Supply chain management
Encyclopedia
Supply chain management (SCM) is the management of a network of interconnected business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...

es involved in the ultimate provision of product
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...

 and service packages required by end customers (Harland, 1996). Supply chain management spans all movement and storage of raw material
Raw material
A raw material or feedstock is the basic material from which a product is manufactured or made, frequently used with an extended meaning. For example, the term is used to denote material that came from nature and is in an unprocessed or minimally processed state. Latex, iron ore, logs, and crude...

s, work-in-process inventory, and finished goods from point of origin to point of consumption (supply chain
Supply chain
A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to...

).

Another definition is provided by the APICS Dictionary when it defines SCM 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."

Definitions

More common and accepted definitions of supply chain management are:
  • Supply chain management is the systematic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole (Mentzer et al., 2001).

  • A customer focused definition is given by Hines (2004:p76) "Supply chain strategies require a total systems view of the linkages in the chain that work together efficiently to create customer satisfaction at the end point of delivery to the consumer. As a consequence costs must be lowered throughout the chain by driving out unnecessary costs and focusing attention on adding value. Throughout efficiency must be increased, bottlenecks removed and performance measurement must focus on total systems efficiency and equitable reward distribution to those in the supply chain adding value. The supply chain system must be responsive to customer requirements."

  • Global supply chain forum - supply chain management is the integration of key business processes across the supply chain for the purpose of creating value for customers and stakeholders (Lambert, 2008).

  • According to the Council of Supply Chain Management Professionals
    Council of Supply Chain Management Professionals
    The Council of Supply Chain Management Professionals is the leading worldwide association of professionals in supply chain management. The CSCMP is a non-profit association that provides leadership in the development, design and improvement in occupations that deal with logistics and management of...

     (CSCMP), supply chain management encompasses the planning and management of all activities involved in sourcing
    Sourcing
    In business, the term word sourcing refers to a number of procurement practices, aimed at finding, evaluating and engaging suppliers of goods and services:*Global sourcing, a procurement strategy aimed at exploiting global efficiencies in production...

    , procurement
    Procurement
    Procurement is the acquisition of goods or services. It is favourable that the goods/services are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time, and location...

    , conversion, and logistics management
    Logistics Management
    The term Logistics Management or supply chain management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective, forward, and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption...

    . It also includes the crucial components of coordination and collaboration with channel partner
    Channel partner
    A channel partner is a company that partners with a manufacturer or producer to market and sell the manufacturer's products, services, or technologies. This is usually done through a co-branding relationship...

    s, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand
    Supply and demand
    Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...

     management within and across companies. More recently, the loosely coupled, self-organizing network of businesses that cooperate to provide product and service offerings has been called the Extended Enterprise
    Extended Enterprise
    An extended enterprise is a loosely coupled, self-organizing network of firms that combine their economic output to provide products and services offerings to the market...

    .


A supply chain, as opposed to supply chain management, is a set of organizations directly linked by one or more of the upstream and downstream flows of products, services, finances, and information from a source to a customer. Managing a supply chain is 'supply chain management' (Mentzer et al., 2001).

Supply chain management software
Supply chain management software
Supply chain management software is a business term which refers to a whole range of software tools or modules used in executing supply chain transactions, managing supplier relationships and controlling associated business processes....

 includes tools or modules used to execute supply chain transactions, manage supplier relationships and control associated business processes.

Supply chain event management (abbreviated as SCEM) is a consideration of all possible events and factors that can disrupt a supply chain. With SCEM possible scenarios can be created and solutions devised.

Problems addressed by supply chain management

Supply chain management must address the following problems:
  • Distribution Network Configuration: number, location and network missions of suppliers, production facilities, distribution centers, warehouses, cross-docks and customers.
  • Distribution Strategy: questions of operating control (centralized, decentralized or shared); delivery scheme, e.g., direct shipment
    Direct shipment
    Direct shipment is a method of delivering goods from the supplier or the product owner to the customer directly. In most of the cases, the customer orders the goods from the product owner...

    , pool point shipping, cross docking, DSD (direct store delivery), closed loop shipping; mode of transportation, e.g., motor carrier
    Motor carrier
    Motor carrier may refer to:* A company which employs large semi-truck and bus drivers. See Federal Motor Carrier Safety Administration .* Motor Carrier an English automobile....

    , including truckload, LTL
    Less than truckload
    Less than truckload shipping is the transportation of relatively small freight. The alternatives to LTL carriers are parcel carriers or full truckload carriers. Parcel carriers usually handle small packages and freight that can be broken down in to units less than . Full truckload carriers move...

