Supply Chain Management

Supply Chain Management

Supply chain management (SCM) is a broadened management focus that considers the combined impact of all the companies involved in the production of goods and services, from suppliers to manufacturers to wholesalers to retailers to final consumers and beyond to disposal and recycling. This approach to managing production and logistics networks assumes all companies involved in the process of delivering goods to consumers are part of a network, pipeline, or supply chain. It encompasses everything required to satisfy customers and includes determining which products they will buy, how to produce them, and how to deliver them. The supply chain philosophy ensures that customers receive the right products at the right time at an acceptable price and at the desired location. Companies that practice supply chain management report significant cost and cycle time reductions. For example, Wal-Mart Stores Inc. announced increases in inventory turns, decreases in out-of-stock occurrences, and a replenishment cycle that has moved from weeks to days to hours.

Increasing competition, complexity, and geographical scope in the business world have led to this broadened scope and continuing improvements in the capabilities of the personal computer have made the optimization of supply chain performance possible. Further, technological developments in the communications field, such as e-mail and the Internet, have revolutionized data exchange, facilitating the necessary flow of information between the companies in the supply chain. Cutting-edge communication technologies make it possible to manage the complexity of networked production in a way unthinkable only two decades ago.

A fundamental premise of supply chain management is to view the network of facilities, processes, and people that procure raw materials, transform them into products, and ultimately distribute them to the customer as an integrated chain, rather than a group of separate, but somewhat interrelated, tasks. The importance of this integration cannot be overstated because the links of the chain are the key to achieving the goal. Every company has a supply chain, but not every company manages their supply chain for strategic advantage.

While easy to understand in theory, the chain management becomes more complex the larger the company and its range of products, and the more international the locations of its suppliers, customers, and distribution facilities. Supply chain management is also complex because companies may be part of several pipelines at the same time. A manufacturer of synthetic rubber, for example, can at the same time be part of the supply chains for tires, mechanical goods, industrial products, shoe materials and footwear, aircraft parts, and rubberized textiles.