Supply Chain Management (SCM)

Professor Vasile Avram, PhD Gornea Oana Gr.1

Supply Chain Management (SCM) Supply Chain Management is the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole. Supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management. It also includes the crucial components of coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies. More recently, the loosely coupled, self-organizing network of businesses that cooperate to provide product and service offerings has been called the Extended Enterprise. Supply chain management is a cross-function approach including managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods out of the organization and toward the end-consumer. As organizations strive to focus on core competencies and becoming more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations.

Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and

collaboration among supply chain partners, thus improving inventory visibility and the velocity of inventory movement. What does supply chain management software do? Supply chain management software is possibly the most fractured group of software applications on the planet. Each of the five major supply chain steps previously outlined is comprised of dozens of specific tasks, many of which have their own specific software. Some vendors have assembled many of these different chunks of software together under a single roof, but no one has a complete package that is right for every company. For example, most companies need to track demand, supply, manufacturing status, logistics (i.e. where things are in the supply chain), and distribution. They also need to share data with supply chain partners at an ever increasing rate. While products from large ERP vendors like SAP's Advanced Planner and Optimizer (APO) can perform many or all of these tasks, because each industry's supply chain has a unique set of challenges, many companies decide to go with targeted best of breed products instead, even if some integration is an inevitable consequence. It's worth mentioning that the old adage about systems only being as good as the information that they contain applies doubly to SCM. If the information entered into a demand forecasting application is not accurate, then you will get an inaccurate forecast. Similarly, if employees bypass the supply chain systems and try to manage things manually (using the fax machine or spreadsheets), then even the most expensive systems will provide an incomplete picture of what is happening in a company's supply chain. Supply Chain Management is not a business function, rather it is a new business model necessary for an organization's success and everyone in the organization needs to be involved. In todays environment, there is the added pressure to be more socially and environmentally responsible and there are risks which need to be mitigated and managed. Then, there is the complexity created by ever increasing customer requirements and expectations, globalization, the pressure on cost, and the availability and access to resources. On top of this, management is expected to improve profitability, increase revenue growth and capture and protect larger market share. In order to succeed, management must recognize that the ultimate success of an organization depends on the ability to integrate the companys network of business relationships in a mutually beneficial way. The management of this network of relationships is supply chain management. Successful supply chain management requires cross-functional integration within the firm and across the network of firms that comprise the supply chain. It is focused the improvements in performance that result from better management of key relationships. By understanding the supply chain management processes and how they should be implemented, management will better understand the value of more integrated supply

chains and how this integration will lead to increased shareholder value and a sustainable competitive advantage. Many companies have a goal in forecasting and demand planning of getting to the point of effective use of so-called "causal factors" - the actual incremental drivers of demand beyond baseline customer demand. These causal factors can range from the weather to advertising to macroeconomics and everything else in-between, and would greatly enhance a companys ability to improve its forecast accuracy as well as potentially increase sales if they could be used effectively.To date more companies have had this as an eventual goal than have actually been able to use causal factors effectively - but that is starting to change. With all that in mind, we like the concept of "decomposing demand," as introduced to us for the Letter by JDA Software, and illustrated in the Letter and in the graphic below.

References: 1. Basu, A. & Siems, T. The Impact of E-Business Technologies on Supply Chain Operations: A Macroeconomic Perspective, Federal Reserve Bank of Dallas, Working Paper 0404, November 2004

2. Beward, D. Jankowicz, D. & Rexworthy, C. (2003). East meets west: a case example of knowledge transfer , Human Resources Development International, 6(4), 2003, pp. 527-545 3 Chuang, M. & Shaw, W. A Roadmap for E-Business Implementation, Engineering Management Journal, 17(2), 2005, 4. Clark, E. & Geppert, M. Management learning and knowledge transfer in transforming societies: approaches, issues and future directions, Human Resources Development International , 5(3), 2002, pp. 263-277