    , parcel; railroad; intermodal transport, including TOFC (trailer on flatcar) and COFC (container on flatcar); ocean freight; airfreight; replenishment strategy (e.g., pull, push or hybrid); and transportation control (e.g., owner-operated, private carrier
    Private carrier
    A private carrier is a company that transports only their own goods. Usually the carrier's primary business is not transportation but rather something else. For example, the Wegmans grocery store chain owns and operates their own private fleet to deliver produce and goods to their stores...

    , common carrier
    Common carrier
    A common carrier in common-law countries is a person or company that transports goods or people for any person or company and that is responsible for any possible loss of the goods during transport...

    , contract carrier, or 3PL).
  • Trade-Offs in Logistical Activities: The above activities must be well coordinated in order to achieve the lowest total logistics cost. Trade-offs may increase the total cost if only one of the activities is optimized. For example, full truckload (FTL) rates are more economical on a cost per pallet basis than less than truckload (LTL) shipments. If, however, a full truckload of a product is ordered to reduce transportation costs, there will be an increase in inventory holding costs which may increase total logistics costs. It is therefore imperative to take a systems approach when planning logistical activities. These trade-offs are key to developing the most efficient and effective Logistics and SCM strategy.
  • Information: Integration of processes through the supply chain to share valuable information, including demand signals, forecasts, inventory, transportation, potential collaboration, etc.
  • Inventory Management: Quantity and location of inventory, including raw materials, work-in-process (WIP) and finished goods.
  • Cash-Flow: Arranging the payment terms and methodologies for exchanging funds across entities within the supply chain.


Supply chain execution means managing and coordinating the movement of materials, information and funds across the supply chain. The flow is bi-directional.

Activities/functions

Supply chain management is a cross-function approach including 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 becoming more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities 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 management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. 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.

Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries. SCOR
Scór
Scór is a division of the Gaelic Athletic Association charged with promotion of cultural activities, and the name of a series of annual competitions in such activities.Rule 4 of the GAA's official guide reads:...

 is a supply chain management model promoted by the Supply Chain Council. Another model is the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply chain activities can be grouped into strategic, tactical, and operational levels. The CSCMP has adopted The American Productivity & Quality Center (APQC) Process Classification FrameworkSM a high-level, industry-neutral enterprise process model that allows organizations to see their business processes from a cross-industry viewpoint.

Strategic level

  • Strategic network optimization, including the number, location, and size of warehousing, distribution center
    Distribution center
    A distribution center for a set of products is a warehouse or other specialized building, often with refrigeration or air conditioning, which is stocked with products to be redistributed to retailers, to wholesalers, or directly to consumers. A distribution center is a principal part, the order...

    s, and facilities.
  • Strategic partnership
    Strategic partnership
    A strategic partnership is a formal alliance between two commercial enterprises, usually formalized by one or more business contracts but falls short of forming a legal partnership or, agency, or corporate affiliate relationship....

    s with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics.
  • Product life cycle management
    Product life cycle management
    Product life-cycle management is the succession of strategies used by business management as a product goes through its life-cycle. The conditions in which a product is sold changes over time and must be managed as it moves through its succession of stages.Product life-cycle Like human beings,...

    , so that new and existing products can be optimally integrated into the supply chain and capacity management activities.
  • Information technology
    Information technology
    Information technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications...

     chain operations.
  • Where-to-make and make-buy decisions.
  • Aligning overall organizational strategy with supply strategy.
  • It is for long term and needs resource commitment.

Tactical level

  • Sourcing contracts and other purchasing decisions.
  • Production decisions, including contracting, scheduling, and planning process definition.
  • Inventory decisions, including quantity, location, and quality of inventory.
  • Transportation strategy, including frequency, routes, and contracting.
  • Benchmarking
    Benchmarking
    Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time and cost...

     of all operations against competitors and implementation of best practice
    Best practice
    A best practice is a method or technique that has consistently shown results superior to those achieved with other means, and that is used as a benchmark...

    s throughout the enterprise.
  • Milestone payments.
  • Focus on customer demand and Habits.

Operational level

  • Daily production and distribution planning, including all nodes in the supply chain.
  • Production scheduling for each manufacturing facility in the supply chain (minute by minute).
  • Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers.
  • Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers.
  • Inbound operations, including transportation from suppliers and receiving inventory.
  • Production operations, including the consumption of materials and flow of finished goods.
  • Outbound operations, including all fulfillment activities, warehousing and transportation to customers.
  • Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers.
  • From production level to supply level accounting all transit damage cases & arrange to settlement at customer level by maintaining company loss through insurance company.
  • Managing non-moving, short-dated inventory and avoiding more products to go short-dated.

Importance of supply chain management

Organizations increasingly find that they must rely on effective supply chains, or networks, to compete in the global market and networked economy. 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.

