Supply Chain Management (a.k.a. “SCM”)

grey chain link on brown concrete floor

This week, we will glance at the supply chain. In this article, I’ll do my best to explain the basic definitions and operation areas of the supply chain.

Basic Definition of Supply Chain :

Supply chain management (SCM) is a critical aspect of business operations that involves the coordination of various processes to ensure the timely delivery of products or services to customers. The success of SCM is dependent on several factors, including demand planning, procurement, production planning, logistics, and warehouse management.

SCM refers to the coordination of activities involved in the production and delivery of goods and services to customers. It involves the management of suppliers, manufacturers, distributors, and retailers to ensure that products are delivered to customers in a timely and cost-effective manner. Demand planning is a critical aspect of SCM that involves forecasting customer demand for a product or service. This helps businesses to plan their production schedules, inventory levels, and logistics operations. Techniques and tools used in demand planning include statistical forecasting, market research, and customer surveys.

Procurement is the process of acquiring goods and services from external suppliers. It plays a critical role in SCM as it ensures that businesses have access to the necessary resources to produce and deliver products to customers. Techniques and tools used in procurement include supplier evaluation, contract negotiation, and supplier relationship management. Production planning, on the other hand, involves the scheduling of production activities to ensure that products are produced efficiently and cost-effectively. It involves the use of techniques such as capacity planning, material requirements planning, and production scheduling.

Logistics refers to the management of the flow of goods and services from the point of origin to the point of consumption. It involves the coordination of transportation, warehousing, and inventory management activities to ensure that products are delivered to customers in a timely and cost-effective manner. Techniques and tools used in logistics management include route optimization, transportation planning, and inventory management. Warehouse management, on the other hand, involves the management of inventory within a warehouse. It includes activities such as receiving and storing inventory, order picking, and shipping. Effective warehouse management is critical to SCM as it ensures that products are stored and delivered to customers efficiently and cost-effectively.

Free logistic warehouse photo

Duties of Supply Chain :

• Planning and forecasting: This involves developing and managing demand forecasts, production plans, and inventory levels. SCM professionals must be able to accurately predict demand in order to ensure that the right amount of product is available to meet customer needs.
• Sourcing and procurement: This involves managing the relationships with suppliers and vendors. SCM professionals must be able to negotiate favorable prices and terms, and ensure that suppliers can meet the company’s quality and delivery requirements.
• Production and inventory management: This involves managing the flow of materials and goods through the manufacturing process. SCM professionals must be able to optimize production schedules and minimize inventory levels.
• Logistics and transportation: This involves managing the movement of goods from suppliers to customers. SCM professionals must be able to select the most efficient and cost-effective transportation modes, and ensure that goods are delivered on time and in good condition.
• Customer service: This involves managing the relationship with customers. SCM professionals must be able to resolve customer inquiries and complaints, and ensure that customers are satisfied with the company’s products and services.
• Risk management: Identifying and mitigating risks to the supply chain.
• Performance measurement: Tracking and measuring the performance of the supply chain.
• Technology management: Selecting and implementing SCM software.
• Continuous improvement: Identifying and implementing improvements to the supply chain.

In addition to the above, SCM professionals may also be involved in the following:

• Sustainability: Ensuring that the supply chain is environmentally and socially responsible.
• Global sourcing: Managing the sourcing of goods from suppliers around the world.
New product development: Working with other departments to develop new products.
Supply chain strategy: Developing and implementing the company’s supply chain strategy.

SCM professionals play a vital role in ensuring that companies are able to deliver products and services to customers on time, at cost, and with the required level of quality.
SCM is a complex and ever-changing field. SCM professionals must be able to adapt to change and be willing to learn new things. They must also be able to think critically and solve problems.

Free business newspaper image

In order to work in SCM :

You should have a strong foundation in the following areas:

• Business fundamentals: This includes understanding basic accounting, finance, and marketing principles.
• Operations management: This includes understanding how to manage production, inventory, and transportation.
• Data analysis: This includes being able to collect, analyze, and interpret data in order to make informed decisions.
• Information technology (IT): This includes being familiar with common SCM software applications.
• Project management: This includes being able to plan, execute, and monitor projects.

