What is Supply Chain Management or SCM? Put simply, it is a network of businesses involved in creating a product or service that is in demand. It covers all parts of the process starting with the movement then raw materials storage, the creation of the product from the materials presented and finally distributing the finished good for public consumption.
The term of Supply Chain Management was created back in the early 1980’s to describe the concept of a series of companies tied together to create a single product, the most classic example being the assembly line at an auto plant. Where one company, shipped to the factory for assembly, crafts raw materials into parts then sent to dealerships to sell to the public. That effort involves dozens of different companies along the line, but they all work towards the same goal, the manufacturing of a single product to sell.
Effective Supply Chain Management goes beyond the simple ordering of parts. It involves coordinating the efforts of several companies to work in concert with each other harmoniously. Not just to insure the smooth flow of parts and labor, but to react quickly when designs or directions change in production, and to take advantage of new opportunities in the marketplace.
The growth of the importance of Supply Chain Management mirrors the expansion of markets overseas with large companies competing on a global level. Such firms as Dell and Hewlett Packard are prime example of computer production companies utilizing supply networks consisting of dozens of smaller businesses to manufacture their product.
Good Supply chain management brings together the collaborative work between buyers and suppliers, product development, along with common systems and shared information that can benefit all companies as they join forces to create a product.
Supply Chain Management is an Effective Management System
Incorporating the successful practice of good Supply Chain Management techniques requires the switch from managing the function of individuals within a company to bringing together different businesses to fulfill key supply requirements. To cite an example, let us say that the purchasing department places orders as the direction the company will take becomes known. The marketing department responds by contacting different distributors and retailers to find the right part or service at the best price. By incorporating all functions of the process under one management system, you streamline the efforts and which cuts down on one of the major cost overrun factors, time. The quicker decisions can be made, the faster the required parts or products are shipped, the sooner they can be assembled or integrated, and the less time is wasted.
The flow of information is what enables an effective supply chain management system to succeed. Such a process requires a combination of order, flow, development and commercialization under a unified management system that shares information readily and reacts quickly to new developments as they occur. To compete on a global basis, companies that utilize the services of other businesses must develop a good supply chain management process to keep competitive in today’s economy.
The main barrier to effective supply chain management generally stems from the same area as what makes it work. The people who ultimately make the decisions as to which direction their efforts will go. For example, if a car manufacturer discovers that a certain line of automobiles is falling out of favor with the public, it is there best interest to switch and create a new line that meets consumer demand. Such a change requires understanding what new types of vehicles to produce, the parts necessary to create them, and the coordination of the supply chain management network to follow suit.
If there is disagreement as to which way to proceed, then manufacturing slows down to the point where orders are not placed and the smaller businesses which specialized in creating specific parts for one type of vehicle now have to sit and wait for new orders to come in. Without effective coordination and planning, such slow downs can cause these smaller businesses to go under, meaning that even more time is wasted finding new suppliers.
There have been many historic examples of such event occurring and even with the best, most competent staff running the supply chain management system, breakdowns will happen. While it’s understandable that some of these breakdown occur because of events beyond a companies control, say for example a natural disaster strikes which affects one of suppliers, the slowdowns due to production changes can be avoided if the planning process happens far enough in advance for companies to switch gears, so to speak, without losing any time.
Good Things to Consider in Supply Chain Management
Other consideration are using overseas companies where the labor laws for example, may differ from the US, which might be looked up negatively by some customers and consumer groups if these countries use underage labor for example. However, the efforts to go “global” with a business network can have advantages in obtaining lower taxes, creating larger supply sources, and taking advantage of better working environments in some cases. Offsetting this is the problems of stretched supply lines from shipping overseas, cultural and language differences and even the differences in currency values can have a profound effect.
In creating an effective supply chain management system for your business, one of the most important considerations is where to locate your main manufacturing process, in essence, the location of the building where everything comes together. This concept is known as “centroid”, a place that is usually located in a large city where the local population supplies the employment and has easy access to transportation lanes, such as railroads or highways where the supplies come in. Dayton, Ohio is considered a “centroid” city as it not only fits the requirements, but is also home to many businesses that network with smaller companies in a supply chain management system. Riverside, California is another example of a centroid city as well.
Tax issues are another consideration when building your business, which is why states such as Texas and Florida are rather attractive to certain industries because there are fewer taxes and no state personal income tax as well. Proper research and planning are required in finding the best place to center the business.
Insuring good supply chain management practices means that not only the company benefits, but all those who work in the network of suppliers and retailers enjoy the benefits as well. Adding value over and above the revenue gained means building loyalty and confidence within the system. All this translates to better, more productive work as employees from all levels pull together and work harder to achieve the desired goal.