KNOW WHAT IS SUPPLY CHAIN MANAGEMENT (SCM)?

: An Overview
This is one of the basic areas from management books. In fact lot of people have requested some more
information on SCM, OPM and other manufacturing area. therefore,I take this opportunit, as this is one of m
favorite topic, as I started m first !ob in PPC "Production Planning #Control$ department of a big steel
compan a decades ago, so I hope I %ill surl help in giving a clear picture of SCM. &et's start %ith basic and
graduall %ill move into ()P arena*
SCM is defined as combination of art and science that goes into improving the %a our compan find the ra%
components that needs to make a product or services and deliver it to customer. In +usiness %ord this art and
science become functions that an organi,ation undertake.
If you are IT guys you can understood SCM as:
Sstems that support manufacturing managers in making decisions that optimi,e the trade off bet%een capital
tied up in stocks and inventories, versus the abilit to deliver goods at prices and deliver dates agreed %ith
customers.
In principle and realit, both in%ards logistics operations to acquire materials to make products and out%ards
logistics operations shipping finished goods to final customers are monitored.
WHAT EXACTLY IS SUPPLY CHAIN MANAGEMENT ! WHAT IS "ASIC CMPNENT #
SCM$
-s per Suppl.Chain Operations )eference.model "SCO)/0/0112$
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%hich has been developed b Suppl.
Chain Council
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. This model organi,ed and focused on the five primar management
%& PLAN
'& SU!CE
(& MA)E
*& +ELI,E!
-& !ETU!N
4. P.an* This is vital part of SCM philosoph, %here the companies normall need to make strateg for
managing all the resource that go to%ards fulfilling the customer demand for the product and services that the
offers. - big piece of planning is developing a set of matrices to monitor the Suppl chain so that it %ould be
efficient, cost effective and deliver high qualit and value to the customer.
6. Source* It means processes that procure goods and services to meet planned or actual demand. This part of
SCM consists of selecting right suppliers that %ill deliver the good and services that need to create our
product. 7eveloping a set of pricing, deliver and pament process %ith supplier is important. -lso this %ill
also take care of managing the inventor of goods, and services ou receive from our suppliers, including
receiving shipping, verifing them, transferring them into various facilities and authori,ing supplier pament.
8. Ma/e* This is basicall a step %here our compan starts fulfilling the request or +9I&T for products into
finished state to meet planned or actual demand. Schedule activit necessar for production, testing, packaging
and preparation for deliver.
:. +e.01er* This is also called &ogistic Process. This is the processes that provide finished goods and services to
meet planned or actual demand, tpicall including order management, transportation management, and
distribution management.
;. !eturn . This is real pain of SCM model, %hich defined as processes associated %ith returning or receiving
returned products for an reason.
Tpical model can be best described as*
WH IS THE STA)EHL+E! # SUPPLY CHAIN
These are considered as stake holder of SCM*
Customers
<our Compan
7esign Partners
Material Suppliers
Contract Manufacturers
&ogistic Providers
WHAT A!E +!I,E!S # THE SUPPLY CHAIN$
These are the main drivers *
Production
Inventor
&ocation
Transportation
Information
%& Product0on
This driver addressing these questions* %hat products does the market %ant= >o% much of %hich products
should be produced and b %hen=
This activit includes the creation of master production schedules that take into account plant capacities,
%orkload balancing, qualit control, and equipment maintenance.
'& In1entory
This driver addressing these questions* ?hat inventor should be stocked at each stage in a suppl chain= >o%
much inventor should be held as ra% materials, semi finished, or finished goods=
The primar purpose of inventor is to act as a buffer against uncertaint in the suppl chain.
(& Locat0on
This driver addressing these questions* ?here should facilities for production and inventor storage be located=
?here are the most cost efficient locations for production and for storage of inventor= Should e@isting
facilities be used or ne% ones built=
Once these decisions are made the determine the possible paths available for product to flo% through for
deliver to the final consumer.
*& Trans2ortat0on
This driver addressing these questions* >o% should inventor be moved from one suppl chain location to
another= -ir freight and truck deliver are generall fast and reliable but the are e@pensive. Shipping b sea or
rail is much less e@pensive but usuall involves longer transit times and more uncertaint.
-& Infor3at0on
This driver addressing these questions* >o% much data should be collected and ho% much information should
be shared=
Timel and accurate information holds the promise of better coordination and better decision making. ?ith
good information, people can make effective decisions about %hat to produce and ho% much, about %here to
locate inventor and ho% best to transport it.
GET #AMILIA! WITH TP %4 TE!MS5 +E#INITINS AN+ TE!MINLGY IN SCM
Master +e3and Sc6edu.e 7 M+S
The M7S is a consolidation of demand b product and time bucket
Master Product0on Sc6edu.e7 MPS
The MPS is a statement of suppl required to meet the demand for the items contained in the M7S. The master
production schedule defines the anticipated build schedule for all products. The master production schedule also
provides the basis for order promising "-TP$ function
Mater0a. !e8u0re3ents P.an7M!P
The Material requirements planning "M)P$ calculates net requirements from gross requirements b evaluating*
The master schedule
+ills of material
Scheduled receipts
On.hand inventor balances
&ead times
Order modifiers
Ad1anced Su22.y C6a0n P.an7 ASCP
Constrained +ased and optimi,ed version of M)P
P.anned rder
-utomaticall suggested action from planning engine
Consu32t0on
The process of ArelievingA the forecast to prevent double counting of demand
+ro2 S602
>aving an order ship directl from the vendor to the customer %ithout phsicall being in our inventor.
,endor Managed In1entory7 ,MI
The process of giving the vendor the authorit and visibilit to determine %hat our inventor should be
Custo3er 9ned In1entory7 CI
?here ou are managing the customers inventor on our premises and suppl as required
?ork OrderBSales Order
The request that ou received from the customer for fulfilling there demand.
SIMPLE PLANNING CYCLE WITHIN AN !GANI:ATIN
- tpical planning ccle %ould start b loading the sales orders, forecast and other demand such internal orders
into the master demand schedule "M7S$. That demand statement %ould then be used as the schedule that drives
the Master Production Schedule "MPS$ . Take a note in regular M)P implementations the MPS is used as the
schedule for -TP. Once the MPS is revie%ed and updated is used as the schedule to drive the M)P process. The
result of the M)P process is planned orders and e@ception messages. ?hen released from M)P the planned
orders for AbuA items become requisitions or purchase orders in the purchasing module and the AmakeA items
become discrete !obs in the ?ork In Process Module. Once the finished goods are received into inventor it is
shipped to satisf customer orders.
Scenar0o I :Sa.es rder 7 #orecast P.ann0ng Cyc.e
This is the scenario %here normall %e are building to stock and satisfing sales order demand from stock. >ere
ou %ill see the difference as planned orders are released to become purchase requisitions for components and
%ork orders for sub assemblies and finished goods. The finished goods are then shipped to satisf the sales
orders.