During the past decades, globalization, outsourcing and information technology
Information technology
Information technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications...

 have enabled many organizations, such as Dell
Dell
Dell, Inc. is an American multinational information technology corporation based in 1 Dell Way, Round Rock, Texas, United States, that develops, sells and supports computers and related products and services. Bearing the name of its founder, Michael Dell, the company is one of the largest...

 and Hewlett Packard, to successfully operate solid collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities (Scott, 1993). This inter-organizational supply network can be acknowledged as a new form of organization. However, with the complicated interactions among the players, the network structure fits neither "market" nor "hierarchy" categories (Powell, 1990). 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, 2004). 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, 1979).

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. Second, technological changes, particularly the dramatic fall in information communication costs, which are a significant component of transaction costs, have led to changes in coordination among the members of the supply chain network (Coase, 1998).

Many researchers have recognized these kinds of supply network structures as a new organization form, using terms such as "Keiretsu
Keiretsu
A is a set of companies with interlocking business relationships and shareholdings. It is a type of business group. The keiretsu has maintained dominance over the Japanese economy for the greater half of the twentieth century....

", "Extended Enterprise", "Virtual Corporation", "Global Production Network", and "Next Generation Manufacturing System". In general, such a structure can be defined as "a group of semi-independent organizations, 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" (Akkermans, 2001).

The security management system for supply chains is described in ISO/IEC 28000 and ISO/IEC 28001 and related standards published jointly by ISO and IEC
International Electrotechnical Commission
The International Electrotechnical Commission is a non-profit, non-governmental international standards organization that prepares and publishes International Standards for all electrical, electronic and related technologies – collectively known as "electrotechnology"...


Historical developments in supply chain management

Six major movements can be observed in the evolution of supply chain management studies: Creation, Integration, and Globalization (Movahedi et al., 2009), Specialization Phases One and Two, and SCM 2.0.

1. Creation era

The term supply chain management was first coined by a U.S. industry consultant in the early 1980s. 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 the Japanese practice of management.

2. Integration era

This era of supply chain management studies was highlighted with the development of Electronic Data Interchange (EDI) systems in the 1960s and developed through the 1990s 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-adding and cost reductions through integration.

In fact a supply chain can be classified as a Stage 1, 2 or 3 network. In stage 1 type supply chain, various systems such as Make, Storage, Distribution, Material control, etc. are not linked and are independent of each other. In a stage 2 supply chain, these are integrated under one plan and is ERP enabled. A stage 3 supply chain is one in which vertical integration
Vertical integration
In microeconomics and management, the term vertical integration describes a style of management control. Vertically integrated companies in a supply chain are united through a common owner. Usually each member of the supply chain produces a different product or service, and the products combine to...

 with the suppliers in upstream direction and customers in downstream direction is achieved. An example of this kind of supply chain is Tesco.

3. Globalization era

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 over national boundaries and into other continents. Although the use of global sources in the supply chain of organizations can be traced back several decades (e.g., in the oil industry), it was not until the late 1980s that a considerable number of organizations started to integrate global sources into their core business. This era is characterized by the globalization of supply chain management in organizations with the goal of increasing their competitive advantage, value-adding, and reducing costs through global sourcing.

4. Specialization era (phase I): outsourced manufacturing and distribution

In the 1990s, industries began to focus on “core competencies” and adopted a specialization model. Companies abandoned vertical integration, sold off non-core operations, and outsourced those functions to other companies. This changed management requirements by extending the supply chain well beyond company walls and distributing management across specialized supply chain partnerships.

This transition also re-focused the fundamental perspectives of each respective organization. OEMs became brand owners that needed deep visibility 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 multiple, individual supply chains specific to products, suppliers, and customers who work together to design, manufacture, distribute, market, sell, and service a product. The 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.

5. Specialization era (phase II): supply chain management as a service

Specialization within the supply chain began in the 1980s with the inception of transportation brokerages, warehouse management, and non-asset-based carriers and has matured beyond transportation and logistics into aspects of supply planning, collaboration, execution and performance management.

At any given moment, market forces could demand changes from suppliers, logistics providers, locations and customers, and from any number of these specialized participants as components of supply chain networks. This variability has significant effects on the supply chain infrastructure, from the foundation layers of establishing and managing the electronic communication between the trading partners to more complex requirements including the configuration of the 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 the leading reason why supply chain specialization is gaining popularity.

Outsourced technology hosting for supply chain solutions debuted in the late 1990s and has taken root primarily in transportation and collaboration categories. This has progressed from the Application Service Provider (ASP) model from approximately 1998 through 2003 to the On-Demand model from approximately 2003-2006 to the Software as a Service (SaaS) model currently in focus today.

6. Supply chain management 2.0 (SCM 2.0)

Building on globalization and specialization, the term SCM 2.0 has been coined to describe both the changes within the supply chain itself as well as the evolution of the processes, methods and tools that manage it in this new "era".

