Supply Chain Management or SCM

3 Core Entities in a Supply Chain Management

Three SCM entities can be departments, functional areas, or individuals within a larger organization; internal and external supply chains exist. For the most part, the standard applies to corporations. Most work on supply chains, both theoretical and applied, involves a manufacturing firm in the middle (although service firms also have supply chains) with a supplier of materials or components on the upstream side and a customer on the downstream side. As per the supply chain management definition, and technically speaking, an SC needs only those three entities to exist. But that isn’t realistic for global supply chains management. A comprehensive understanding of supply chain management roles is integral to our supply chain management course, diploma of supply chain management, and a distance-learning MBA in supply chain management programs.

1. Supplier

A supplier, a provider of goods or services, or a seller with whom the buyer does business, as opposed to a vendor, is a generic term referring to all sellers in the marketplace. The supplier provides materials, energy, services, or components to produce a product or service. These could include items such as sugar cane, fruit, industrial metals, roofing nails, electric wiring, fabric, computer chips, aircraft turbines, natural gas, electrical power, or transportation services.

2. Producer

A producer that receives services, materials, supplies, energy, and components to use in creating finished products, such as dress shirts, packaged dinners, air-planes, electric power, legal counsel, or guided tours. (Note that SCM for services may be more abstract than those for manufacturing.)

3. Customer

A customer receives shipments of finished products to deliver to its customers, who wear the shirts, eat the packaged dinners, fly the planes, or turn on the lights.

5 Phases in Supply Chain Management Process

The supply chain management process can be divided into five distinct phases, allowing businesses to move from raw materials to finished products optimally.

• Plan,
• Source,
• Make,
• Deliver, and,
• Return.

Here are the key functions of each supply chain management process:

1. Plan

• In this phase of the supply chain management process, you develop strategies to ensure that your supply and demand are balanced.
• The supply chain management phase includes demand forecasting, management of resources, and establishing supply chain management plans.

2. Source

• Sourcing is the second phase in supply chain management process, where you find and acquire materials and services necessary to produce goods.
• Here, you evaluate and select suppliers, negotiate contracts, and establish procurement management processes.

3. Make

• The make phase comprises all supply chain activities related to manufacturing or production.
• This phase of the supply chain management process includes: Production scheduling, facility management, and quality control.

4. Deliver

• Delivery involves the logistics of supplying the final product to the customer.
• In this phase, the supply chain management process involves order management, warehousing, transportation, and delivery of products to the customer.

5. Return

• The return supply chain management phase deals with managing product returns (or reverse logistics).
• Here you manage defective or excess products, process refunds, and ensure that returned goods are re-integrated into the supply chain efficiently.

Supply Chain Management Frameworks

There are 3 widely recognized supply chain management frameworks, each defines a different series of interrelated processes. They are listed below:

• GSCF (Global Supply Chain Forum) Framework,
• APQC (American Productivity & Quality Center) Process Classification Framework, and,
• SCOR (Supply Chain Operations Reference) Model.

Supply Chain Management Models

There are 9 widely recognized supply chain management models that can be considered when designing a supply chain network. Each type has its strengths and weaknesses, brings different supply chain innovations, offers uncommon supply chain practices, and is best suited for particular kinds of businesses and market environments.

• Push and Pull Model;
• Agile Supply Chain;
• Lean Supply Chain;
• Sustainable Supply Chain;
• Continuous Flow Model;
• Fast Supply Chain Model;
• Flexible Supply Chain;
• Efficient Supply Chain; and;
• Customer-Driven Supply Chain.

Introduction to SCM Structures

An organization’s SCM or network can have many forms and may use different supply chain analysis techniques.

• It can be a simple chain structure with a single strand, a complex network, or any structure between those two extremes.
• Whether it is a product or service chain or what types of entities are involved, companies require their SC to guarantee a steady supply flow while simultaneously striving to reduce their SC costs.
• They can improve operating efficiency by employing the proper supply chain management structure.