In addition to these core areas, you may also want to develop expertise in specific areas of SCM, such as:

• Sourcing and procurement
• Production planning and control
• Logistics and transportation
• Inventory management
• Risk management
• Sustainability

In addition to the above, it is also important to develop strong soft skills, such as:

• Communication
• Problem-solving
• Negotiation
• Leadership
• Teamwork

Key Performance Indicators (KPI) of Supply Chain

In order to ensure the efficiency and effectiveness of the supply chain, it is crucial to monitor and measure its performance using key performance indicators (KPIs). KPIs provide valuable insights into the various aspects of the supply chain, allowing companies to identify areas for improvement and make data-driven decisions. Let’s explore some of the key performance indicators of supply chain management:

1. On-time Delivery (OTD)

On-time delivery is a critical KPI that measures the ability of the supply chain to deliver products to customers within the promised timeframe. It calculates the percentage of orders delivered on time, taking into account factors such as order processing, production lead time, and transportation. High OTD indicates a well-functioning supply chain and satisfied customers.

2. Order Accuracy

Order accuracy measures the rate at which orders are fulfilled correctly without errors or discrepancies. This KPI is essential for customer satisfaction and helps identify potential issues in areas such as order processing, inventory management, and quality control. A high order accuracy rate indicates efficient supply chain operations.

3. Inventory Turnover

Inventory turnover is a measure of how quickly inventory is sold and replaced within a specific period. It signifies the efficiency of inventory management and the ability to balance inventory levels with customer demand. A high inventory turnover ratio implies effective demand forecasting, production planning, and logistics management.

4. Supplier Performance

Supplier performance measures the reliability and effectiveness of suppliers in meeting delivery schedules, providing quality products, and maintaining good communication. Monitoring this KPI helps identify potential bottlenecks in the supply chain, assess supplier relationships, and mitigate risks associated with unreliable suppliers.

5. Cash-to-Cash Cycle Time

The cash-to-cash cycle time measures the period between when a company pays for its supplies and when it receives cash from customers upon product delivery. A shorter cash-to-cash cycle time signifies better working capital management and improved financial performance.

6. Supply Chain Cost

Supply chain cost encompasses all costs incurred throughout the supply chain, including sourcing, transportation, warehousing, and inventory holding costs. Monitoring this KPI helps identify areas of excessive spending, optimize cost structures, and improve overall profitability.

7. Perfect Order Fulfillment

Perfect order fulfillment is a comprehensive KPI that assesses the entire order fulfillment process, from initial order placement to delivery. It takes into account aspects like on-time delivery, order accuracy, complete shipment, and correct documentation. A high perfect order fulfillment rate indicates efficient supply chain operations and customer satisfaction.

8. Lead Time

Lead time measures the time taken from order placement to delivery. It includes all the processes involved, such as order processing, production, transportation, and customs clearance. Monitoring lead time helps identify bottlenecks, optimize processes, and meet customer expectations.

9. Return Rate

Return rate measures the number of products returned by customers due to defects, damages, or other reasons. Monitoring this KPI helps identify quality issues, assess supplier performance, improve product design and packaging, and minimize potential costs associated with returns.

10. Sustainability Performance

Sustainability performance measures the environmental and social impact of the supply chain, such as carbon emissions, waste generation, and ethical sourcing practices. Monitoring this KPI helps companies embrace sustainable practices, reduce their ecological footprint, and enhance their corporate reputation.

Remember, each company’s supply chain will have its unique requirements and KPIs, so it’s essential to tailor the measurements to specific business objectives and industry dynamics.

Conclusion :

Demand planning, procurement, production planning, logistics, and warehouse management are all important areas of supply chain management that require careful attention and optimization. By using the appropriate techniques and tools, businesses can optimize these areas to improve their supply chain efficiency and ultimately enhance their competitiveness in the marketplace.