Supply Chain Management (SCM)
SCM is strategic thinking: Effective SCM improves both efficiency and effectiveness in a strategic context (Quiett, 2002)
The CIPS (Positions on practice: 8) defines supply chain management (SCM) as "the continuous planning, developing, controlling, informing and monitoring of actions within and between supply chain links so that an integrated supply process results which meets overall strategic goals." Alternatively, SCM is the "process of strategically managing the movement and storage (if necessary) of materials, parts and finished product from supplies, through the manufacturing process and on to customers or end user, as well as the associated information flows"(Yeo and Ning, 2002:256).
The modern concept of supply chain management (SCM) derives from the shipyards of Japan in the early 1950s and was subsequently developed in the car manufacturing industry, in particular by Toyota. One of the enduring outcomes of Toyota's just-in-time (JIT) SCM system was that organisations became increasingly aware of the cost of sitting on warehouses full of stock (Hindle, 2008). Prior to JIT, companies would hold large quantities of components to be used as and when required in the production process. Nowadays, it is more common for companies to manage supply chains by ordering inputs to arrive only when needed (Hindle, 2008). This is not a simple task, as more and more organisations are tasked with managing supplies and production on an international scale.
Many organisations now have as much as 80% of their turnover comprising bought-in goods and services (CIPS: Positions on practice). Owing to these complexities, issues of supply chain management are of great importance to organisations, practitioners, and researchers, alike - and supply chain managers have a vital role to play in managing costs. Yeo and Ning (2002:256) describe SCM as the 'latest procurement and logistics philosophy' to be adopted. They describe the three essences of SCM as: 1. enhancing trust among supply chain members; 2. re-engineering the business process to build a networked enterprise model; and 3. employing IT/IS to accelerate information flows both intra and inter-organisations.
SCM includes both strategic issues (e.g. optimising the network of product distribution and collaboration with partners) as well as tactical and operational issues (such as demand forecasting, order promising, materials sourcing, production, distribution planning, scheduling and inventory control) (Eriksson et al., 2006). There are three primary drivers of effective SCM, namely: 1. real time information sharing; 2. co-ordinated procurement processes in the whole chain; and 3. a collaborative attitude among all of the chain members (Yeo and Ning, 2002). Effective SCM aims to increase transparency and alignment of the supply chain's coordination and configuration, regardless of functional or corporate boundaries. SCM is based on a flow view of production unlike the traditional way of managing which was based on a conversion/transformation view of production (Cooper and Ellram, 1993).
- Quiett (2002:40) argued that SCM is much more than materials movement and transportation - it is a new way of thinking about business relationships to ensure success. The cooperation between firms that characterises effective SCM can surface costs that are hidden in traditional approaches, and whose removal permits both to benefit (CIPS: Positions on practice).
- Yeo and Ning (2002:256) state that SCM offers radical new opportunities to create marketplace advantage by leveraging supply channel partnerships, information and communication technologies, and the knowledge and innovative capabilities of the entire chain's resources.
- SCM is strategic thinking: Effective SCM improves both efficiency (cost reduction) and effectiveness in a strategic context (Quiett, 2002). As well as providing for the flow of products, it also provides a channel for the flow of customer requirements (CIPS: Positions on practice).
- The concept of SCM is often confused with logistics, even though logistics is only a part of the SCM approach (Lambert and Cooper, 2000).
- Discussions on SCM often use complicated terminology, limiting management's understanding of the concept and its practical application (Ross, 1998).
- Traditional SCM (and the practices most widely applied today) focuses on optimising individual links in the chain. This is inadequate in today's competitive world (Tompkins, 2000).
- Hewlett-Packard cut printer supply costs by 25% using inventory models to analyse the effect of different locations of inventories in its supply chain. It also realised net savings of US$80m through moving transocean freight lanes from air to sea (Billington et al., 2004).
- BMW predicted that by reallocating material supplies and the distribution of finished cars to the global market, investments and costs for materials, production and distribution would reduce by around 5-7% (Fleischmann et al., 2006).
- Longstanding British retailer Marks and Spencer (M&S) has developed enduring appeal and its strengths derives from its innovative and mutually beneficial relationships with suppliers. Well-formed working partnerships enable the company to efficiently manage the entire supply chain, adding a protective measure against future challenges and economic uncertainty (Drummond et al., 2008).
SCM is a hot topic in the practitioner literature and a major area of study amongst academics. Not surprisingly, then, there is no shortage of advice emanating from both these sources. For example, Quiett (2002) writing in the SCM Review journal proposes a number of steps for successful SCM, including implementing the right training and structure; choosing the right team; aligning with the strategic plan; piloting SCM and achieving balance. This advice resonates with that found in popular management texts (e.g., Chopra and Meindl, 2009) and that in high repute business journals such as the Harvard Business Review (e.g., Slone et al., 2007). Implementation needs to address the five key elements of SCM (See CIPS: SCM & networks): 1. Strategy - aligning the supply chain with business goals, 2. Process - describing the activities involved, the links between them, 3. Model - showing structures, roles and responsibilities, 4. Information - IT supporting operations, 5. Performance - a balanced set of indicators.
- Pick the right leaders: Ensure senior supply chain executives have a background in SCM, through formal education, significant experience, or both. Extend this best-and-brightest principle down to entry-level recruitment.
- Initiate benchmarking and select metrics: Use best-practice benchmarking on key elements of supply chain performance. Set goals for metrics based on benchmarking. Define metrics in ways that generate useful information (for example, 'good availability' means orders delivered to customers on time).
- Set incentives: Establish rewards encouraging suppliers and employees to support supply chain goals.
- Understand how your firm is currently using technologies, and ask challenging questions before adopting new tools.
