Another related term is supply chain management SCM , which is the oversight of materials, information, and finances as they are distributed from supplier to consumer. A risk map, also known as a risk heat map, is a data visualization tool for communicating specific risks an organization faces.
BREAKING DOWN 'Supply Chain Management (SCM)'
Supply chain management was then further defined as the integration of supply chain activities through improved supply chain relationships to achieve a competitive advantage. In the late s, "supply chain management" SCM rose to prominence, and operations managers began to use it in their titles with increasing regularity.
A supply chain, as opposed to supply chain management, is a set of organizations directly linked by one or more upstream and downstream flows of products, services, finances, or information from a source to a customer.
Supply chain management is the management of such a chain. Supply chain management software includes tools or modules used to execute supply chain transactions, manage supplier relationships, and control associated business processes. Supply chain event management SCEM considers all possible events and factors that can disrupt a supply chain.
With SCEM, possible scenarios can be created and solutions devised. In many cases the supply chain includes the collection of goods after consumer use for recycling. Including third-party logistics or other gathering agencies as part of the RM re-patriation process is a way of illustrating the new endgame strategy. 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.
Organizations increasingly find that they must rely on effective supply chains, or networks, to compete in the global market and networked economy. 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 Scott, 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 Powell, 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 Zhang and Dilts, 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 Mintzberg, 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.
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". 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. Supply Chain Management draws heavily from the areas of operations management, logistics, procurement, and information technology, and strives for an integrated approach. Six major movements can be observed in the evolution of supply chain management studies: The term "supply chain management" was first coined by Keith Oliver in However, the concept of a supply chain in management was of great importance long before, in the early 20th century, especially with the creation of the assembly line.
The characteristics of this era of supply chain management include the need for large-scale changes, re-engineering, downsizing driven by cost reduction programs, and widespread attention to Japanese management practices. However, the term became widely adopted after the publication of the seminal book Introduction to Supply Chain Management in by Robert B. Handfield and Ernest L. This era of supply chain management studies was highlighted with the development of electronic data interchange EDI systems in the s, and developed through the s by the introduction of enterprise resource planning ERP systems.
This era has continued to develop into the 21st century with the expansion of Internet-based collaborative systems. This era of supply chain evolution is characterized by both increasing value added and cost reductions through integration. A supply chain can be classified as a stage 1, 2 or 3 network.
In a stage 1—type supply chain, systems such as production, storage, distribution, and material control are not linked and are independent of each other. In a stage 2 supply chain, these are integrated under one plan and enterprise resource planning ERP is enabled. A stage 3 supply chain is one that achieves vertical integration with upstream suppliers and downstream customers. An example of this kind of supply chain is Tesco.
The third movement of supply chain management development, the globalization era, can be characterized by the attention given to global systems of supplier relationships and the expansion of supply chains beyond national boundaries and into other continents.
Although the use of global sources in organisations' supply chains can be traced back several decades e. This era is characterized by the globalization of supply chain management in organizations with the goal of increasing their competitive advantage, adding value, and reducing costs through global sourcing.
In the s, companies began to focus on "core competencies" and specialization. They abandoned vertical integration, sold off non-core operations, and outsourced those functions to other companies. This changed management requirements, by extending the supply chain beyond the company walls and distributing management across specialized supply chain partnerships. This transition also refocused the fundamental perspectives of each organization. Original equipment manufacturers OEMs became brand owners that required visibility deep into their supply base.
They had to control the entire supply chain from above, instead of from within. Contract manufacturers had to manage bills of material with different part-numbering schemes from multiple OEMs and support customer requests for work-in-process visibility and vendor-managed inventory VMI.
The specialization model creates manufacturing and distribution networks composed of several individual supply chains specific to producers, suppliers, and customers that work together to design, manufacture, distribute, market, sell, and service a product. This set of partners may change according to a given market, region, or channel, resulting in a proliferation of trading partner environments, each with its own unique characteristics and demands. Specialization within the supply chain began in the s with the inception of transportation brokerages, warehouse management storage and inventory , and non-asset-based carriers, and has matured beyond transportation and logistics into aspects of supply planning, collaboration, execution, and performance management.
Market forces sometimes demand rapid changes from suppliers, logistics providers, locations, or customers in their role as components of supply chain networks. This variability has significant effects on supply chain infrastructure, from the foundation layers of establishing and managing electronic communication between trading partners, to more complex requirements such as the configuration of processes and work flows that are essential to the management of the network itself.
