Concept of supply chain management

Supply chain management ensures a smooth and efficient flow from raw materials to finished goods, into the hands of the consumers. It is a concept which has increasingly replaced traditional, fragmented management approaches to buying storing and moving goods. Supply chains exist in both the service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and from firm to firm. It aims to integrate activities across the entire merchandise flow, to achieve quick response in supplying products and services to customers who need them. By doing this, production time can be set as close to selling period, achieving better prediction of selling targets.

Figure illustrates the flow of materials right from the stage of procurement till they reach the retail store as finished products. This is the flow of goods. On the other hand the information on products purchased by the consumer flows back from the retail store to the various intermediaries to aid creation of the right product. This is the flow of information.

It is difficult to put down the value of the supply chain industry. The estimated market size for supply chain globally includes aspects like trucking warehousing inventory costs transaction costs and administration costs for the values of key elements.

The need for supply chain management

Not long ago, retail stores existed to cater to the needs of local markets. When one needed bread and eggs, one visited the local grocery store. To buy garments one simply either bought fabric and had it tailored or bought what has available in the market. Buying for the retail organization was a much simpler task then. It meant dealing with a few products and a limited number of suppliers. What existed to that time was a simple supply chain as illustrated. Managing this was fairly simple and easy for the retailer

However as market expanded and the retailer’s business grew, the number of products that were offered by the retailer also increased. While the number of suppliers increased there as also an increased pressure on margins. Retailers needed to think of ways of cutting costs. In order to be able to cut down on cost it was necessary to integrate the complete supply chain.

Supply chain management today, links demand management, resource management and supply management and hence plays an import role in retailing.

Today, retailers operate in a dynamic world. Customers’ buying habits are constantly changing and competitors are continually adding and improving their product offerings. Demand changes mean a shorter life cycle for the company’s products and inventory. The cost of holding inventory may restrict the company from providing a reasonably priced product as funds are tied up in inventory. The number of suppliers to an organization may vary from a few hundred thousands depending on the range of products offered to the consumer. Sourcing vendor management and logistics play a major role the right product to the right place at the right time and in the right condition.

The second reason for supply chain management becoming crucial partially is the increased national and international competition. Customers have multiple sources from which to choose to satisfy demand; locating the product throughout the distribution channel for maximum customer accessibility at a minimum cost becomes crucial.

A third reason for the shift in emphasis to the supply chain is the increasing pressures on the profit margins earned. Companies are becoming aware that they need to look at the whole picture and not at the functional excellence of individual departments alone.

Lastly it is a technology driven world today. Advances in technology enable companies to know sales, inventory and production data across various locations, not only within the country but also internationally. Information is the key enabler of supply chain management. Table summarizes the process related challenges in the supply chain, as listed out by Kurt Salmon associates and listed in the Global Commerce Initiative Recommended Guidelines Collaborative Planning Forecasting and Replenishment (CPFR) version 2.0 s approved by the Voluntary Inter-industry commerce Standards (VICS) Association June 2002.