Depending upon the type of industry, supply chain costs can be as high as 50% of a company’s revenues. According to research done by A. T. Kearney, a global consulting firm, inefficiencies in the SC can total 25% of a firm’s operating costs. When a company faces thin profit margins, like 3% to 4%, even a slight improvement in efficiency can double profitability. Implementing the appropriate cost-centered structure and strategy is critical.

There are three types of supply chain strategies: Stable, Reactive, and Efficient Reactive. The stable supply chain strategy is appropriate for these types of chains:

• With a significant history of stability between demand and supply.
• That is focused on execution, efficiencies, and cost performance.
• They use simple connectivity technologies and have little need for real-time information.

Supply Chain Management Examples

Consider, as a very simplified instance of this stripped-down SC model, a young street vendor who sells just a few light snacks. This is a familiar sight on warm summer days around the globe, whether it is fresh crepes in Paris, roasted chestnuts in New York, or small servings of spicy tapas in South America. In many ways, the food vendor on the street resembles small family businesses that exist in cities all across the world.

This simple street vendor represents one end of a supply chain.

• The supplier is probably a small wholesale food distributor that sells basic ingredients to many one- or two-person food kiosks.
• The worker is the “producer” who turns the raw ingredients into crepes, roasted nut mixes, or a variety of easy-to-cat tapas.
• The stand, operated by one or two owners, is the retailer that sells the finished delicacies to the customers or passes by who are cajoled into making a purchase.

Notice that the basic model needs amplification even in this simplest supply chain. For instance, there are more suppliers than one.

• While flour and nuts may be procured from the same supplier, water to warm the stainless steel food containers comes from the employee’s kitchen facet, and the supplier of that water may actually be a government entity rather than another business.
• Electricity is supplied to light this mini “manufacturing center.” Nearby is a food preparation area with refrigeration for storing the perishables needed, plus shelves and drawers to hold various basic supplies, such as tongs and other utensils.
• There is also wood to build the stand, a whiteboard, and markers for making signs to advertise the day’s offerings.
• Suppliers’ suppliers are somewhere in the chain, though invisible in our model. They bring materials, components, or services to food wholesalers and utility companies.

Future of Supply Chains

Technological advancements are expected to evolve significantly as we forge ahead, spurred by changing market dynamics. Here are some key trends that will shape the future of supply chain companies:

• Artificial Intelligence (AI) and Machine Learning (ML);
• Blockchain Technology in Supply Chain Management;
• Internet of Things (IoT);
• Robotics and Automation; and;
• Interconnected World.

Supply Chain Management in Different Industries

Supply Chain in Manufacturing

Discussions of supply chains typically center on manufacturing and leave component suppliers to the immediate left. Component suppliers may be the most crucial consideration when designing and managing an SC for manufactured products. Still, utilities and other services are not inconsequential contributors to the cost of operations.

Example of a Food Vendor

Regarding our food vendor on the street, services most obviously include utilities, transportation, warehousing, carpentry, and cleanup, among others. Utilities, suppliers to all manufacturers, are crucial considerations when locating plants and warehouses. If water and electricity (or natural gas, or both) are unavailable at a proposed site, they cannot be readily available.

• Tier 1 suppliers have their suppliers in Tier 2.
• The wholesale food distributor that supplies the daily ingredients and raw materials for the menu items has its material and service suppliers—and they have their suppliers, and so forth.

For instance, the flour for the crepes is not a raw material but a product with its own SCM that begins in a farmer’s wheat field and is processed in a plant, shipped to a wholesaler, and distributed to the corner store. No matter how far you travel toward the left, you will never run out of new tiers of suppliers.

