Supply chain management refers to managing the flow of goods and services. It includes all processes that transform raw materials into final products. In other words, it refers to the end-to-end process of planning, implementing, and controlling the flow of goods, services, and information from the point of origin to the point of consumption.
The supply chain includes all parties involved directly or indirectly in fulfilling a customer order. Supply chain management involves coordinating and integrating various activities within and across organizations to optimize the overall performance of the supply chain.
The iPhone supply chain begins with design; Apple collaborates globally for components. Contract manufacturers handle assembly with strict quality controls. Finished iPhones are transported globally to distribution centers for efficient market distribution. Retail channels, including Apple stores, are crucial for sales and marketing. Apple follows recycling initiatives and engages suppliers for ethical practices, contributing to a comprehensive SCM approach that efficiently delivers high-quality products worldwide.
Why would you use Supply chain management?
Supply chain management is crucial for businesses seeking to optimize operations and enhance overall efficiency. It is integral to implementing Design for X (DfX), fostering collaboration and efficiency in product development while reducing inventory and operational costs. The DfX system and high supply chain efficiency enhance product quality and performance by considering design aspects contributing to better reliability and durability.
The continuous improvement culture in supply chain management ensures an innovative and sustainable approach to product development under DfX, making the integration of these disciplines essential for successful and streamlined processes.
History and evaluation of SCM
Supply chain management (SCM) as a concept has evolved over time. The roots of supply chain management can be traced back to the early 20th century with the development of logistics and management theories.
In the 1980s, the term ‘supply chain management’ became widely used in business. In the 1990s, the concept gained prominence with globalization and technological advancements, focusing more on building a relationship-oriented approach with suppliers and customers.
Since the 21st century, sustainability and ethical considerations have become integral, reflecting a broader shift toward responsible practices. Today, SCM is a pivotal strategic element, ensuring efficient coordination and adaptability to meet global customer needs.
Supply chain management stages
Supply chain management is a process companies use to ensure that their supply chain is efficient and cost-effective. Efficient supply chain management can reduce costs, improve customer satisfaction, increase speed and flexibility, and improve overall business performance.
- Planning: A plan or strategy to be developed to meet customer needs or demand. It includes forecasting demand, setting production and inventory levels, and establishing a plan for the entire supply chain.
- Sourcing: Identifying and selecting suppliers, negotiating contracts, and establishing relationships with vendors based on factors such as cost, quality, and reliability.
- Manufacturing: Conversion of raw materials into finished products. It includes product manufacturing, testing, and packaging by effectively coordinating resources, such as labor and equipment.
- Delivery: Involves delivering of goods as planned using distribution of finished goods to retailers, wholesalers, or directly to consumers. It also includes activities such as order fulfillment and transportation management.
- Return: Effective SCM includes processes for handling returns of defects or damaged products
When do you apply it?
Supply chain management is applied in various contexts and stages of a product’s life cycle. Supply chain management and project management are closely related, especially in industries where projects involve creating and delivering products or services.
While project management focuses on the successful execution of individual projects, supply chain management provides a broader framework for optimizing the flow of goods, services, and information throughout the entire supply chain.
- Supply chain management plans for the flow of goods, services, and information, while project managers oversee the entire project life cycle for successful delivery.
- In both Project and Supply Chain Management, project managers’ procurement decisions should align with the overall supply chain strategy for efficiency and cost-effectiveness.
- Project managers identify and manage project risks, while SCM addresses risks at various levels, including disruptions, supplier reliability, and demand variability.
- Project managers handle logistics for moving resources to meet milestones, while SCM manages the larger-scale movement of goods throughout the entire supply chain.
- Effective communication and collaboration involving stakeholders and team members are crucial for project success. Similarly, SCM requires collaboration among entities like suppliers, manufacturers, distributors, and retailers.
- Project managers use key performance indicators (KPIs) to measure progress and success. Similarly, SCM relies on KPIs to assess performance, considering factors like on-time delivery, inventory turnover, and cost efficiency.
Supply Chain Measurement System
Measuring the performance of supply chain management is crucial to ensure that the supply chain meets organizational goals. The following are SCM metrics that must be monitored based on organizational goals and priorities.
