Supply Chain Management (SCM) is a concept that arises from two crucial ideas. First, the collective effort of all the organizations involved is mirrored in the product that is handed to an end user. Together, all these organizations are called the supply chain. Second, a lot of companies have overlooked the minute details and efforts needed to be perfected to implement a supply chain that was not disjointed and incompetent.
Activities happening along the supply chain thus have to be actively managed, such that the company achieves a competitive advantage and the customer value increases. It is the burden of supply chain firms to ensure that the chains are run effectively and smoothly. Organizations that are parts of the supply chain are linked together, through flow of information as well as physical flows. Movement, transportation and storage of goods make up the physical flows, while information flows allow partners to manage day-to-day flow and execute long term plans as well. Execution of the above needs a certain chain of command to be established, and decision makers need to be identified.
Decisions could be strategic or they could be operational. Strategic decisions would involve long term strategy plans for the firm. These help in guiding decisions from the perspective of design. Operational decisions however, are short term and require quick action, effectively and efficiently to be carried out. A few of the major decision areas in SCM would be location, production, inventory and transportation. All such areas would include elements of both strategic as well as operational decisions.
Once the location of product facilities, points to stock up, and source points are determined, it is no difficult task to chalk out the paths through which a product will flow to ultimately get to the customer. All factors involved need to be thoroughly examined before any decisions at this level can be passed. Some of these factors would be revenue, cost, service level impact, etc., taxes, duties, distribution costs, among many others.
Which products are produced by a firm, where they are produced, in which plants, which suppliers have access to a particular plant, etc. are decisions handled at the production level. The concrete paths which are taken by products, assuming that the facilities are already in place are decided at this level. The workload must be balanced, and there must always be measures to control quality.
At every stage of a supply chain, there is existence of an inventory. It may be in the form of raw materials, finished goods or intermediate goods. It is extremely crucial to manage inventories efficiently because 20 to 40 percent of the values of inventories could go in holding cost.
Amongst other things, it remains crucial to determine a mode of transport for the movement of inventory. This would involve strategic decisions that link closely to decisions regarding inventory. Factors such as reliability, speed, effectiveness and cost need to be weighed out before deciding whether a shipment should be sent by air, by road, or by rail. Considering the above points, it is safe to say that the geographic location of the inventory in reference to the end user plays an important role in the decisions pertaining to transportation.
Again, these decisions are made with caution and precision to ensure there is minimum loss incurred. Information is thus the ground on which decisions regarding the above four factors are made. The information in question has to be timely, accurate and complete, such that companies can rely on it to make complete decisions for their own benefit. Also, the profitability tends to be maximized by this. The basic uses of information in supply chains are for coordination of activities pertaining to the functioning of the drivers of the supply chain (production, inventory, transportation and location). Weekly data is utilized to make decisions on demand and supply of products on transportation rules and on routines. Apart from coordination, forecasting and planning do play a huge part in anticipation of further demands. Information that is readily available for use is utilized to obtain tactical and strategic decisions.
Before the onset of the 21st century, the flow of information between the areas within an organization were slow, since they were but paper based. Since the importance of information was greatly underestimated, a lot of oversights were made, communications were not up to speed. Capabilities of IT and infrastructure have helped put firms at a competitive advantage in the market by providing cycle time reduction, implementation and cross-functional redesign of processes. In the more recent years, people have become obsessively focused on customer satisfaction. Information has proved to be a very critical factor in helping managers to reduce inventory to a level of competitiveness. Strategic planning as well, is critically affected by modern day information flows.
As time has progressed, it has become inherently crucial to embed hardware as well as software into the development of information systems. Electronic Commerce, Electronic Data Interchange, Bar Coding and Scanning, among others have become essentials of a SCM in today’s world. E-Commerce is a very powerful collection of tools employed to assist a paperless environment. Electronic bulletin boards, EDI, image processing, data capture, etc. are thus all harboured under the name of E-Commerce. Through the use of EDI (computer to computer exchange of documents of business in a standard format) the distortions and hyperboles in the supply chain can be overcome a lot easily than before. EDI has now enabled information processing to be quick, customer service has enhanced itself, paper based work has considerably decreased, and cost efficiency has gone up. Technologies have enabled real time sharing of information of demand and supply.
Enterprise resource planning (ERP) tools have by the late 2000’s become a core of the IT infrastructures. They are used to capture data and ensure manual effort for these operations is minimal so that energy and effort can be focused on the actual job, actual inventory. ERP enables a very high level of integration suing a single data model. It deploys techniques like developing a common understanding of the representations of shared data and establishment of access rules.
India happens to be an economy growing at a rate faster than anybody else in the world. The markets in this country are diverse and disjoined, making it excessively difficult to manage supply chains for any organization. A few of the reasons behind this would be the business practices, capabilities of the technology, government regulations, etc. Companies will soon discover that their traditional supply chains will have to be upgraded to new ones which are technology friendly and open to expansions beyond their peripherals. The innovations in technology will hugely impact how organizations sell or buy now. Indian firms need to learn from the organizations in developed economies and adapt to the new ways of business, if they want to keep up in the global marketplace.
Importers and exporters need to know where their product is. Lenders need to know when and how to pay for it. Innovative companies have sprung up to harness the power of the IT, making it easier than ever for logistics managers to track and manage international shipments, and to serve their changing needs as they reach ever further across the globe to source goods. Companies such as Home Depot, Xerox and Sears already use on-demand, Web-based data hubs to identify where their goods are in real time, and if delays along the way should be corrected to avoid broader supply chain disruptions and expensive recovery work.
Companies today are under pressure to better manage the supply chain and to improve efficiency and logistics operations while remaining responsive to changing market conditions and customer demands. As a result, organizations need to adopt IT to support their supply chains and increase their efficiency by achieving tighter cooperation over the supply-chain.