Example of a Coal Mine

Even a raw material extractor, such as a coal mine, has its own suppliers of extraction machinery and services. In fact, the coal mine may ship coal to a generating plant that supplies power to the manufacturer that produces a machine that is shipped to a distributor that sells mining equipment to the same mine that began the process; supply chains can double back on themselves. (A distributor is a business that does not manufacture its own products but purchases and resells these products)

Supply Chain Management in Services

Although the traditional supply chain management model was developed in manufacturing, the service industry, too, has supply chains. A firm in the service industry is “in its narrowest sense, an organization that provides an intangible product such as medical or legal advice.” It may also be derived from the supply chain management definition. In its broadest sense, service industries include “all organizations except farming, mining, and manufacturing. It includes retail trade; wholesale trade; transportation and utilities; finance, insurance, and real estate; construction; professional, personal, and social services; and local, state, and federal governments.”

Service-oriented supply chains also require sophisticated management. An electric utility’s supply chain involves receiving its own products, services, and supplies and dispensing its services through three distribution channels: home customers, commercial customers, and other utilities.

Example of Streed Food Vendor

The flows in our street vendor example aren’t quite as simple as might be supposed, either.

• The “products” that move through the chain could include materials, supplies, and components used to produce the menu items.
• Information flows may be pretty rudimentary orders submitted by end users (caters) of the product, by the distributor (the person on the street with the cart) to the manufacturer (the person who assembles the ingredients), and by the manufacturer to the supplier (the source of the food).
• There will be recipes and shopping lists, discussions of potential demand, and perhaps records of last year’s results.
• The cash flows may be based on information in cash registers or credit card receipts.

Cash travels in several separate flows, from the manufacturer to suppliers of products and services and, of course, to any lenders or investors for debt or dividend payments. There are also logistics concerns: transportation from one entity to the other – perhaps drawing upon the private fleet of a car or two – and the warehousing decisions. And, finally, the reverse SCM – you’ll read more about that later – exists to return any unacceptable menu items, to recycle vegetable waste into a composter, to reuse utensils and other supplies after sterile cleansing, and to dispose responsibly of any packaging.

Many global businesses began in someone’s home office, garage, or basement with the glimmering of an idea for, let us say, a computer operating system or a new idea for consumer-to-consumer e-commerce. Perhaps the food vendor comes up with a new twist on the old recipe for crepes. A customer is impressed and asks if the vendor can make 50 crepes for a lunchtime birthday celebration at his nearby office. Someone at the birthday lunch owns a neighborhood restaurant… and before long, the vendor has rented space in a small commercial kitchen facility to supply unique made-to-order crepes for local businesses within a few blocks. It’s surprising how many challenges and opportunities can be easily anticipated and seen in a simple model.

Summing Up the Supply Chain Management Concept

There are many variations on the basic supply chain management concepts and supply chain operations model. As the discussion continues and becomes more complex, here are some essential points to remember.

• A SC involves, directly or indirectly, everyone and everything required to extract materials, transform them into a product, and sell the product to a user.
• Supply chains include various entities, such as raw material extractors, service and component suppliers, material product manufacturers or service producers, distributors, reverse logistics, and end customers.
• SCM structures and supply chain analysis vary based on demand history, business focus, connectivity, technology, and equipment needs.
• Supply chain mapping can be viewed in terms of processes, such as gathering and processing marketing data, distributing and paying invoices, processing and shipping materials, scheduling, fulfilling orders, etc. Such functions cut across entities.
• Supply chains include various flows and entities. Materials and services flow from suppliers toward customers; payment flows from customers toward suppliers; information flows both ways.
• Supply chains also run in reverse, starting with the customer who sends back items such as components for replacement or repair, returned goods for re-manufacture, and obsolete goods for recycling or disposal. Like the forward chain, the reverse chain also comprises information flows and cash or credits.

SCM expertise is so essential in today’s business world that an annual survey is conducted to identify the 25 best supply chain leaders based on specific criteria. It’s a significant accomplishment to be named to that list and an even higher compliment when a company manages to remain in that top echelon of supply chain performers for consecutive years.