Supply Chain Management

What is Supply Chain Management?

Supply chain management is the combination of the enterprise strategies, business process and
information technologies that integrates the suppliers of raw materials or components, the
manufacturers or assemblers of the finished products, and distributors of the products or services
into one cohesive process to include demand forecasting, materials requisition, order processing,
order fulfillment, transportation services, receiving, invoicing, and payment processing.
While ERP and CRM systems are intended to re-engineer internal business processes to archieve
better resource planning and coordination across departments, SCM systems are utilized to facilitate
the coordination with outside business entities, or in the scope of extended enterprise. SCM usually
refers to the redesign of supply chain processes in order to achieve streamlining. It is generally
performed only by large corporations with large suppliers. B2B exchange can extend Supply Chain
Management to all trading partners regardless of size by providing a central location to integrate
information from all supply chain participants.
Participants in a Supply Chain
Suppliers - They are organizations that provide goods and/or services to a purchasing
organization (a manufacturer or a distributor). It is often used synonymously with vendors
but may also refer to an internal company resource.
Manufacturers - They are the companies engaged in the original production and assembly of
products, equipment or services. They sometime refer to companies that purchase such
products or services manufactured or assembled in accordance with company specifications.
Distributors - Those are the external entities that sell for suppliers or manufacturers directly
and often collects all payments from customers and maintains an inventory of the supplier's
or manufacturer's products.
Processes of Supply Chain Management
Demand Planning and Forecasting - Accurate demand forecasting is considered one of
critical success factors in supply chain management. Supply chain software systems often
utilize sophisticated mathematical models for predicating future demand from historical
data. The accuracy of the demand forecasting is largely dependent on how abnormal data is
treated in the demand forecasting. Demand forecasting is an ongoing process. Supply chain
management systems can generate alerts at the frequencies of user preference, whether it's
on a weekly, or monthly basis.
Procurement - This is the process of choosing the suppliers that will deliver the goods and
services you need to manufacture or assembly your products or to create your services. It
involves price negotiation, receiving, and verifying the shipments. Supply chain management
systems can be integrated with industry-specific B2B exchanges to automate the
procurement processes.
Manufacturing and Assembly - Raw components are assembled into final products or raw
materials are manufactured into finished goods. Manufacturing involves the activities of
production, testing, packaging and preparation for delivery.
Distribution - Products or services are delivered to consumers. Distribution involves
warehousing, delivering, invoicing and payment collection.
Return - Return and refund are important parts and also the problem parts of supply chain
management. Supply chain management systems should have infrastructure in place for
receiving defective and excess products back from customers.
Another perspective of supply chain:
Supply Chain Management Definition - A Systems Perspective
What is Supply Chain Management
Supply Chain Management (SCM) is a business system of enterprise strategies, business processes
and information technologies for improving the planning, execution and collaboration of material
flows, information flows, financial flows and workforce flows in the supply chain. SCM is supported
by modular software applications that integrate activities across organizations, from demand
forecasting, product planning, parts purchasing, inventory control, manufacturing, product assembly
to product distribution.
A System of Supply Chain Management
SCM is a social or soft system which has goals, components, processes and boundary.
Goals of SCM
to reduce inventory cost,
to increase sales
to improve the coordination and the collaboration with suppliers, manufacturers and
distributors.
Components of SCM System - The components of an supply chain system consists of 1) supply chain
software and hardware, 2) supply chain business processes and 3) users of SCM system.
SCM Software and Hardware - The core of an SCM system is SCM software. Supply chain
software is module based application. Each software module automates business activities
of a functional area in the supply chain. UNIX is the most common operating system for
running SCM software
Business Processes - Business processes of supply chain includes supply chain planning,
execution and collaboration. and operational control.
Users - The users of SCM systems are workers of supply chain participants at all levels.
Processes of Supply Chain Management
Demand Planning and Forecasting - A critical success factor to supply chain management is
accurate demand forecasting. Supply chain software systems utilize sophisticated
mathematical models for predicating future demand from historical data.