Web 2.0 is defined as a trend in the use of the World Wide Web that is meant to increase creativity, information sharing, and collaboration among users. At its core, the common attribute that Web 2.0 brings is to help navigate the vast amount of information available on the Web in order to find what is being sought. It is the notion of a usable pathway. SCM 2.0 follows this notion into supply chain operations. It is the pathway to SCM results, a combination of the 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 the effects of global competition, rapid price fluctuations, surging oil prices, short product life cycles, expanded specialization, near-/far- and off-shoring, and talent scarcity.

SCM 2.0 leverages proven solutions designed to rapidly deliver results with the agility to quickly manage future change for continuous flexibility, value and success. This is delivered through competency networks composed of best-of-breed supply chain domain expertise to understand which elements, both operationally and organizationally, are the critical few that deliver the results as well as through intimate understanding of how to manage these elements to achieve desired results. Finally, 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.

Supply chain business process integration

Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as 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
Process integration
Process integration is a term in chemical engineering which has two possible meanings.1. A holistic approach to process design which emphasizes the unity of the process and considers the interactions between different unit operations from the outset, rather than optimising them separately. This...

.

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 reached the conclusion that optimizing the product flows cannot be accomplished without implementing a process approach to the business. The key supply chain processes stated by Lambert (2004) are:
  • Customer relationship management
    Customer relationship management
    Customer relationship management is a widely implemented strategy for managing a company’s interactions with customers, clients and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing,...

  • Customer service management
  • Demand management style
  • Order fulfillment
    Order fulfillment
    Order fulfillment is in the most general sense the complete process from point of sales inquiry to delivery of a product to the customer...

  • Manufacturing flow management
  • Supplier relationship management
  • Product development and commercialization
  • Returns management


Much has been written about demand management. Best-in-Class companies have similar characteristics, which include the following:
a) Internal and external collaboration
b) Lead time reduction initiatives
c) Tighter feedback from customer and market demand
d) Customer level forecasting

One could suggest other key critical supply business processes which combine these processes stated by Lambert such as:


  1. Customer service management
    Service management
    Service management is integrated into supply chain management as the joint between the actual sales and the customer. The aim of high performance service management is to optimize the service-intensive supply chains, which are usually more complex than the typical finished-goods supply chain...


  2. Procurement

  3. Product development and commercialization

  4. Manufacturing flow management/support

  5. Physical distribution

  6. Outsourcing/partnerships

  7. Performance measurement

  8. Warehousing management



a) Customer service management
Service management
Service management is integrated into supply chain management as the joint between the actual sales and the customer. The aim of high performance service management is to optimize the service-intensive supply chains, which are usually more complex than the typical finished-goods supply chain...

 process:

Customer Relationship Management concerns the relationship between the 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:
  • determine mutually satisfying goals for organization and customers

  • establish and maintain customer rapport

  • produce positive feelings in the organization and the customers


  • b) Procurement process:

    Strategic plans are drawn up with suppliers to support the manufacturing flow management process and the development of new products. In firms where operations extend globally, sourcing should be managed on a global basis. The desired outcome is a win-win relationship where both parties benefit, and a reduction in time required for the design cycle and product development. Also, the purchasing function develops rapid communication systems, such as electronic data interchange
    Electronic Data Interchange
    Electronic data interchange is the structured transmission of data between organizations by electronic means. It is used to transfer electronic documents or business data from one computer system to another computer system, i.e...

     (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
    Quality Assurance
    Quality assurance, or QA for short, is the systematic monitoring and evaluation of the various aspects of a project, service or facility to maximize the probability that minimum standards of quality are being attained by the production process...

    , many of which include the responsibility to coordinate with suppliers on matters of scheduling, supply continuity, hedging, and research into new sources or programs.

    c) Product development and commercialization:

    Here, customers and suppliers must be integrated into the product development process in order to reduce time to market. As product life cycles shorten, the appropriate products must be developed and successfully launched with ever shorter time-schedules to remain competitive. According to Lambert and Cooper (2000), managers of the product development and commercialization process must:
    1. coordinate with customer relationship management to identify customer-articulated needs;
    2. select materials and suppliers in conjunction with procurement, and
    3. develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination.


    d) Manufacturing flow management process:

    The manufacturing process produces and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible 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. Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency in meeting customer demand. 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 geographic and final assemblies postponement of physical distribution operations.

    e) Physical distribution:

    This concerns movement of a finished product/service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/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 (e.g., links manufacturers, wholesalers, retailers).

    f) Outsourcing/partnerships:

    This is not just outsourcing the procurement of materials and components, but also 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 where it has a distinctive advantage, and outsource everything else. This movement has been particularly evident in logistics
    Logistics
    Logistics is the management of the flow of goods between the point of origin and the point of destination in order to meet the requirements of customers or corporations. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and...

     where the provision of transport, warehousing 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 both central and local involvement. Hence, strategic decisions need to be taken centrally, with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level.

    g) Performance measurement:

    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 firm performance. As logistics competency becomes a more critical factor in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes more narrow. A.T. Kearney Consultants (1985) noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to experts, internal measures are generally collected and analyzed by the firm including
    1. Cost
    2. Customer Service
    3. Productivity measures
    4. Asset measurement, and
    5. Quality.