Supply chain specialization enables companies to improve their overall competencies in the same way that outsourced manufacturing and distribution has done; it allows them to focus on their core competencies and assemble networks of specific, best-in-class partners to contribute to the overall value chain itself, thereby increasing overall performance and efficiency.
The ability to quickly obtain and deploy this domain-specific supply chain expertise without developing and maintaining an entirely unique and complex competency in house is a leading reason why supply chain specialization is gaining popularity. Outsourced technology hosting for supply chain solutions debuted in the late s and has taken root primarily in transportation and collaboration categories. This has progressed from the application service provider ASP model from roughly through , to the on-demand model from approximately through , to the software as a service SaaS model currently in focus today.
Building on globalization and specialization, the term "SCM 2. The growing popularity of collaborative platforms is highlighted by the rise of TradeCard 's supply chain collaboration platform, which connects multiple buyers and suppliers with financial institutions, enabling them to conduct automated supply-chain finance transactions.
At its core, the common attribute of Web 2. It is the notion of a usable pathway. It is the pathway to SCM results, a combination of processes, methodologies, tools, and delivery options to guide companies to their results quickly as the complexity and speed of the supply chain increase due to global competition; rapid price fluctuations; changing oil prices; short product life cycles; expanded specialization; near-, far-, and off-shoring; and talent scarcity.
This is delivered through competency networks composed of best-of-breed supply chain expertise to understand which elements, both operationally and organizationally, deliver results, as well as through intimate understanding of how to manage these elements to achieve the desired results.
The solutions are delivered in a variety of options, such as no-touch via business process outsourcing , mid-touch via managed services and software as a service SaaS , or high-touch in the traditional software deployment model. 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 , 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  are:. Much has been written about demand management. One could suggest other critical supply business processes that combine these processes stated by Lambert, such as:. 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  property issues. There are gaps in the literature on supply chain management studies at present [ citation needed ]: A few authors, such as Halldorsson et al.
However, the unit of analysis of most of these theories is not the supply chain but rather another system, such as the firm or the supplier-buyer relationship. Among the many branches of economics two of the best known areas are the study of Macroeconomics and Microeconomics. The two concepts are closely intertwined and can sometimes be confusing.
This article will provide you with the explanations The Role of Stakeholders in Your Business. In business, a stakeholder is usually an investor in your company whose actions determine the outcome of your business decisions. Stakeholders don't have to be equity shareholders.
They can also be your employees, who have a stake in your company's Setting an Annual Budget for your Business. For example, a manufacturer may silo the procurement, materials management, quality control and logistics management teams — but the supply chain manager seeks to be actively informed of any disruptions within these teams to ensure quality and on-time delivery standards are met. In other words, supply chain professionals are often the last line of defense in the face of chain breakdowns, having to analyze and react to adverse circumstances quickly, while maintaining protocols and budgets.
When time is of the essence, phones, e-mails and data are indispensable. In a way, supply chain management is like a language: Consequently, the supply chain manager must remain informed of effective skills, best practices and trends in logistics management, procurement and inventory management alike. The industry and the manager, while related, point to two very distinct aspects of the value chain — which is the main difficulty in defining the supply chain.
Changes in social, political and economic preferences may affect all supply chains without impacting either the industry or function. The talent crisis, the rise of sustainability, improvements in technology, crackdowns on modern slavery all promise to shift supply chains in the long-run, even if the other two aspects have yet to focus on these issues. To ignore general supply chain issues in favor of small-scale disruption management would be a lack of foresight, so while often overly optimistic, company case studies can show the big-picture strategies employed by corporate pioneers.
So, what is supply chain? The news we cover suggests it is a concept, a function and an industry at once. The supply chain manager must remain informed of trends between the three to ensure future competitiveness. Follow Edwin Lopez on Twitter. Deep Dive What is 'supply chain'? Share it post share tweet.
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A supply chain is a network between a company and its suppliers to produce and distribute a specific product, and the supply chain represents the steps it takes to get the product or service to the customer. What is Supply Chain Management (SCM)? Supply chain management (SCM) is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective & efficient ways possible. Supply chain management is an expansive, complex undertaking that relies on each partner -- from suppliers to manufacturers and beyond -- to run well. Because of this, effective supply chain management also requires change management, collaboration and risk management to create alignment and communication between all the entities.