Procurement - This is the process of choosing the suppliers that will deliver the goods and
services you need to manufacture or assembly your products or create your services. It
involves price negotiation, receiving, and verifying the shipments.
Manufacturing and Assembly - Raw components are assembled into final products or raw
materials are manufactured into finished goods.
Distribution - This is the process of delivering your products or services to consumers.
Distribution involves warehousing, delivering, invoicing and payment collection.
Return - Return and refund are important parts and also the problem parts of supply chain
management.
Boundary of the SCM Systems - The boundary of a SCM system is the boundary of extended
enterprise which includes the company, suppliers, partners, distributors and customers.
Supply Chain Planning
A supply chain management (SCM) software system consists of many modules or applications.
Those applications either support supply chain planning or supply chain execution. Supply chain
planning includes demand forecasting, inventory simulation, manufacturing planning and
transportation scheduling. Supply chain execution includes procurement, manufacturing and
distribution. While supply chain planning is part of enterprise strategic planning, supply chain
execution is part of managerial and operational control.
Demand Forecasting
A critical success factor to supply chain management is accurate demand forecasting. Supply chain
software systems utilize sophisticated mathematical models for predicating future demand from
historical data. The accuracy of the demand forecasting is largely dependent on how abnormal data
is treated in the demand forecasting. Demand forecasting is an ongoing process. Supply chain
management software systems can generate alerts at the frequencies of your preference on a
weekly, or monthly basis.
Inventory Simulation
Inventory simulation estimates appropriate stock levels from historical inventory data. Items used
for special events, roadshows, or kitting are common causes that result count discrepancies, When a
discrepancy occurs or the actual quantity physically counted doesn't match the stock level in the
computer system, inventory specialists need to reconcile the discrepancy in terms of cycle counting.
A cycle counting program can improve your business processes, and accuracy of estimating
inventory levels.
Manufacturing Planning
Manufacturing planning details the coordination of all manufacturing activities. It tries to achieve
the optimal use of raw materials, manufacturing equipment and skilled labors based on orders
placed by individual customers.
Transportation Scheduling
Transportation scheduling optimizes the use of resources in shipping raw materials from suppliers to
manufacturers and in delivering of finished goods from manufacturers to distributors and
customers. Transportation planning module of SCM utilizes linear and/or non-liner programming
from Operations Research to ensure the delivery of materials and goods at right time, to right place
at a minimal cost.
Supply Chain Execution
While supply chain planning applications facilitate demand forecasting, inventory simulation,
manufacturing planning and transportation scheduling, supply chain execution applications
automate order processing, manufacturing ,distribution and return function. Supply chain planning
is considered a part of enterprise strategic planning. Supply chain execution is about managerial
and operational control. Supply chain execution is the process of putting supply chain planning into
action.
Order Processing
In supply chain execution, order processing involves order placement, order confirmation, order
fulfillment and order inquiry. Supply chain management software has build-in capability that allows
both workers and trading partners to easily place orders. Orders are confirmed by email
notifications and online confirmation. Users can easily lookup their order status online.
Production & Assembly
In manufacturing or production phase, raw components are assembled into final products or raw
materials are manufactured into finished goods. Workers perform kitting, packaging and labeling
work for specific products. Manufacturing involves production, testing, packaging and preparation
for delivery.
Distribution
After manufacturing, products or services are needed to be delivered to distributors or to end
consumers. Distribution involves warehousing, delivering, invoicing and payment collection.
Distribution management is integrated with transportation planning and scheduling.
Return
Handling return and refund is important part of supply chain execution. Lack of planning and
logistics for processing return/refund have been a common problem in supply chain execution.
Supply chain management systems should have infrastructure in place for receiving defective and
excess products back from customers. In holiday seasons, the rate of return to sales could hit more
than 10% at some retailers and catalog order firms.
