Supply Chain Management (SCM) involves the coordination of the three main functions of Purchasing, Manufacturing, and Warehousing & Distribution (Logistics) with trading partners such as Suppliers, Distributors, and Retailers in which the end goal is fulfilling the demand of end-users or consumers.
While the movement of goods has been part and parcel of commerce for much of history, the advent of new technologies, the intensification of global competition, and the rise of more discriminating consumer demand have put more pressure on SCM professionals to make their operations more effective.
While SCM is relatively new, considerable shifts in how supply chains are managed have occurred in recent years. It will be noteworthy to discuss some of them in the context of strategic management:
Manufacturing to Logistics Focus
Converting raw materials to finished product used to be the critical part of managing the internal supply chain. Prioritizing total quality, reducing costs, maintaining a safe working environment, enhancing industrial relations, and aspiring for environmentally sustainable operations were (and still are) big challenges at the turn of the 21st century. But as most manufacturing processes have embraced technology advancements and increased their capabilities, the challenge has shifted to the delivery of products. This has put pressure on warehouse & distribution management, otherwise known popularly as Logistics.
The once neglected and often underrated function of Logistics has turned out to be a key source of competitive advantage. Where to build and locate depots, whether to outsource distribution and transportation, and how much to invest in storage facilities and material handling equipment, have become frequent topics in board room discussions as much as they formerly were among operations managers.
Demand Forecast Accuracy to Supply Chain Responsiveness
Firms have aspired for greater demand forecast accuracy as a means to gain confidence in setting revenue targets and in streamlining the effectiveness of their Enterprise Resource Planning (ERP) systems, the basic platform of supply chain information technology. Less brand-loyal consumers coupled with more intense competition in a more complicated marketplace, however, have made it difficult to predict what and how much people will buy.
Some companies have retooled their supply chains to become more responsive to day-to-day demand than depending heavily on monthly to quarterly forecasts. Collaboration with vendors towards more responsive and reliable inbound deliveries of raw & packaging materials have enabled leading firms to achieve greater flexibility and agility in their production operations. At the same time, SCM professionals have made strides in engineering manufacturing processes to produce at fewer quantities at shorter cycle times. This has enabled firms to adapt to demand variations at a quicker pace without having to invest in expensive demand forecasting technology.
Internal Supply Chain to Collaborative Supply Networks
Successful collaboration with vendors as mentioned above has encouraged firms to do the same with partners on the customer-side, such as distributors, retailers, and dealers. Firms and suppliers have been graduating from simply coordinating deliveries of materials and finished goods to that of mutual cooperation in identifying non-value adding activities and eliminating inefficiencies. Inspection-free inbound deliveries, vendor-managed inventories (VMI), and supplier risk assessment activities are just a few recent advances in the supply side of firms’ supply chains. Joint promotional undertakings, information sharing in consumer buying patterns, and automated replenishment are some initiatives on the demand side. Mutual trust is a key prerequisite on either side but the benefits reaped by firms who have made such collaboration possible have been significant.
Towards Customer-Centric Processes
Some firms put priority on improving efficiency. Examples are scheduling continuous large batch production runs, delivering only full truckloads, and conducting comprehensive faultfinding internal audits.
Other firms, however, have focused more on customer-centric tasks. These include shortening production runs or reducing batch quantities, investing in smaller delivery vehicles, and measuring performance via customer satisfaction scorecards.
Firms have learned the need to thoroughly understand customers’ needs and to adapt their operations to meet those needs. Companies are discovering that customers have become more astute in assessing how well businesses fulfill their needs, so much so that many customers have placed service as a criterion just as important as price and quality in deciding their long-term relationships with partner companies.
The shifts towards logistics from manufacturing, responsiveness versus demand forecast accuracy, collaborative supply chains, and customer-centered tasks are signs of continuing change in the supply chain landscape. SCM has become a practice that will continue to be on the front burner of strategic management.