    External performance measurement is examined through customer perception measures and "best practice
    Best practice
    A best practice is a method or technique that has consistently shown results superior to those achieved with other means, and that is used as a benchmark...

    " benchmarking, and includes 1) customer perception measurement, and 2) best practice benchmarking.

    h) Warehousing management:

    As a case of reducing company cost & expenses, warehousing management is carrying the valuable role against operations. In case of perfect storing & office with all convenient facilities in company level, reducing manpower cost, dispatching authority with on time delivery, loading & unloading facilities with proper area, area for service station, stock management system etc.

    Components of supply chain management are as follows:
    1. Standardization
    2. Postponement
    3. Customization

    Theories of supply chain management

    Currently there is a gap in the literature available on supply chain management studies: there is no theoretical support for explaining the existence and the boundaries of supply chain management. A few authors such as Halldorsson, et al. (2003), Ketchen and Hult (2006) and Lavassani, et al. (2009) have tried to provide theoretical foundations for different areas related to supply chain by employing organizational theories. These theories include:
    • Resource-based view
      Resource-Based View
      The resource-based view is a business management tool used to determine the strategic resources available to a company. The fundamental principle of the RBV is that the basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm's...

       (RBV)
    • Transaction Cost Analysis (TCA)
    • Knowledge-Based View (KBV)
    • Strategic Choice Theory (SCT)
    • Agency Theory (AT)
    • Institutional theory (InT)
    • Systems Theory (ST)
    • Network Perspective (NP)
    • Materials Logistics Management (MLM)
    • Just-in-Time (JIT)
    • Material Requirements Planning
      Material requirements planning
      Material requirements planning is a production planning and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, while it is possible to conduct MRP by hand as well....

       (MRP)
    • Theory of Constraints
      Theory of Constraints
      The theory of constraints adopts the common idiom "A chain is no stronger than its weakest link" as a new management paradigm. This means that processes, organizations, etc., are vulnerable because the weakest person or part can always damage or break them or at least adversely affect the...

       (TOC)
    • Total Quality Management
      Total Quality Management
      Total quality management or TQM is an integrative philosophy of management for continuously improving the quality of products and processes....

       (TQM)
    • Agile Manufacturing
    • Time Based Competition (TBC)
    • Quick Response Manufacturing (QRM)
    • Customer Relationship Management
      Customer relationship management
      Customer relationship management is a widely implemented strategy for managing a company’s interactions with customers, clients and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing,...

       (CRM)
    • Requirements Chain Management (RCM)
    • Available-to-promise
      Available-to-promise
      Available-to-promise is a business function that provides a response to customer order enquiries, based on resource availability. It generates available quantities of the requested product, and delivery due dates...

        (ATP)
    • and many more


    However, the unit of analysis
    Unit of analysis
    The unit of analysis is the major entity that is being analyzed in the study. It is the 'what' or 'whom' that is being studied. In social science research, typical units of analysis include individuals , groups, social organizations and social artifacts.The literature of International Relations...

     of most of these theories is not the system “supply chain”, but another system such as the “firm” or the “supplier/buyer relationship”. Among the few exceptions is the relational view, which outlines a theory for considering dyads and networks of firms as a key unit of analysis for explaining superior individual firm performance (Dyer and Singh, 1998).

    Supply chain centroids

    In the study of supply chain management, the concept of centroids has become an important economic consideration. A centroid is a place that has a high proportion of a country’s population and a high proportion of its manufacturing, generally within 500 mi (805 km). In the U.S., two major supply chain centroids have been defined, one near Dayton, Ohio and a second near Riverside, California.

    The centroid near Dayton is particularly important because it is closest to the population center of the US and Canada. Dayton is within 500 miles of 60% of the population and manufacturing capacity of the U.S., as well as 60 percent of Canada’s population. The region includes the Interstate 70/75 interchange, which is one of the busiest in the nation with 154,000 vehicles passing through in a day. Of those, anywhere between 30 percent and 35 percent are trucks hauling goods. In addition, the I-75 corridor is home to the busiest north-south rail route east of the Mississippi.

    Tax efficient supply chain management

    Tax Efficient Supply Chain Management is a business model which consider the effect of Tax
    Tax
    To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

     in design and implementation of supply chain management. As the consequence of Globalization
    Globalization
    Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...