Supply Chain Collaboration
Supply chain management (SCM) is the combination of the process and information technology
that integrates the suppliers of raw materials or components, the manufacturers or assemblers of
the finished products, and distributors of the products or services into one cohesive process to
include demand forecasting, materials requisition, order processing, order fulfillment,
transportation services, receiving, invoicing, and payment processing.
Supply Chain Collaboration
Successful implementation of a supply chain management system improves the efficiency of
collaboration between suppliers, manufacturers and distributors - the collaboration of material
flows, information flows and financial flows.
Collaboration of Material Flows The move of raw materials and components in the supply chain is
a two-way street. It involves the move of physical product flowing from suppliers, manufacturers,
distributors to customers through the supply chain, and the move of products from consumers to
distributors, and manufacturers as a result of product returns, recycling or disposal.
Collaboration of Information Flows The smooth flow of information within a supply chain
facilitates supply chain planning which involves demand forecasting, inventory simulation,
manufacturing planning, and transportation scheduling.
Collaboration of Financial Flows Along with the move of physical product and order transmission,
supply chain collaboration involves the settlement of financial transactions - credit card
information, purchase order, payment schedules and title ownership arrangements.
Collaboration of Workforce Flows The new breed of Supply Chain Management tools help the
collaboration of workforce across the entire supply chain. For instance, vendors such as RedPrairie
Corp. and Manhattan Associates Inc. are focusing on workforce management in manufacturing
processes. Software applications are designed to maximally utilize the skills of employees across
the supply chain.
The Supply Chain System of Wal-Mart and Procter & Gamble
SCM is utilized to facilitate the coordination with outside business entities, or in the scope of
extended enterprise. SCM usually refers to the redesign of supply chain processes in order to
achieve streamlining of supply chain collaboration. It is generally performed only by large
corporations with large suppliers.
Much of the popularity of supply chain management in business community is attributed to the
success of Walmart's supply chain system - an example of collaboration between a large
supplier/manufacturer (Procter & Gamble) and distributor/retailer (Walmart). Before these two
companies started In 1980s, the two giants built a software system that linked P&G up to Wal-
Mart's distribution centers. At Walmart's distribution center, when the inventory level of P&G's
products reaches re-order point, the system automatically alert P&G to ship more products. In
some cases, the collaboration between P&G and Calmat goes all the way to the individual Wal-
Mart store. P&G was able to pass the saving from inventory management and order processing to
Walmart and eventually to Walmart's consumers at "low, everyday prices".

Supply Chain Management Software - Planning, Collaboration, Automation and
Optimization
While ERP software and CRM systems are intended to re-engineer internal business processes
to achieve better resource planning and coordination across departments, Both SCM is utilized to
facilitate the coordination with outside business entities, or in the scope of extended enterprise.
SCM usually refers to the redesign of supply chain processes in order to achieve streamlining. It is
generally performed only by large corporations with large suppliers. B2B exchange can extend
Supply Chain Management to all trading partners regardless of size by providing a central location
to integrate information from all supply chain participants.
Supply chain management software system facilitates supply chain planning, collaboration,
automation and optimization.
Supply Chain Planning
Supply chain management starts at supply chain planning. This is the process of resource planning
based demand forecast of companies' products. supply chain planning software utilizes supply
chain analytic, supply chain diagram, supply chain model to calculate and estimate amount of row
materials needed, and stock level to meet the needs of manufacturing.
Supply Chain Collaboration
Supply chain execution software improves collaboration between all participants of the supply
chain - suppliers, manufacturers and distributors. Any participants of the chain can view the
change in other parties and access the impact of the change on their side.
Supply Chain Automation
The flow of information in supply chain can be automated with supply chain management
software. Order placement, fulfillment, bill and financial consolidation are paperless. Suppliers,
manufacturers and distributors can view order detail and financial reports and demand forecast
online.
Supply Chain Optimization
Enterprise can maximize utilization of resources, minimize its costs by streamlining and
optimizing the supply chain from demand forecasting, materials requisition, order processing,
order fulfillment, transportation services, receiving, invoicing, and payment processing.