In operations management as well as materials management, one topic has recently invited attention of all business – it is supply chain management (SCM). The difference between the conventional thinking and SCM is that SCM treats the whole flow of information, materials and services from the suppliers through factories and stores to the final customer as a business system. These core activities require management on day-to-day basis so as fulfill the demand.
Supply chain actually represents the inter-linkage of an organization with other organizations which in turn are also having their own inter-linkages. Let us make the purchase or materials department as the central department. If we consider how the suppliers are received by the purchase department, we find it has a number of suppliers, and each supplier itself has its own set of suppliers, and so on. It is thus a network or series of chains. For example one such network of supply chain, where three suppliers have been connected to the purchase department is reasonable to control. If there are more suppliers, the supply chain becomes quite a complex thing.
The major objective of supply chain management (SCM) is to minimize uncertainty and risks associated with the supply chain. This by itself positively affects inventories, cycle time, processes, and customer service. SCM is another name for systems optimization. The tools for this system management are forecasting, aggregate planning, inventory management and scheduling
It is to be appreciated that a forecast becomes input to aggregate planning, which affects inventory planning, which ultimately leads to schedules of workforce and equipment.
Any decision taken at one stage of supply chain affects the other stages. To illustrate, if we plan to make 2 lac scooters this week at our plant, we expect our suppliers to provide us 4 lac tyres in time at our plant so as to reach our goal. This does not happen just as we wish. It has to be planned in terms of manpower, materials and time.
The supply chain is a network of facilities and distribution options that perform the functions of procurement of raw materials, transformation of these materials into intermediate and finished products and the distribution of these finished products to customers via the distribution channel that would normally include distributors, stockists and retailers.
A typical broad supply chain may in corporate the supplier of raw materials (vendors), transporters, manufacturing plant or manufacturer, warehouse, wholesaler, retailer and finally the consumer. Each participant in the supply chain has a supply chain of its own that seamlessly integrates into the entire network.
Till recently, all these departments functioned independently. There was internal computerized of these departments. But still they were islands. Data sharing was not practiced. As demand showed variations, the procurement of raw materials which was based upon the demand also was erratic. As distribution data was not available on tap, it resulted in huge inventories and equally huge, instances of wastage. Sometime when demand was overestimated, huge quantities of consumables with short shelf life had to be discarded.
These days we reap the benefits of networking. SCTM is now internet based or extranet based. Data are accessible in real time. It cuts down time and costs. If there is scarcity of raw materials, manufacturing gets immediate alert, which in turn alerts packaging and distribution. Thanks to retailer manufacturer linkage, production and inventory planning improves greatly. Point of sale information is captured on-line. The number of days of inventory then is benchmarked. Production schedules are designed accordingly. It matches the distributors.
SCM solutions are implemented through internet using serves or through closed proprietary networks. Internet is very economical. Physical presence is not required. We can access the system even while on the move. Instruction can be given to plant people. Convergence has further enhanced the utility of SCM.