SUPPLY CHAIN MANAGEMENT (SCM): Overview

SCM for Business

SCM is defined as combination of art and science that goes into improving the way your
company find the raw components that needs to make a product or services and deliver it to
customer. In Business word this art and science become functions that an organization undertake.
SCM for IT
Systems that support manufacturing managers in making decisions that optimize the trade off
between capital tied up in stocks and inventories, versus the ability to deliver goods at prices and
delivery dates agreed with customers.
In principle and reality, both inwards logistics operations to acuire materials to make products
and outwards logistics operations shipping finished goods to final customers are monitored.
WHAT EACTLY IS SUPPLY CHAIN MANAGEMENT O! WHAT IS BASIC
COMPONENT O" SCM#
!s per Supply"Chain #perations $eference"model %SC#$&'&'(()* which has been developed
by Supply"Chain Council. +his model organized and focused on the five primary management
,. PLAN
-. SOU!CE
.. MA$E
/. %ELI&E!
0. !ETU!N
,. P'(n1 +his is vital part of SCM philosophy, where the companies normally need to make
strategy for managing all the resource that go towards fulfilling the customer demand for the
product and services that they offers. ! big piece of planning is developing a set of matrices to
monitor the Supply chain so that it would be efficient, cost effective and deliver high uality and
value to the customer.
-. Sour)e1 It means processes that procure goods and services to meet planned or actual demand.
+his part of SCM consists of selecting right suppliers that will deliver the good and services that
need to create your product. 2eveloping a set of pricing, delivery and payment process with
supplier is important. !lso this will also take care of managing the inventory of goods, and
services you receive from your suppliers, including receiving shipping, verifying them,
transferring them into various facilities and authorizing supplier payment.
.. M(*e1 +his is basically a step where your company starts fulfilling the reuest or B3I4+ for
products into finished state to meet planned or actual demand. Schedule activity necessary for
production, testing, packaging and preparation for delivery.
/. %e'iver1 +his is also called 4ogistic 5rocess. +his is the processes that provide finished goods
and services to meet planned or actual demand, typically including order management,
transportation management, and distribution management.
0. !e+urn " +his is real pain of SCM model, which defined as processes associated with
returning or receiving returned products for any reason.
+ypical model can be best described as1
WHO IS THE STA$EHOL%E! O" SUPPLY CHAIN
+hese are considered as stake holder of SCM1
Customers
6our Company
2esign 5artners
Material Suppliers
Contract Manufacturers
4ogistic 5roviders
WHAT A!E %!I&E!S O" THE SUPPLY CHAIN#
+hese are the main drivers 1
5roduction
Inventory
4ocation
+ransportation
Information
,- Pro.u)+ion
+his driver addressing these uestions1 what products does the market want7 8ow much of
which products should be produced and by when7
+his activity includes the creation of master production schedules that take into account plant
capacities, workload balancing, uality control, and euipment maintenance.
/- Inven+or0
+his driver addressing these uestions1 9hat inventory should be stocked at each stage in a
supply chain7 8ow much inventory should be held as raw materials, semi finished, or finished
goods7
+he primary purpose of inventory is to act as a buffer against uncertainty in the supply chain.
1- Lo)(+ion
+his driver addressing these uestions1 9here should facilities for production and inventory
storage be located7 9here are the most cost efficient locations for production and for storage of
inventory7 Should e:isting facilities be used or new ones built7
#nce these decisions are made they determine the possible paths available for product to flow
through for delivery to the final consumer.
2- Tr(ns3or+(+ion
+his driver addressing these uestions1 8ow should inventory be moved from one supply chain
location to another7 !ir freight and truck delivery are generally fast and reliable but they are
e:pensive. Shipping by sea or rail is much less e:pensive but usually involves longer transit
times and more uncertainty.
4- Infor5(+ion
+his driver addressing these uestions1 8ow much data should be collected and how much
information should be shared7
+imely and accurate information holds the promise of better coordination and better decision
making. 9ith good information, people can make effective decisions about what to produce and
how much, about where to locate inventory and how best to transport it.
GET "AMILIA! WITH TOP ,6 TE!MS7 %E"INITIONS AN% TE!MINOLOGY IN
SCM
M(s+er %e5(n. S)8e.u'e 9 M%S
+he M2S is a consolidation of demand by product and time bucket
M(s+er Pro.u)+ion S)8e.u'e9 MPS
+he M5S is a statement of supply reuired to meet the demand for the items contained in the
M2S. +he master production schedule defines the anticipated build schedule for all products.
+he master production schedule also provides the basis for order promising %!+5* function
M(+eri(' !e:uire5en+s P'(n9M!P
+he Material reuirements planning %M$5* calculates net reuirements from gross reuirements
by evaluating1
+he master schedule
Bills of material
Scheduled receipts
#n"hand inventory balances
4ead times
#rder modifiers
A.v(n)e. Su33'0 C8(in P'(n9 ASCP
Constrained Based and optimized version of M$5
P'(nne. Or.er
!utomatically suggested action from planning engine
Consu53+ion
+he process of ;relieving; the forecast to prevent double counting of demand
%ro3 S8i3
8aving an order ship directly from the vendor to the customer without physically being in your
inventory.
&en.or M(n(;e. Inven+or09 &MI
+he process of giving the vendor the authority and visibility to determine what your inventory
should be
Cus+o5er Owne. Inven+or09 COI
9here you are managing the customers inventory on your premises and supply as reuired
9ork #rder<Sales #rder
+he reuest that you received from the customer for fulfilling there demand.
SIMPLE PLANNING CYCLE WITHIN AN O!GANI<ATION
! typical planning cycle would start by loading the sales orders, forecast and other demand such
internal orders into the master demand schedule %M2S*. +hat demand statement would then be
used as the schedule that drives the Master 5roduction Schedule %M5S* . +ake a note in regular
M$5 implementations the M5S is used as the schedule for !+5. #nce the M5S is reviewed and
updated is used as the schedule to drive the M$5 process. +he result of the M$5 process is
planned orders and e:ception messages. 9hen released from M$5 the planned orders for ;buy;
items become reuisitions or purchase orders in the purchasing module and the ;make; items
become discrete =obs in the 9ork In 5rocess Module. #nce the finished goods are received into
inventory it is shipped to satisfy customer orders.
S)en(rio I :S('es Or.er 9 "ore)(s+ P'(nnin; C0)'e
+his is the scenario where normally we are
building to stock and satisfying sales order
demand from stock. 8ere you will see the
difference as planned orders are released to
become purchase reuisitions for components and
work orders for sub assemblies and finished
goods. +he finished goods are then shipped to
satisfy the sales orders.





