I start this article by giving a little history as to how Production and Purchase has now become Supply Chain Management. In 1960s the Production manager or in-charge used to take care of purchases and Inventory was a totally forgotten area. The concerned Production Manager for safety sake kept about 3 months’ inventory of local items and 6 to 12 months’ inventory was maintained for imported items.
In the early 1970s a formal shape was beginning to take place. Material planning for purchased items, Purchase, and Stores were headed by separate heads and reported to Works Manager or Production Manager. Here also inventory control was given II priority. In mid 1970s serious thought was given to Inventory control. Through ABC and other analysis some sort of control was given to inventory.
Purchase and Stores were handled by professionals and Material planning was kept separately and most of the Inventory control rested with them. The blame game started between Materials planning, Purchase, Stores and Production. A lot of paper work needed to be generated. This was resulting in loss of Production and organization as a whole was the sufferer. Source Development was with Purchase and not many new sources were identified.
In the late 1970s or very early 1980 all the four above materials: planning, purchase, stores, and source development came under one head called Materials Manager and each of the above in turn were held by an Assistant Manager or managers reporting to materials managers. This post depending upon the size of the organization went up to Executive Director (Materials) the other department personnel was called Human Resources (HR), Production and Marketing. They were made to concentrate on their own departments to perform efficiently.
Procurement, Sources Development and Inventory Control were taken care of by respective heads in materials department. Sometimes the materials manager or the materials chief was taking care of inventory control through a policy circulated to all concerned. In fact he was authorizing high or low inventory levels wherever required with valid reasons.
This left out the logistics for receiving materials in stores and dispatching finished products of the company from the finished goods store. The purchase was given the responsibility of all transport contracts in the company including dispatch of finished products. The responsibility of receipt side of logistics was given to receipt stores. However, the finished products are dispatched from finished goods stores under the responsibility of marketing or sales. This logistics management was also extended to Agencies, Distributors, and Large Retail stores(For FMCG) and under the responsibility or marketing and sales.
The concept of supply chain management and the method in which it has evolved is followed by an understanding of the various aspects of supply chain management and innovations that have occurred in the area.
A supply chain is a network of facilities and distribution options that perform the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these products to the customers.
The process from the initial raw materials to the ultimate consumption of the finished product linking across supplier user companies and the functions within and outside a company that enables the value chain to make products and provide services to the customer.
Over the past few years, the scenario has become even more complex. The opening up of global borders and the easing of trade barriers has encouraged retailers to source from competitive markets. While this is advantageous to the retailer, inability to control the costs involved in transportation warehousing and the shipping of material to the end consumer will affect the profitability of the business. The last two decades have seen the rise of a large number of operational and quality management and control initiatives like JIT (Just in Time), TQM (Total Quality Management ) , ZI (Zero Inventory), ECR (Efficient Consumer Response) and VMI (Vendor Managed Inventory). All these have now been integrated within the domain of the Supply chain management process.
From the above mentioned definitions one can summarize that the objectives of supply chain management are to ensure the right product reaches the right place at the right time and importantly, for the right price and profit for the retailer as is illustrated below:
2) Right Place
3) Right Time
4) Price & Profit.
The right product, at the right place at the right time, at the right price and of course in the right quantity is the mantra of modern retail.
The department store in all probability has at least a hundred suppliers. Some of these could be manufacturers, some of them agents and others distributors. The challenge of managing a continuous supply of goods from all these different entities is the challenge of managing the supply chain.
I will conclude this article with an example. If the sales turnover of the company is say Rs 2000 crores a reduction of 2 per cent of goods in supply chain management will add Rs 40 crores to the bottom-line of the company.