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A Supply Chain--SC is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. A SC may be defined as an integrated process wherein a number of various business entities (i.e., suppliers, manufacturers, distributors, and retailers) work together in an effort to: (1) acquire raw materials, (2) convert these raw materials into specified final products, and (3) deliver these final products to retailers. This chain is traditionally characterized by a forward flow of materials and a backward flow of information. SC activities involve the transformation of natural resources, raw materials, and components into a finished product that is delivered to the end customer. In sophisticated SC systems, used products may re-enter the SC at any point where residual value is recyclable. SCs link value chains. The Council of SC Management Professionals (CSCMP) defines SC management as follows: SC Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, SC management integrates supply and demand management within and across companies. SC Management is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and high-performing business model. It includes all of the logistics management activities noted above, as well as manufacturing operations, and it drives coordination of processes and activities with and across marketing, sales, product design, and finance and information technology.
A typical SC begins with the ecological, biological, and political regulation of natural resources, followed by the human extraction of raw material, and includes several production links (e.g., component construction, assembly, and merging) before moving on to several layers of storage facilities of ever-decreasing size and increasingly remote geographical locations, and finally reaching the consumer. Many of the exchanges encountered in the SC are therefore between different companies that seek to maximize their revenue within their sphere of interest, but may have little or no knowledge or interest in the remaining players in the SC. More recently, the loosely coupled, self-organizing network of businesses that cooperates to provide product and service offerings has been called the Extended Enterprise. As part of their efforts to demonstrate ethical practices, many large companies and global brands are integrating codes of conduct and guidelines into their corporate cultures and management systems. Through these, corporations are making demands on their suppliers (facilities, farms, subcontracted services such as cleaning, canteen, security etc.) and verifying, through social audits, that they are complying with the required standard. A lack of transparency in the SC is known as mystification, which bars consumers from the knowledge of where their purchases originated and can enable socially irresponsible capitalist practices.
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 SCM is to fulfill customer demands through the most efficient use of resources, including distribution capacity, inventory, and labor. In theory, a SC seeks to match demand with supply and do so with the minimal inventory. Various aspects of optimizing the SC include liaising with suppliers to eliminate bottlenecks; sourcing strategically to strike a balance between lowest material cost and transportation, implementing 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 traditional logistics optimization to maximize the efficiency of distribution. The term "logistics" applies to activities within one company or organization involving product distribution, whereas "SC" additionally 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 SC management by partnering with a third-party logistics provider (3PL). Companies also outsource production to contract manufacturers. Technology companies have risen to meet the demand to help manage these complex systems.
SC modelling: There are a variety of SC models, which address both the upstream and downstream sides. The SCOR (Supply-Chain Operations Reference) model, developed by the management consulting firm PRTM, now part of PricewaterhouseCoopers LLP (PwC) has been endorsed by the Supply-Chain Council (SCC) and has become the cross-industry de facto standard diagnostic tool for SC management. SCOR measures total SC performance. It is a process reference model for supply-chain management, spanning from the supplier's supplier to the customer's customer. It includes delivery and order fulfillment performance, production flexibility, warranty and returns processing costs, inventory and asset turns, and other factors in evaluating the overall effective performance of a SC. The Global SC Forum has introduced another SC model. This framework is built on eight key business processes that are both cross-functional and cross-firm in nature. Each process is managed by a cross-functional team including representatives from logistics, production, purchasing, finance, marketing, and research and development. While each process interfaces with key customers and suppliers, the processes of customer relationship management and supplier relationship management form the critical linkages in the SC.