S)en(rio II : P'(nnin; 9 Pro)ure5en+ C0)'e
In the 5lanning"
5rocurement cycle we
normally start where the
first part of the planning
cycle is complete and we
have a planned order for a
buy item from M$5. +he
planned order is released
and becomes a reuisition
or purchase order in the
purchasing module. !
purchase order is then
created from the
reuisition and sent to the
vendor. +he vendor would
supply the materials. +he materials would be received into inventory and the purchase order
would be closed.



S)en(rio III :P'(nnin; 9 %ro3 S8i3 C0)'e
In the 2rop Ship cycle the process is as follows1
! sales order is received from the customer.
!fter the sales order is entered a process is run that creates a purchase order that matches
the sales orders
+he item, uantity and reuired date information on purchase order matches that
information on the sales order.
+he ship to address on the purchase order is the ship to address of the customer.
+he vendor ships the product directly to your customer. #nce the vendor ships the
product you receive; the purchase order and that creates the shipping transaction to
satisfy the sales order.
Matching accounting transactions complete the process
S)en(rio I& :P'(nnin; 9 WIP C0)'e
In the 9ork In 5rocess cycle after the planning cycle is complete a planned order is released to
create a discrete =ob. Material<components is issued the =ob or back flushed from inventory. +he
=ob is completed from 9ork In 5rocess to Inventory.
S)en(rio & : P'(nnin; 9 Ou+si.e Pro)essin; C0)'e
9ith #utside 5rocessing you could be buying a service, an item or capacity from an outside
vendor. +he setup for each of these scenarios will be described in the training sessions to follow,
however they all follow a similar process. ! routing with an outside processing operation is
setup.
!fter the planning cycle is complete a planned order is released to create a discrete =ob. #nce the
2iscrete =ob is moved to a outside processing operation, a purchase reuisition is triggered. +he
reuisition is imported to 5urchasing and a purchase order is created. +he details of the discrete
=ob such as =ob number, assembly number and uantity is tied to the purchase order. +he
purchase order is sent to the vendor. 9hen the purchase order is received its destination will be
shop floor and the assembly will be returned to the ne:t operation on the work order.
+his make an end of this discussion.