    , business which is cross-nation should pay different tax rates in different countries. Due to the differences, global players have the opportunity to calculate and optimize supply chain based on tax efficiency legally. It is used as a method of gaining more profit for company which owns global supply chain.

    Supply chain sustainability

    Supply chain sustainability
    Supply chain sustainability
    Supply chain sustainability is a business issue affecting an organisation’s supply chain or logistics network in terms of environmental, risk, and waste costs...

     is a business issue affecting an organization’s supply chain or logistics network and is frequently quantified by comparison with SECH ratings. SECH ratings are defined as social, ethical, cultural and health footprints. Consumers have become more aware of the environmental impact of their purchases and companies’ SECH ratings and, along with non-governmental organization
    Non-governmental organization
    A non-governmental organization is a legally constituted organization created by natural or legal persons that operates independently from any government. The term originated from the United Nations , and is normally used to refer to organizations that do not form part of the government and are...

    s(NGOs), are setting the agenda for transitions to organically-grown foods, anti-sweatshop
    Anti-sweatshop
    Anti-Sweatshop refers to campaigning movements to improve the conditions of workers in Sweatshops, i.e. manufacturing places characterized by low wages, poor working conditions and often child labor...

     labor codes and locally-produced goods that support independent and small businesses. Because supply chains frequently account for over 75% of a company’s carbon footprint many organizations are exploring how they can reduce this and thus improve their SECH rating.

    For example, in July, 2009 the U.S. based Wal-Mart
    Wal-Mart
    Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...

     corporation announced its intentions to create a global sustainability
    Sustainability
    Sustainability is the capacity to endure. For humans, sustainability is the long-term maintenance of well being, which has environmental, economic, and social dimensions, and encompasses the concept of union, an interdependent relationship and mutual responsible position with all living and non...

     index that would rate products according to the environmental and social impact made while the products were manufactured and distributed. The sustainability rating index is intended to create environmental accountability in Wal-Mart's supply chain, and provide the motivation and infrastructure
    Infrastructure
    Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...

     for other retail industry companies to do the same.

    More recently, the US Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by President Obama in July 2010, contained a supply chain sustainability provision in the form of the Conflict Minerals law. This law requires SEC-regulated companies to conduct third party audits of the company supply chains, determine whether any tin, tantalum, tungsten or gold (together referred to as "conflict minerals") is made of up ore mined/sourced from the Democratic Republic of the Congo
    Democratic Republic of the Congo
    The Democratic Republic of the Congo is a state located in Central Africa. It is the second largest country in Africa by area and the eleventh largest in the world...

    (DRC), and create a report (available to the general public and SEC) detailing the supply chain due diligence efforts undertaken and the results of the audit. Of course, the chain of suppliers/vendors to these reporting companies will be expected to provide appropriate supporting information.

    Components of supply chain management integration

    The management components of SCM

    The SCM components are the third element of the four-square circulation framework. The level of integration and management of a business process link is a function of the number and level, ranging from low to high, of components added to the link (Ellram and Cooper, 1990; Houlihan, 1985). Consequently, adding more management components or increasing the level of each component can increase the level of integration of the business process link.
    The literature on business process re-engineering, buyer-supplier relationships, and SCM suggests various possible components that must receive managerial attention when managing supply relationships. Lambert and Cooper (2000) identified the following components:
    • Planning and control
    • Work structure
    • Organization structure
    • Product flow facility structure
    • Information flow facility structure
    • Management methods
    • Power and leadership structure
    • Risk and reward structure
    • Culture and attitude


    However, a more careful examination of the existing literature leads to a more comprehensive understanding of what should be the key critical supply chain components, the "branches" of the previous identified supply chain business processes, that is, what kind of relationship the components may have that are related to suppliers and customers. Bowersox and Closs states that the emphasis on cooperation represents the synergism leading to the highest level of joint achievement (Bowersox and Closs, 1996). A primary level channel participant is a business that is willing to participate in the inventory ownership responsibility or assume other aspects of financial risk, thus including primary level components (Bowersox and Closs, 1996). A secondary level participant (specialized) is a business that participates in channel relationships by performing essential services for primary participants, including secondary level components, which support primary participants. Third level channel participants and components that support the primary level channel participants and are the fundamental branches of the secondary level components may also be included.

    Consequently, Lambert and Cooper's framework of supply chain components does not lead to any conclusion about what are the primary or secondary (specialized) level supply chain components (see Bowersox and Closs, 1996, p. 93). That is, what supply chain components should be viewed as primary or secondary, how should these components be structured in order to have a more comprehensive supply chain structure, and how to examine the supply chain as an integrative one (See above sections 2.1 and 3.1).

