduction; delay/waiting; transportation/conveyance; motion; inventory; over-processing; and defects/corrections.
The Sins in Depth 1
- Overproduction: Build first, wait for orders later: A common example of this is delivering products before they are needed. More serious for the entire supply chain is demand information overproduction.
- Delay/Waiting: Any delay between the end of one activity and the start of the next activity, such as the time between the arrival of a truck for a pick-up and the loading of the trailer, and the delay between receiving the customer's order information and beginning to work on fulfilling the order: Because of the separation of production, warehousing and transportation activities, each of these functions is often unaware of the schedule for the subsequent process. Many operations and modes of transportation operate with cutoff times. By coordinating production and shipping operations with these cutoff times, shippers can avoid having their shipments delayed and waiting for the next shipment by their logistics partner.
- Transportation/Conveyance: Any kind of unnecessary transport. Out-of-route stops, excessive backhaul, locating fast-moving inventory to the back of the warehouse and other transport wastes cause unnecessary material handling distances to be incurred.
- Motion: Any kind of unnecessary movement by people, such as walking, reaching and stretching. Motion waste also includes extra travel or reaching due to poor storage arrangement or poor ergonomic design of packaging work areas.
- Inventory: Any logistics activity that results in more inventories being positioned than needed or in a location other than where needed. Examples include early deliveries, receipt of order for a quantity greater than needed, and inventory in the wrong distribution center (DC).
- Space: Use of space that is less than optimal, such as less than full/optimal trailer loads, cartons that are not filled to capacity, inefficient use of warehouse space, and even loads in excess of capacity.
- Errors: Any activity that causes rework, unnecessary adjustments or returns, such as billing errors, inventory discrepancies and adjustments, and damaged/defective/wrong/mislabeled product.
Eliminating Wastes—Culture is the Key
This is an absolute necessity in order to utilize the full human potential of every employee for the continuous improvement of your business.
To be effective, everyone must be fully aware of the various forms that waste can take and be constantly vigilant of any opportunities to attack and eliminate the seven deadly supply chain wastes—Overproduction, Delay/Waiting, Transportation/Conveyance, Motion, Inventory, Space, and Errors.
The current business environment is typified by short product lifecycles, product variety and intense trend-driven demand uncertainty. This is especially true for those retailers and wholesalers that offer a vast array of products to satisfy diverse and rapidly changing consumer preferences. Yet SCM practices and software have largely remained anchored in the era of long lifecycle products and limited product variety. Experts characterize the types of products that most SCM applications cater to as “colas, detergent and paper towels” - all basic products.
Today, however, even the Coca Cola/Coke brands, Tide detergent and Scott Towels are all available in several variants and packaging choices. The explosion in SKU’s and product variety has been possible, in part, due to increased merchandise breadth, the introduction of more “seasons”, shorter lifecycles and planned obsolescence. Fickle trends, variety seeking customers and competition push even more product innovation. The tendency is towards more mass-market trend-driven products resulting in pressures to innovate, quickly gauge market trends and react continuously.
Demand uncertainty for many new products is over 100%. Consequently, stock outs are high and forced markdowns are routinely 1/4th or 1/3rd of sales.
One of the most neglected areas of the manufacturing (and retail) supply chain is the inbound logistics segment. Managing outbound logistics has always been the strength of the Supply Chain organization (at manufacturers and retailers). The Marketing department has identified different logistics requirements for the finished goods segment.
Customizing outbound logistics requirements (various distribution models are the outcome) based on the needs of specific customer segments is today a routine requirement. Similar to the Marketing department, the Purchase (Procurement) department has its own unique set of requirements for inbound raw materials/ work-in-progress and other inbound material. In addition, modern JIT manufacturing methods push the Procurement Manager to aim to achieve lowest inventory models — often at the expense of higher inbound transportation costs.
There is an inherent conflict balancing the Just-in-time manufacturing practices (low inventory, shipment sizes, frequency of shipments) with inbound logistics and transportation needs (low cost, visibility of goods).
There are many raw materials as well sources available for SCM, the only thing we need is to align them and use them in a very cost effective manner.
- BMA review July 2005 Edition.
- Economic Times, dated 15th September 2008.
- http://www. scmr. com/article/CA85616. html
- http://www. infosys. com/supply-chain/white-papers/default. asp#
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