Introduction, Three Components of SCM

24/09/2022 0 By indiafreenotes

Supply chain management (SCM) is a process used by companies to ensure that their supply chain is efficient and cost-effective. A supply chain is the collection of steps that a company takes to transform raw components into the final product.

1) Plan

The first stage in supply chain management is known as plan. A plan or strategy must be developed to address how a given good or service will meet the needs of the customers. A significant portion of the strategy should focus on planning a profitable supply chain.

This is the strategic portion of SCM. Companies need a strategy for managing all the resources that go toward meeting customer demand for their product or service. A big piece of SCM planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers.

2) Develop (Sourcing/ Suppliers)

Develop is the next stage in supply chain management .It involves building a strong relationship with suppliers of the raw materials needed in making the product the company delivers. This phase involves not only identifying reliable suppliers but also planning methods for shipping, delivery, and payment.

Companies must choose suppliers to deliver the goods and services they need to create their product. Therefore, supply chain managers must develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And then, SCM managers can put together processes for managing their goods and services inventory, including receiving and verifying shipments, transferring them to the manufacturing facilities and authorizing supplier payments.

3) Make (Production and Operations)

At the third stage, make, the product is manufactured, tested, packaged, and scheduled for delivery. This is the manufacturing step. Supply chain managers schedule the activities necessary for production, testing, packaging and preparation for delivery. This is the most metric-intensive portion of the supply chain one where companies are able to measure quality levels, production output and worker productivity.

4) Delivery (Distribution/ Logistics)

Then, at the logistics phase, customer orders are received and delivery of the goods is planned. This fourth stage of supply chain management stage is aptly named deliver.

This is the part that many SCM insiders refer to as logistics, where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.

5) Return (Customer service)

The final stage of supply chain management is called return. As the name suggests, during this stage, customers may return defective products. The company will also address customer questions in this stage.

This can be a problematic part of the supply chain for many companies. Supply chain planners have to create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have problems with delivered products.

Key Decision Areas in Supply chain Management

To ensure that the supply chain is operating as efficient as possible and generating the highest level of customer satisfaction at the lowest cost, companies have adopted Supply Chain Management processes and associated technology. Supply Chain Management has three levels of activities that different parts of the company will focus on: strategic; tactical; and operational.

  1. Strategic

At this level, company management will be looking to high level strategic decisions concerning the whole organization, such as the size and location of manufacturing sites, partnerships with suppliers, products to be manufactured and sales markets.

Strategic activities include building relationships with suppliers and customers, and integrating information technology (IT) within the supply chain.

  1. Tactical

Tactical decisions focus on adopting measures that will produce cost benefits such as using industry best practices, developing a purchasing strategy with favored suppliers, working with logistics companies to develop cost effect transportation and developing warehouse strategies to reduce the cost of storing inventory.

Studying competitors and making decisions regarding production and delivery would fall under the tactical category.

  1. Operational

Decisions at this level are made each day in businesses that affect how the products move along the supply chain. Operational decisions involve making schedule changes to production, purchasing agreements with suppliers, taking orders from customers and moving products in the warehouse.

The operational category includes the daily management of the supply chain, including the making of production schedules.

Three Components:

Network Structure:

The Network Structure comprises the most important collaboration partners in a supply chain, as well as the relationships between these players. It is neither possible nor desirable to establish a SCM cooperative network that includes all participants in a business network.

It would demand entirely too many resources and be quite complex. Moreover, it is important to focus available resources on the relations that are of strategic importance for the competitiveness of the business. For many businesses, it is a novel challenge to choose and work in a structured manner with business relationships. A good way to start is to describe the roles the business fills today and the roles the business wishes to fill in the future in terms of the supply chain. In this way, it becomes possible to create a dialogue concerning which relationships must be developed in the future. Working towards creating and maintaining the right relationships becomes part of the business strategy.

Business Processes:

Supply Chain Management’s Business Processes components are the second element in the SCM reference framework. Business processes in SCM help in the most important business processes such as the process of planning, implementation and controlling operations of the supply chain while satisfying customer requirements as efficiently as possible. The process includes all internal functions, logistics, distributions, sourcing customer service, sales, manufacturing and finance departments in the organization. However, it also involves external suppliers that provide finished products, components, parts and assemblies, and their delivery.

Management Components:

Supply Chain Management’s management components are a third element in the SCM reference framework. There are a number of management components, which span business processes and the roles of participants in the supply chain. It is of key importance to be aware of these common components in order to secure the successful completion of a supply chain project because they determine how the individual processes are managed and how they are integrated.

The physical and technical management components can be divided into subcategories.

  • Planning and control systems
  • Process structure
  • Organizational structure
  • Information distribution
  • Production flow