    Reverse supply chain
    Reverse logistics
    Reverse logistics
    Reverse logistics stands for all operations related to the reuse of products and materials. It is "the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption...

     is the process of managing the return of goods.
    Reverse logistics is also referred to as "Aftermarket Customer Services".
    In other words, any time money is taken from a company's warranty reserve or service logistics budget one can speak of a reverse logistics operation.

    Supply chain systems and value

    Supply chain systems configure value for those that organize the networks. Value is the additional revenue over and above the costs of building the network. Co-creating value and sharing the benefits appropriately to encourage effective participation is a key challenge for any supply system. Tony Hines defines value as follows: “Ultimately it is the customer who pays the price for service delivered that confirms value and not the producer who simply adds cost until that point”

    Global supply chain management

    Global supply chains pose challenges regarding both quantity and value:


    Supply and value chain trends
    • Globalization
    • Increased cross border sourcing
    • Collaboration for parts of value chain with low-cost providers
    • Shared service centers for logistical and administrative functions
    • Increasingly global operations, which require increasingly global coordination and planning to achieve global optimums
    • Complex problems involve also midsized companies to an increasing degree,



    These trends have many benefits for manufacturers because they make possible larger lot sizes, lower taxes, and better environments (culture, infrastructure, special tax zones, sophisticated OEM) for their products. Meanwhile, on top of the problems recognized in supply chain management, there will be many more challenges when the scope of supply chains is global. This is because with a supply chain of a larger scope, the lead time is much longer. Furthermore, there are more issues involved such as multi-currencies, different policies and different laws. The consequent problems include:1. different currencies and valuations in different countries; 2. different tax laws (Tax Efficient Supply Chain Management); 3. different trading protocols; 4. lack of transparency of cost and profit.

    See also

    • Beer distribution game
      Beer Distribution Game
      The Beer Distribution Game is a simulation game created by a group of professors at MIT Sloan School of Management in early 1960s to demonstrate a number of key principles of supply chain management. The game is played by teams of at least four players, often in heated competition, and takes from...

    • Bullwhip effect
      Bullwhip effect
      The Bullwhip Effect is an observed phenomenon in forecast-driven distribution channels. It refers to a trend of larger and larger swings in inventory in response to changes in demand, as one looks at firms further back in the supply chain for a product...

    • Calculating demand forecast accuracy
      Calculating Demand Forecast Accuracy
      Calculating demand forecast accuracy is the process of determining the accuracy of forecasts made regarding customer demand for a product.-Importance of forecasts:...

    • Customer-driven supply chain
    • Customer relationship management
      Customer relationship management
      Customer relationship management is a widely implemented strategy for managing a company’s interactions with customers, clients and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing,...

    • Demand chain management
      Demand chain management
      Demand chain management is the management of upstream and downstream relationships between suppliers and customers to deliver the best value to the customer at the least cost to the demand chain as a whole. The term demand chain management is used to denote the concept commonly referred to as...

    • Distribution
      Distribution (business)
      Product distribution is one of the four elements of the marketing mix. An organization or set of organizations involved in the process of making a product or service available for use or consumption by a consumer or business user.The other three parts of the marketing mix are product, pricing,...

    • Document automation
      Document automation
      Document automation is the design of systems and workflow that assist in the creation of electronic documents. These include logic based systems that use segments of pre-existing text and/or data to assemble a new document. This process is increasingly used within certain industries to assemble...

       within supply chain and logistics
    • Enterprise planning systems
    • Enterprise resource planning
      Enterprise resource planning
      Enterprise resource planning systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application...

    • Industrial engineering
      Industrial engineering
      Industrial engineering is a branch of engineering dealing with the optimization of complex processes or systems. It is concerned with the development, improvement, implementation and evaluation of integrated systems of people, money, knowledge, information, equipment, energy, materials, analysis...

    • Information technology management
      Information technology management
      IT management is the discipline whereby all of the technology resources of a firm are managed in accordance with its needs and priorities. These resources may include tangible investments like computer hardware, software, data, networks and data centre facilities, as well as the staffs who are...

    • Integrated business planning
      Integrated business planning
      Integrated business planning refers to the technologies, applications and processes of connecting the planning function across the enterprise to improve organizational alignment and financial performance...

    • Inventory
      Inventory
      Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...

    • Inventory control system
      Inventory control system
      An inventory control system is a process for managing and locating objects or materials. In common usage, the term may also refer to just the software components......

    • Inventory management software
      Inventory management software
      Inventory management software is a computer-based system for tracking product levels, orders, sales and deliveries. It can also be used in the manufacturing industry to create a work order, bill of materials and other production-related documents. Companies use inventory management software to...

    • LARGe SCM
      LARGe SCM
      LARGe Supply Chain Management attempts to put together Lean, Agile, Resilient, and Green approaches in Supply Chain Management. Lean supply chain management aims to get close to zero inventories and reduce work-in-process; Agile goes for quick respond to customer enquiries and market changes while...