- Percentage of orders delivered on time to customers.
- Customer satisfaction with the ordering process, product quality, and overall experience.
- Percentage of orders that are fulfilled without errors.
- Lead time to fulfill customer orders, from order placement to order delivery.
- Inventory turnover over a specific period.
- Effectiveness of risk management.
- Supplier performance evaluation based on delivery, quality, and compliance with PO terms and conditions.
- Cost-effectiveness of the supply chain, considering both operational and transportation costs.
- Return on investments made in supply chain improvements, technologies, or processes.
- Environmental initiative metrics, including disposal and recycling.
Advantage of Supply Chain Management
- Better Collaboration with Suppliers: Supply chain management facilitates improved communication and collaboration with suppliers. This leads to stronger partnerships and streamlined processes in the supply chain.
- Shipping Optimization: It optimizes shipping processes by choosing the most efficient transportation routes, modes, and carriers. This helps reduce transportation costs and minimizes lead times.
- Reduced Inventory and Overhead Costs: Efficient SCM practices, such as just-in-time inventory management, help minimize excess inventory.
- Better Quality Control: Rigorous quality control measures at every stage of the supply chain help meet product quality standards and ensure customer satisfaction.
- Improved Risk Mitigation: Supply chain management incorporates risk management strategies to identify and mitigate potential disruptions.
- Higher Productivity & Asset Utilization: Supply chain management contributes to higher productivity and asset utilization by optimizing production schedules. This results in improved operational efficiency and cost-effectiveness.
Challenges in SCM
- Limited visibility into the entire supply chain can lead to inefficiencies, making it challenging to respond to changes in demand.
- Accurate demand forecasting is a persistent challenge, and inaccurate predictions can result in excess inventory.
- Balancing inventory levels to meet demand while minimizing carrying costs is an ongoing challenge.
- Challenges with supplier reliability, geopolitical issues, and ethical concerns can impact the stability of the supply chain.
- Identifying and mitigating risks, including supply chain disruptions, natural disasters, and geopolitical events.
- Challenges in terms of coordinating and managing activities across diverse regions, cultures, and regulatory environments persist.
- The availability of skilled professionals leads to challenges in recruiting and retaining qualified personnel.
Example
Explain how supply chain management works in the context of lead-acid battery manufacturing. Starting from the sourcing of raw materials to the distribution of finished products.
1. Raw Material Sourcing: The supply chain begins with sourcing primary materials such as lead and sulfuric acid. Suppliers are selected based on quality, price, and environmental sustainability criteria.
2. Supplier Management: Battery manufacturers collaborate closely with lead and acid suppliers to uphold quality standards. Regularly assess supplier performance and monitor KPIs and cost reduction initiatives.
Development of Suppliers
The development of suppliers is crucial to a Six Sigma initiative because suppliers play a vital role in the overall quality and efficiency of the supply chain. Suppliers are considered integral to the process; any variations or defects in their deliverables can directly impact the final product or service. For instance, if the percentage of lead content or the concentration of sulfuric acid is not in line with the standards, it can affect the life and voltage of the battery.
3. Manufacturing Process: Production planning is based on demand and historical data. SCM and Just-in-time principles optimize production schedules and inventory, ensuring alignment with customer demand.
4. Inventory Management: Advanced inventory control systems meticulously manage levels of lead, sulfuric acid, and other components. Store finished batteries efficiently to prevent overstock or stockouts.
5. Quality Control: Rigorous quality control measures are implemented at various stages of battery production. This is to ensure each battery meets specifications and minimizes defects.
6. Distribution and Logistics: Transport finished batteries to strategically located distribution centers serving regional markets. Logistics partners facilitate timely and accurate deliveries to retailers, wholesalers, or end customers, optimizing transportation costs and delivery times.
7. Recycling and Environmental Considerations: Establish recycling programs to extract lead from used batteries and adhere to environmental regulations.
8. Collaboration and Communication: Ongoing communication and collaboration with suppliers and other stakeholders are crucial. Identifying risks and creating contingency plans to meet customer demands is especially important.
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