- Factor supply chain management into business plans: Supply chain considerations should be core components of operations, sales and marketing planning, as well as contract negotiations with customers and partners.
Slone et al. (2007)
- Effective SCM should focus on the supply chain in its entirety, rather than just at one stage upstream or downstream. In relation to implementation, there are nine types of activity that it is important to get right: Partnering, Risk and Benefit Sharing, Integration of Resources, Information Processing, Knowledge Capture, Social Coordination, Decision Making, Conflict Resolution and Motivation (CIPS: SCM & networks).
- Stay up-to-date with the latest developments in supply chain technology (such as software and devices supporting production planning, inventory management, and warehousing) and process tools (e.g., Six Sigma) (Slone et al., 2007).
- Lysons and Farringdon (2006, in CIPS: SCM & networks) state that there are four essential requirements in SCM: 1. Connectivity - the capability to exchange information with external supply chain partners in a suitable format for facilitating inter-organisational collaboration. 2. Integration - the process of combining or coordinating separate functions to enable them to interact seamlessly, 3. Visibility - the ability to access relevant data in terms of its relevance and importance to the supply chain. 4. Responsiveness - the ability to react quickly and effectively to customer
- CIPS (SCM & networks) argues that for best results, SCM requires a Board level appointment; it has a pivotal role to play within the organisation, involving responsibility for predicting and satisfying end customers' demand back through to the suppliers and beyond. Effective SCM involves working cross-functionally within the organisation, as well as with upstream and downstream organisations.
- The key skill of an effective supply chain manager is relationship management. Other key skills are: process design (redesign), IT integration/role of e-commerce, supply chain modelling and performance management (CIPS: SCM & networks).
- When conducting benchmarking on key aspects of supply chain performance, consider using inventory turns, availability of goods, and SKU system costs (Slone et al., 2007).
- Cost to serve (determined on an activity basis) should be part of the metrics employed. In addition, total assets employed, including both physical and working capital, should be measured with regards to supply chain performance (Slone et al., 2007).
- In their Harvard Business Review article entitled "Are You the Weakest Link in Your Company's Supply Chain?", Slone et al. (2007:8) offer a 7-question survey for evaluating the level of supply chain leadership in a company and whether SCM is being leveraged as a core competence.
Clear and concise introduction to the Supply Chain Management.
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CIPS Source Downloads
- Gaining competitive advantage through SCM
- Web portal with information on SCM
- Lessons drawn from supply chain global leaders
- Rethink managing the supply chain after the natural disruption in Japan
- Supply Chain Management Terms & Definitions
- Financial Times Series on logistics and SCM
- Harvard Business Review on SCM management
- A manager's guide to supply chain management
- Guidance on best practices and managing supply chains in a global context
- SCM in manufacturing planning and control
- Billington, C., Callioni, G., Crane, B., Ruark, J. D., Rapp, J. U., White, T. and Willems, S. P. (2004) Accelerating the profitability of Hewlett-Packard's supply chains. Interfaces, Vol.34(1), pp.59-72.
- Bixby, A., Downs, B. and Self, M. (2006) A scheduling and capable-to-promise application for Swift & Company. Interfaces, Vol.36 (1), pp.69-86.
- Chopra, S. and Meindl, P. (2009) Supply chain management: Strategy, planning, and operation. Pearson Education: Essex, UK.
- CIPS: Supply chain management and networks.
- CIPS: Positions on Practice.
- Cooper, M. C. and Ellram, L. M. (1993) Characteristics of supply chain management and the Implications for purchasing and logistics strategy. International Journal of Logistics Management. Vol.4(2), pp.13-24.
- Drummond, G., Ensor, J. and Ashford, R. (2008) Strategic marketing: Planning and control. Butterworth-Heinemann: Oxford, UK.
- Eriksson, J., Finne, N. and Jason, S. (2006) Evolution of a supply chain management game for the trading agent competition. AI Communications, Vol.19, pp.1-12.
- Fleischmann, B., Ferber, S. and Henrich, P., (2006) Strategic planning of BMW's global production network. Interfaces, Vol.36(3), pp.194-208.
- Hindle, T. (2008) Guide to management ideas and gurus. The Economist/Profile Books Ltd: London.
- Lambert, D. M. and Cooper, M. C. (2000) Issues in supply chain management. Industrial Marketing Management, Vol. 29(1), pp.65-83.
- Lysons, C. K. and Farringdon, B. (2006) Purchasing and supply management. Pearson Education Ltd: England
- Quiett, F. (2002) Embracing supply chain management. Supply Chain Management Review, Vol. 6(5), pp.40-47.
- Ross, D. F. (1998) Competing through supply chain management. Kluwer Academic Publishers: Norwell, MA.
- Shirodkar, S. and Kempf, K. (2006) Supply chain collaboration through shared capacity models. Interfaces, Vol.36(5), pp.420-32.
- Slone, R. E., Mentzer, J. T. and Dittman, J. P. (2007) Are you the weakest link in your company's supply chain? Harvard Business Review, Vol.85(9), pp. 116-27.
- The Financial Times (2010) Walmart aims to cut supply chain cost [Online] Available at: www.ft.com/cms/s/0/891c7878-f895-11de-beb8-00144feab49a,s01=1.html - axzz1XMP1Unc9 [Accessed on 11 November 2011].
- Tompkins, J. (2000) Beyond supply change management. Supply Chain Management Review, Vol.4(1), pp.77-82.
- Yeo, K. T. and Ning, J. H. (2002) Integrating supply chain and critical chain concepts in Engineer-Procure-Construct (EPC) projects. International Journal of Project Management, Vol.20(4), pp. 253-262.