    • Liquid logistics
      Liquid Logistics
      Liquid Logistics is a special category of logistics that relates to liquid products, and is used extensively in the "Supply Chain for Liquids" discipline....

    • Logistic engineering
      Logistic engineering
      Logistics engineering is a branch of systems engineering dedicated to the scientific organization of the purchase, transport, storage, distribution, and warehousing of materials and finished goods....

    • Logistics
      Logistics
      Logistics is the management of the flow of goods between the point of origin and the point of destination in order to meet the requirements of customers or corporations. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and...

    • Logistics management
      Logistics Management
      The term Logistics Management or supply chain management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective, forward, and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption...

    • Logistics officer
      Logistics Officer
      A Logistics Officer is a member of an armed force responsible for overseeing the support of an army, air force, or navy both at home and abroad. Logistics Officers can be stationary on military bases or deployed as an active part of a field army, air wing, or naval force. The responsibilities of...


    • Management information system
      Management information system
      A management information system provides information needed to manage organizations efficiently and effectively. Management information systems involve three primary resources: people, technology, and information. Management information systems are distinct from other information systems in that...

    • Military supply chain management
      Military Supply Chain Management
      Military supply chain management is a cross-functional approach to procuring, producing and delivering products and services. The broad management scope includes sub-suppliers, suppliers, internal information and funds flow.-Supply:...

    • Offshoring Research Network
      Offshoring Research Network
      The Offshoring Research Network is an international network of researchers and practitioners studying organizations in their transition to globalizing their business functions, processes and administrative services...

    • Operations management
      Operations management
      Operations management is an area of management concerned with overseeing, designing, and redesigning business operations in the production of goods and/or services. It involves the responsibility of ensuring that business operations are efficient in terms of using as little resources as needed, and...

    • Order fulfillment
      Order fulfillment
      Order fulfillment is in the most general sense the complete process from point of sales inquiry to delivery of a product to the customer...

    • Procurement
      Procurement
      Procurement is the acquisition of goods or services. It is favourable that the goods/services are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time, and location...

    • Haulage
      Haulage
      Haulage may refer to:* The business of being a haulier or hauler , also called haulage contractor, common carrier, contract carrier, or private carrier, in other words of transporting goods by road or rail for other companies or one's own company.* The horizontal transport of ore, coal, supplies,...

    • Procurement outsourcing
      Procurement outsourcing
      Procurement outsourcing is the transfer of specified key procurement activities relating to sourcing and supplier management to a third party — perhaps to reduce overall costs or maybe to tighten the company's focus on its core competencies...

    • Radio-frequency identification
    • Reverse logistics
      Reverse logistics
      Reverse logistics stands for all operations related to the reuse of products and materials. It is "the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption...

    • Service management
      Service management
      Service management is integrated into supply chain management as the joint between the actual sales and the customer. The aim of high performance service management is to optimize the service-intensive supply chains, which are usually more complex than the typical finished-goods supply chain...

    • Strategic information system
      Strategic information system
      The concept of Strategic Information Systems or "SIS" was first introduced into the field of information systems in 1982-83 by Dr. Charles Wiseman, President of a newly formed consultancy called "Competitive Applications," The concept of Strategic Information Systems or "SIS" was first introduced...

    • Supply chain management software
      Supply chain management software
      Supply chain management software is a business term which refers to a whole range of software tools or modules used in executing supply chain transactions, managing supplier relationships and controlling associated business processes....

    • Supply chain network
      Supply chain network
      Due to the rapid advancement of technology such as pervasive or ubiquitous wireless and internet networks, connective product marking technologies like RFID and emerging standards for the use of these defining specific locations using Global Location Number, the basic supply chain is rapidly...

    • Supply chain security
      Supply chain security
      Supply chain security refers to efforts to enhance the security of the supply chain: the transport and logistics system for the world's cargo. It combines traditional practices of supply chain management with the security requirements of the system, which are driven by threats such as terrorism,...

    • Supply chain
      Supply chain
      A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to...

    • Supply management
      Supply management
      The term supply management describes the methods and processes of modern corporate or institutional buying. This may be for the purchasing of supplies for internal use referred to as indirect goods and services, purchasing raw materials for the consumption during the manufacturing process, or for...

    • Tendering
    • Value chain
      Value chain
      The value chain, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.-Firm Level:...

    • Value grid
      Value grid
      The value grid model was proposed by Pil and Holweg as a means to show that the way firms compete has shifted away from the linear value chain way management theory has traditionally thought about value chain management....

    • Vendor-managed inventory
    • Warehouse management system
      Warehouse management system
      A warehouse management system, or WMS, is a key part of the supply chain and primarily aims to control the movement and storage of materials within a warehouse and process the associated transactions, including shipping, receiving, putaway and picking...


    External links

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