Supply Chain - Supply Chain Management

Supply Chain Management

In the 1980s, the term Supply Chain Management (SCM) was developed to express the need to integrate the key business processes, from end user through original suppliers. Original suppliers being those that provide products, services and information that add value for customers and other stakeholders. The basic idea behind the SCM is that companies and corporations involve themselves in a supply chain by exchanging information regarding market fluctuations and production capabilities. Keith Oliver, a consultant at Booz Allen Hamilton, is credited with the term invention when he used it in an interview for the Financial Times in 1982.

If all relevant information is accessible to any relevant company, every company in the supply chain has the ability to help optimize the entire supply chain rather than sub optimize based on a local interest. This will lead to better planned overall production and distribution which can cut costs and give a more attractive final product leading to better sales and better overall results for the companies involved.

Incorporating SCM successfully leads to a new kind of competition on the global market where competition is no longer of the company versus company form but rather takes on a supply chain versus supply chain form.

The primary objective of supply chain management is to fulfill customer demands through the most efficient use of resources, including distribution capacity, inventory and labor. In theory, a supply chain seeks to match demand with supply and do so with the minimal inventory. Various aspects of optimizing the supply chain include liaising with suppliers to eliminate bottlenecks; sourcing strategically to strike a balance between lowest material cost and transportation, implementing JIT (Just In Time) techniques to optimize manufacturing flow; maintaining the right mix and location of factories and warehouses to serve customer markets, and using location/allocation, vehicle routing analysis, dynamic programming and, of course, traditional logistics optimization to maximize the efficiency of the distribution side.

There is often confusion over the terms supply chain and logistics. It is now generally accepted that the term Logistics applies to activities within one company/organization involving distribution of product whereas the term supply chain also encompasses manufacturing and procurement and therefore has a much broader focus as it involves multiple enterprises, including suppliers, manufacturers and retailers, working together to meet a customer need for a product or service.

Starting in the 1990s several companies chose to outsource the logistics aspect of supply chain management by partnering with a 3PL, Third-party logistics provider. Companies also outsource production to contract manufacturers. Technology companies have risen to meet the demand to help manage these complex systems.

There are actually four common Supply Chain Models. Besides the two mentioned above, there are the American Productivity & Quality Center's (APQC) Process Classification Framework and the Supply Chain Best Practices Framework

An unusual food supply chain operated by Dabbawalas in Mumbai is noted for being extremely reliable without using any computers or modern technology. It has been verified to be a six sigma supply chain.