Scenar0o II : P.ann0ng 7 Procure3ent Cyc.e
In the Planning.Procurement ccle %e
normall start %here the first part of the
planning ccle is complete and %e have a
planned order for a bu item from M)P.
The planned order is released and
becomes a requisition or purchase order
in the purchasing module. - purchase
order is then created from the requisition
and sent to the vendor. The vendor %ould
suppl the materials. The materials %ould
be received into inventor and the
purchase order %ould be closed.

Scenar0o III :P.ann0ng 7 +ro2 S602 Cyc.e
In the 7rop Ship ccle the process is as follo%s*
- 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
The item, quantit and required date information on purchase order matches that information on the
sales order.
The ship to address on the purchase order is the ship to address of the customer.
The vendor ships the product directl to our customer. Once the vendor ships the product ou receiveA
the purchase order and that creates the shipping transaction to satisf the sales order.
Matching accounting transactions complete the process
Scenar0o I, :P.ann0ng 7 WIP Cyc.e
In the ?ork In Process ccle after the planning ccle is complete a planned order is released to create a discrete
!ob. MaterialBcomponents is issued the !ob or back flushed from inventor. The !ob is completed from ?ork In
Process to Inventor.
Scenar0o , : P.ann0ng 7 uts0de Process0ng Cyc.e
?ith Outside Processing ou could be buing a service, an item or capacit from an outside vendor. The setup
for each of these scenarios %ill be described in the training sessions to follo%, ho%ever the all follo% a similar
process. - routing %ith an outside processing operation is setup.
-fter the planning ccle is complete a planned order is released to create a discrete !ob. Once the 7iscrete !ob is
moved to a outside processing operation, a purchase requisition is triggered. The requisition is imported to
Purchasing and a purchase order is created. The details of the discrete !ob such as !ob number, assembl number
and quantit is tied to the purchase order. The purchase order is sent to the vendor. ?hen the purchase order is
received its destination %ill be shop floor and the assembl %ill be returned to the ne@t operation on the %ork
order.
This make an end of this discussion. In Ce@t post %e %ill see %hat are the different subsstem SCM %ill have
and %hat are the modules %hich comes under SCM Implementation.