What is Supply Chain Management (SCM)?

If you think supply chain management is just another buss word for purchasing, think again. This Excerpt from “Understanding Supply Chain Management: Beginning the Journey”

The traditional meaning is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers. The following are five basic components of SCM

Plan – This is the strategic portion of SCM. You need a strategy for managing all the resources that go toward meeting customer demand for your product or service. A big piece of 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.

Source – Choose the suppliers that will deliver the goods and services you need to create your product. Develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And put together processes for managing the inventory of goods and services you receive from suppliers, including receiving shipments, verifying them, transferring them to your manufacturing facilities and authorizing supplier payments.

Make – This is the manufacturing step. Schedule the activities necessary for production, testing, packaging and preparation for delivery. As the most metric-intensive portion of the supply chain, measure quality levels, production output and worker productivity.

Deliver – This is the part that many insiders refer to as logistics. 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.

Return – The problem part of the supply chain. Create a network for receiving defective and excess products back from customers and supporting customers who have problems with delivered products

SCM- the advanced meaning is the management of the entire value-added chain, from the supplier to manufacturer right through to the retailer and the final customer. SCM has three primary goals: Reduce inventory, increase the transaction speed by exchanging data in real-time, and increase sales by implementing customer requirements more efficiently.

The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally

Supply chain professionals the world over have been tasked with reducing waste, increasing turns and building greater flexibilities into their supply chains. Some of these areas overlap Lean.

What is the extended supply chain?

The extended supply chain is a clever way of describing everyone who contributes to a product. So if you make text books, then your extended supply chain would include the factories where the books are printed and bound, but also the company that sells you the paper, the mill where that supplier buys their stock, and so on. It is important to keep track of what is happening in your extended supply chain because with a supplier or a supplier’s supplier could end up having an impact on you (as the old saying goes, a chain is only a strong as its weakest link). For example, a fire in a paper mill might cause the text book manufacturer’s paper supplier to run out of inventory. If the text book company knows what is happening in its extended supply chain it can find another paper vendor.

Six major attributes of the Lean supply chain:

Demand management

Cost waste reduction

Process standardization

Industry standardization

Cultural change

Cross-enterprise collaboration.

A Primer on Lean

Lean is a systematic approach to identifying and eliminating waste (non-value-added activities) through continuous improvement by flowing the product at the pull of the customer in pursuit of perfection. The very basic concept of Lean started with Henry Ford in the 1920s when he applied the concept of “ continuous flow ” to the assembly line process. This practice focused on cost reduction by improving quality and throughput, and it continued to be recognized as the most advanced manufacturing process until two Japanese executives at Toyota introduced the Toyota Production System (TPS) after their visit to Ford in the 1950s. As Toyota soon realized, optimizing a part of the process is different from optimizing the whole. If real changes were to take place, they had to include suppliers and customers. Without all of the key players, the timing and quality of goods by supplier will continue to impede manufacturer performance. This is the fundamental start for the Lean Supply Chain.

During the 1980s U.S. businesses were reintroduced to the importance of total quality management. While W. Edwards Deming was a visible player in this arena, he was not alone. Bill Smith, a senior engineer and scientist at Motorola, built on these concepts and developed Six Sigma, which is a standardized way to count defects in a process. Six Sigma ’ s goal is to define processes and manage those processes to obtain the lowest possible level of error — as such it can be applied to virtually any process, not just manufacturing. It is well regarded in quality settings and subscribers are frequent winners of the Malcolm Baldrige award. Because of its emphasis on quality, Six Sigma and Lean are often paired together in the manufacturing environment.

A Primer on Supply Chain Management

Where does Lean fit in logistics and supply chain management? Perhaps the best way to start is to define the terms and understand the how Lean fits into both areas.

The Council of Supply Chain Management Professionals (CSCMP) defines logistics as “ encompassing the activities involved in the forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption. ” Supply chain management is much broader, in that it “ encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies 1 . ”

From a practical side, logistics is focused on the activities noted above within a single firm. A supply chain consists of the same processes, but it views these processes over multiple firms. The former is internally focused; the latter externally focused. As noted in the table below, there are several areas of overlap between the two areas.

Comparing Lean and Supply Chain Management

Lean Production	Manufacturing Supply Chain Management
Focuses on reduce waste and non-value-added activities	Goal is on reduced lead times/cost through various methods
Traditionally focused on success with primarily optimizing shop floor	Focuses on optimization across supply chain partners
Uses a set of structured tools	Applies Lean tools as well as leveraging other tools (Six Sigma, TQM, TOC, etc.)
Emphasizes on no inventory through “continuous flow ”	Emphasizes on minimizing inventory through various techniques