Successful SCM requires a change from managing individual functions to integrating activities into key SC processes. In an example scenario, a purchasing department places orders as its requirements become known. The marketing department, responding to customer demand, communicates with several distributors and retailers as it attempts to determine ways to satisfy this demand. Information shared between SC partners can only be fully leveraged through process integration. SC business process integration involves collaborative work between buyers and suppliers, joint product development, common systems, and shared information. According to Lambert and Cooper (2000), operating an integrated SC requires a continuous information flow. However, in many companies, management has concluded that optimizing product flows cannot be accomplished without implementing a process approach. The key SC processes stated by Lambert (2004) are: Customer relationship management, Customer service management, Demand management style, Order fulfillment, Manufacturing flow management, Supplier relationship management, Product development and commercialization, Returns management. Much has been written about demand management. Best-in-class companies have similar characteristics, which include the following: Internal and external collaboration, Initiatives to reduce lead time, Tighter feedback from customer and market demand, Customer-level forecasting. One could suggest other critical supply business processes that combine these processes stated by Lambert, such as: a) Customer service management process: Customer relationship management concerns the relationship between an organization and its customers. Customer service is the source of customer information. It also provides the customer with real-time information on scheduling and product availability through interfaces with the company's production and distribution operations. Successful organizations use the following steps to build customer relationships: determine mutually satisfying goals for organization and customers, establish and maintain customer rapport, induce positive feelings in the organization and the customers. b) Procurement process: Strategic plans are drawn up with suppliers to support the manufacturing flow management process and the development of new products. In firms whose operations extend globally, sourcing may be managed on a global basis. The desired outcome is a relationship where both parties benefit and a reduction in the time required for the product's design and development. The purchasing function may also develop rapid communication systems, such as electronic data interchange (EDI) and Internet linkage, to convey possible requirements more rapidly. Activities related to obtaining products and materials from outside suppliers involve resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling, and quality assurance, many of which include the responsibility to coordinate with suppliers on matters of scheduling, supply continuity, hedging, and research into new sources or programs. c) Product development and commercialization: Here, customers and suppliers must be integrated into the product development process in order to reduce the time to market. As product life cycles shorten, the appropriate products must be developed and successfully launched with ever-shorter time schedules in order for firms to remain competitive. According to Lambert and Cooper (2000), managers of the product development and commercialization process must: coordinate with customer relationship management to identify customer-articulated needs; select materials and suppliers in conjunction with procurement; and develop production technology in manufacturing flow to manufacture and integrate into the best SC flow for the given combination of product and markets. d) Manufacturing flow management process: The manufacturing process produces and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible in order to respond to market changes and must accommodate mass customization. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency in meeting customer demand. This process manages activities related to planning, scheduling, and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites, and maximum flexibility in the coordination of geographical and final assemblies postponement of physical distribution operations. e) Physical distribution: This concerns the movement of a finished product or service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product or service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing. Thus it links a marketing channel with its customers (i.e., it links manufacturers, wholesalers, and retailers). f) Outsourcing/partnerships: This includes not just the outsourcing of the procurement of materials and components, but also the outsourcing of services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on those activities in the value chain in which it has a distinctive advantage and outsource everything else. This movement has been particularly evident in logistics, where the provision of transport, warehousing, and inventory control is increasingly subcontracted to specialists or logistics partners. Also, managing and controlling this network of partners and suppliers requires a blend of central and local involvement: strategic decisions are taken centrally, while the monitoring and control of supplier performance and day-to-day liaison with logistics partners are best managed locally. g) Performance measurement: Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability. Taking advantage of supplier capabilities and emphasizing a long-term SC perspective in customer relationships can both be correlated with a firm's performance. As logistics competency becomes a critical factor in creating and maintaining competitive advantage, measuring logistics performance becomes increasingly important, because the difference between profitable and unprofitable operations becomes narrower. A.T. Kearney Consultants (1985) noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to experts, internal measures are generally collected and analyzed by the firm, including cost, customer service, productivity, asset measurement, and quality. External performance is measured through customer perception measures and "best practice" benchmarking. h) Warehousing management: To reduce a company's cost and expenses, warehousing management is concerned with storage, reducing manpower cost, dispatching authority with on time delivery, loading & unloading facilities with proper area, stock management system etc. i) Workflow management: Integrating suppliers and customers tightly into a workflow (or business process) and thereby achieving an efficient and effective SC is a key goal of workflow management.
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