What Is Supply Chain Management?

Due to emerging competition in the dynamic markets of globalized economies of countries across the world, business organizations the world over have realized that the business process of satisfying the demand of the customer is of critical importance to them. They realized that a functional approach to business process would no more help in developing competitiveness. Due to this recognition there was a paradigm shift in their outlook and thinking. It was clear to these organizations that competition today has shifted from products to supply chains, that is, the supply chain of one company is competing with that of another to deliver superior customer value. Hence, to effectively and efficiently manage the supply chain has become critically important not only for the growth but the survival of any business.

Supply chain management (SCM) is basically an information-based process that integrates the various activities from raw material supply to manufacturing and finally to the supply of finished products and services to the end customer. It is an approach to control the physical flow of products and services from suppliers to end-users by coordination of the activities of suppliers, manufactur­ers and end customers. It aligns the capabilities of suppliers, manufacturers, channel partners, service providers and customers to develop a sustainable competitive advantage. SCM takes into consideration cross-functional integration and looks beyond the functional excellence of an orga­nization. It contributes to the world-class performance of a business enterprise and adds value to its product and service offerings in order that it may outperform its rivals.

Prof Lambert defines ‘supply chain management’ as the integration of business processes from end-user through original suppliers that provides products, services and information that add val­ue for customers. Prof Lisa Elram and Martha C. Cooper mention that SCM is a strategic concept that involves understanding and managing the sequence of activities from suppliers to customers that add value to the product and supply chain pipeline. According to Ravi Kalakota and Andrew B. Whinston, SCM, because of its complex nature, is considered equal parts of art (presentation, sales technique and service) and science (forecasting, data analysis, sourcing, margins and distribution).

SCM is a new way of thinking that takes a total view of the business process starting from the source of supply to the point of consumption or usage. Hence, SCM is the integrated management of all the linkages and value-added activities from the supplier’s supplier to the customer’s customer. This integrated process results in enhanced customer value at the least cost. A well-designed sup­ply chain supports the strategic objectives of reduced costs, shorter performance cycle, world-class product and service quality, flexibility, reliability and product availability.

In fact, many Indian business firms today have taken supply chain initiatives more seriously than ever to develop a competitive advantage in a globalized, privatized and liberalized (GPL) environment. Some of the prominent names are Xerox, Telco, Maruti Udyog, Sunderam Fasteners and Godrej.

SUPPLY CHAIN INITIATIVES

  1. Xerox Limited is leveraging on its supply chain strategy to improve customer satisfaction by reducing cycle time, enhancing productivity and keeping on-time delivery so as to lead the market.
  2. Telco is managing inventories through a vendor-based supply chain and moving towards the just-intime ( JIT) system to cut inventory-carrying costs. Telco have inducted Dynamic Logistics, a Third Party Logistics (3PL) service supplier, in their supply chain for spare parts management of commercial vehicles and passenger cars. The benefits are a 50 per cent reduction in logistics costs and on-time delivery to customers—a win-win situation.
  3. In Godrej-GE, 60 per cent of the product cost is covered by raw material that is entirely outsourced to control costs, delivery schedules and product quality so as to run an efficient and lean supply chain.
  4. To extend the JIT system for a lean supply chain, Maruti has located 70 per cent of its vendors within a 100-km radius of their Gurgaon factory.
  5. Sunderam Fastner, a Chennai-based high tensile fastener and radiator cap manufacturer, in line with its supply chain strategy of vendor base reduction, appointed Southampton (UK) as their consolida­tion agent for all supplies of steel coils and components to be shipped from Europe to their manu­facturing plant in Chennai.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.

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