Supply Chain Management

1. Introduction and Overview

Supply chain management is defined as the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers. It spans all movement and storage of raw materials, work-in-process inventory, and finished goods from the point of origin to the point of consumption. Commonly, supply chain management involves the movement of a product or service from supplier -> manufacturer -> distributor -> retailer finally to the customer. Initially, supply chain management was displayed as the development of an integrated inventory management control system and was recognized as a management philosophy to ensure an integrated and efficient approach to the coordination of production. Today, successful supply chain management is often recognized as supply chain orientation and is considered to be a much bigger undertaking than the management of inventory. (Blanchard, 2021)

The beginning of the 21st century has seen business organizations facing firm competition. Due to this, a change has taken place and business is not being conducted as it once used to. Businesses in today's world have become global and more complex as customers demand better quality products at competitive prices. As a result, businesses must improve their operations and be more efficient in their production. For the production of a product to be successful, businesses must be aware that having an efficient supply chain is key in order to gain a competitive edge. This has led to an increase in the importance of supply chain management. A further factor in today's business environment is the movement towards outsourcing and global procurement to take advantage of low labour costs in other developing nations. Therefore, supply chain management is becoming an influential factor in the success or failure of a business. Due to the increase in competition and demand, the field of supply chain management is becoming popular and provides a valuable tool for companies to improve production and overall performance.

1.1. Definition of Supply Chain Management

In the mid-1990s, several independent and unrelated research efforts came to the same conclusion: the orientation of international manufacturing towards just-in-time production was leading to an entirely new description of the process of production. High competitive environments gave rise to wider networks of cooperation. These new terms did not sit well with i2 Technologies, the lesson-learning software architected by the likes of IBM and optimized later by the world's development and operations research community. Despite the capitalization on the new terms, the actual new ideas were few and far between. But, in early 1997, a consortium consisting of leading companies in the automotive and aerospace industries formulated a research agenda aimed at synthesizing and legitimizing the very best concepts and techniques that have been developed over the recent decades in various independent R&D efforts in optimization, which have largely been isolated from operations and production, and sometimes inconsistent between industry and academia. This effort to standardize the correct methodology of translating the theory and implementation of these disparate optimization concepts to management practice and an expected massive rise in research investment by the industries involved in decision technologies has opened and will ferry a wide spectrum of exciting new possibilities for SCM within the coming years.

The foundations of what we now know as SCM have their roots in the physical economies of ancient civilizations. The recognition of the duality of resource constraint and potential gain led to the formalization of the concepts in writing and beyond just the abstract.

Supply chain management (SCM) is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective and efficient ways possible. Supply chain activities cover everything from product development, sourcing, production, and logistics, as well as the information systems needed to coordinate these activities.

1.2. Importance of Supply Chain Management

This leads us to possibly the main interest in supply chain management, the potential for cost reduction. High costs are usually the driving force behind a company's decision to look at supply chain management. This is for good reason because it has been shown again and again that successful supply chain management has resulted in an increase in return on investment (ROI) and shareholder value. This is a very complex issue because it is not always clear what is the best strategy to reduce costs. Sometimes it is a matter of reducing inventory or improving process efficiency so that one can get the same output with fewer inputs. Other times it might involve a strategic investment, such as an IT system to track products, that may initially result in a higher cost but over the long term would be expected to lower costs.

Customers today expect higher quality products/services and will switch to a different product/service if they feel that they are not getting value for money. This is a main driver for the improved use of supply chain management. This is particularly due to the heightened knowledge and understanding about the cost of poor quality. This acts as motivation for companies to examine their entire supply chain process. If poor quality or inefficient processes are costing the company margin, it is very important to eliminate them. Easier said than done though – all supply chain improvements are a very difficult change management process, particularly so in a global environment.

The main contributors to the rapid growth of interest in supply chain management include the pressures of shorter product life cycles, better service quality, and increasing outsourcing. Companies are forced to act in the current "state of the market" for their own survival, particularly in terms of the supply chain. It is no longer viable to plan for the long term as it is too risky given the speed of change in products, services, and technology. Too much can happen in a few years, ranging from changes in the sources of supply to changes in the methods of transportation and distribution. Add to this the extreme pressure put on margins by the inherently global competitive nature of today's business and increasing consumer expectations for product value.

1.3. Evolution of Supply Chain Management

Supply chain management is a well-defined non-linear exchange network of numerous vendor businesses and legal entities that are engaged in provision of product and service packages required by the end customers. More comprehensive definitions take into account the very nature of the inter-relationships that are involved, where original manufacturers integrate with vendors (suppliers of material and parts) integration with new product development and as a result, there is a need for improvement of the exchange of information. Supply chain management creates a network of inter-companies in order to improve operating efficiency. The term supply chain management was first introduced in the 1980's, but as far back as the 1960's its preceding development was identified in the management of physical distribution functions and the integration what was to become logistics. The evolution of integration within logistics and the increased awareness of the benefits of collaboration throughout the 1960's were largely attributed to the trucking industry. These integrated operations are characterized by the sharing of information and resources and the use of inter-modal capabilities. As the trend toward the growth of collaboration and integration continued, the field of physical distribution was developed when the new systems approach was applied to logistics operations. By the early 1990's many firms realized that in order to effectively manage their distribution systems, they would have to expand the concept and practice of integration to the entire supply chain (verbative p.3)

References:

Blanchard, D., 2021. Supply chain management best practices. vnbrims.org