What Is Supply Chain Management?

The problem of supply supervision has always been acute in the face of modern companies. Since many of them tend to focus on the main areas of specialization trying to reduce sources of raw materials and spreads channels. Some duties are increasingly passed on to outsiders who can perform defined actions better or at a lower cost. A smaller amount of control and more partners led to the creation of the concept of a supply chain management system. The goal of it is increasing confidence, improving cooperation and visibility among companions, enlarging inventory turnover.

Supply Chain Management definition is a system developed for the optimal organization of the company's work aimed at obtaining supplies or supplying of other enterprises with the materials.

Types of Supply Chains

The SCM consists of two elements:

  1. Planning system, responding to scheduling, joint development of forecasts, a modeling of various situations, analysis;
  2. Execution system needs for monitoring and control of logistics.

The mentioned procedures should solve the next tasks:

  • Distribution network configuration: location and representative offices of suppliers, production facilities, and consumers.
  • Strategy for goods circulation: issues of operational control, delivery schemes, transportation, replenishment tactics.
  • Optimization of logistics activities for achieving the lowest expenses.
  • Single information space: integration should cover an entire supply chain, providing a community of key data such as inquiries, forecasts, commodity stocks, etc.
  • Cash flow management: regulation of terms and payment methods between participants.

For suppliers and third parties, SCM solutions also provide benefits. Due to their use, distributors receive better service, and their applications are quickly processed.

Logistics and Supply Chain Management

There is an opinion that basically SCM is intended only for large corporations with production in different regions. Such a statement is true, but, even if the company has only one warehouse and works with a small number of suppliers, using of SCM-solutions could significantly reduce costs and bring the firm a real profit. An example is a pharmaceutical company Long Drug Stores, which has more than 400 retail outlets, with an annual sales income of $ 3.7 billion.

The specifics of operation and supply chain management are related to what items the company produces and what policy it uses when interacting with end customers. Nevertheless, we can distinguish 7 basic principles of supply chain management process:

  1. segment customers based on their need for services;
  2. orient the logistics network on the client;
  3. closely monitor market demand, and make planning based on them;
  4. study consumers’ needs;
  5. strategically plan delivery;
  6. develop a supply chain strategy;
  7. use methods of attracting new distribution channels.

So, SCM system covers the entire cycle of purchasing raw materials, producing and spreading the goods.

Nowadays, companies can choose for themselves SCM-solutions that are optimally suited to the implementation of industry-specific economic processes. Among them, the Business Information Warehouse (BW) takes place, through which firm collects data necessary for decision making and planning. It has an ability to store and analyze them. Another type in this area is SAP Advanced Planner & Optimizer (APO), offering a whole range of services for planning and optimizing the supply chain.

To manage transportation, it is proposed Trans Pro, which, based on the data received from the company, allows you to reduce the expenses of transporting products, as well as increase the predictability of partners. They are elements of a single system for the management, control, planning, and optimization of the supply chain. At the same time, experts note a sort of shortcomings in the use of integrated systems:

  • The high cost of support;
  • Duration of implementation (many companies showed that introduction of R/3 took more than three years);
  • There were cases when universal types could not take into account the specifics of the industry and automate all processes in full.

In addition to the elements of the ERP system mentioned above, there are a number of separate solutions on the market, for instance, Manugistics. One of the successful examples of implementation is Dannon. Benefits from the introduction of mentioned products became palpable after three weeks. The company managed to reduce the level of commodity supplies by thirty percent while the time required for order processing by 57%. In addition, it is worth noting the availability of special solutions, developed specifically for certain companies. An example is a B2B system developed by Cisco for Ford.

The fact that the use of SCM-solutions is beneficial and could greatly facilitate the company’s work, reducing expenses associated with logistics and storage of goods. As to Benchmarking Partners, an SCM-based partnership will help firms save $ 1.6 trillion. According to AMR Research, with the introduction of SCM, companies get such competitive advantages as declining an order processing time (20-40%), decrease in inventory (20-40%), and increasing in profit (5-15%). Thus, it is possible to predict the further development of the use of SCM by various players, both in the conduct of activities in traditional ways and in cases when they actively use the Internet.