Supply chains need to be managed, in other words there is a need for supply chain management (SCM). So, what is supply chain management?? APICS defines it as follows: The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally.
This lengthy definition of SCM contains many elements. One can argue that supply chain management resembles a horizontal process that overlays the whole company, or even multiple companies. In case of a single company, SCM often focuses on purchasing, operations, planning and sales. When considering multiple companies, SCM includes relations with suppliers, customers, service providers and multiple other stakeholders.
Based on the above it is clear that in companies there are multiple departments. Those can be depicted as vertical silos, that have touchpoints with supply chain management. These silos get input from and deliver output to other silos. This is exactly why SCM is so important. It needs to make sure that its process outcomes represent value to end customers, by orchestrating that all vertical silos collaborate effectively and efficiently.
As an example, let's have a look at SCM in a fruit juice company which delivers bottled and cartoned fruit juice blends to retailers. According to the APICS definition of SCM, it needs to create net value. In other words, value that end customers are willing to pay for, whilst at the same time control costs in such a way that net profits result.
For this to happen, the company first needs a game plan. A company strategy, about how they plan to go to the market. From this plan each of the functional silos of purchasing, operations, sales etc. should derive their own departmental plans and actions in order to execute the strategy. SCM needs to make sure these plans stay synchronized and attuned.
So, sales needs to come up with a sales plans, do forecasting, and make customers agreements. Purchasing needs to select suppliers and negotiate agreements with them. Operations needs to make sure there is enough production capacity, storage space, staffing and logistics. Planning sets up supply plans for components and end products. All these activities need to be supported by advanced software solutions to be able to cope with the sheer amount of data that needs analysis.
This begs the question: who is responsible for SCM? Many companies have a role of a supply chain manager. He or she is responsible for SCM. Quite regularly this person heads the planning department. At the same time the supply chain manager liaises frequently with other functional department heads to preempt or iron out issues.
There are companies that put a structured process and regular meetings in place between the various functional departments. This is called Sales and Operations Planning or S&OP, and that can be driven by SCM. By looking far enough ahead into the future on a not too granular level, one can timely anticipate change and outperform the competition.
The future is unpredictable and full of opportunities and risks at the same time. Supply chain event management or supply chain risk management has therefore come to the forefront as well. SCM needs to include prevention and mitigation plans in case of e.g. natural disasters, a pandemic, product recalls etc.
To navigate and be successful in today's business environment a company simply cannot do without state-of-the-art supply chain management.
Now you know everything about supply chain management. Do you want to experience how to put supply chain management into practice? Inchainge offers various business simulation games that offers a real life learning experience. Have a look at our business games page for more information. Do you want to know more about the supply chain? Have a look at our supply chain page.