Supply chain management governs all activities related to procurement of raw materials, transfer of inventories and distribution of finished products to the consumer.Â This term has grown in popularity as more enterprises examine the linkages between manufacturers and transportation systems.Â While previously companies were intent on optimizing the manipulation of products and services within their organization, the path those goods may have taken to enter and leave the organization were given minimal attention.
In the 1990s, however, a re-examination of supply chains caused many commercial operations to invest in further optimizing them.Â Companies began to recognize that more efficient processes that began with raw material acquisition and included all of the actions pertaining to its handling would lower the cost to the consumer and lead to greater market competitiveness for partners throughout the supply chain.
This led to increased scrutiny of all companies and operations that comprised the chain, which in turn led to more pressure on companies to optimize their performance.Â The supply chain manager became a strategic management leader in many organizations seeking a competitive advantage.
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In order to make supply chains more cost-effective, managers analyzed the end-to-end process.Â Each step was evaluated and compared to other companies within the industry to determine if alternate processes could be employed for a time or price benefit.Â Where there were inefficiencies or bottlenecks, supply chain managers were expected to develop solutions in partnership with those process managers or through more efficient replacement systems.
As a complement to the physical processing of goods, modern supply chains are now also heavily dependent on informational processing and distribution.Â Because many operations now require precise schedules of delivery and distribution in order to maintain an optimal logistical strategy, data detailing the status of materials upstream of the organization, as well as the disposition of storage entities downstream are vital.Â Information systems that monitor the entire chain enable organizations to operate at peak efficiency.
Functions of Supply Chain Management
As managers of operations within the organization as well as outside of it, supply chain managers are extremely dependent on well-developed relationships with business partners.Â Some of these relationships are based on mutual benefit, but there is always the consideration that another company may provide a much needed edge.Â Therefore SCM professionals must be continually evaluating strategies upstream and downstream of the organization.
One of the most important functions of supply chain management is to develop a comprehensive transportation and storage strategy.Â These two aspects of SCM are highly interrelated.Â Efficient and timely transportation of goods allows minimal use of storage facilities which are costly.Â In order to produce a SCM strategy that reduces warehousing and downtime for materials in the pipeline, managers are expected to employ integrated transportation strategies that feed materials and goods to partners at timely intervals. Tools used to accomplish this are comprehensive SCM software packages, which can coordinate functions across multiple platforms.
At a very basic level, supply chain managers must be excellent managers of human capital.Â Although technical expertise is a vital skill, supply chains are heavily dependent on communication and interpersonal interaction.Â As a senior manager, SCM professionals are responsible for the optimal flow of goods into and out of the organization, but in most cases their influence extends only to boundaries of the firm.Â In order to massage cooperation from partners, SCM professionals must produce incentives or penalties in the proper amounts, which requires keen insight and an understanding of psychology. In some cases, it must even be made apparent to partners that the relationship can be terminated and possible replacements are being entertained.
Supply chain managers must also maintain an awareness of current market conditions.Â While the end retailer may be willing to accept some backlog of goods, in most cases, if the demand falls, purchasing will also decline.Â If this occurs, a careful evaluation of the situation must be conducted.Â If the retailer is failing due to its individual disadvantages, other retailers may need to be contracted.Â If the entire market is declining, the supply chain may need to be altered further upstream.Â Resources may need to be diverted to related product manufacturers that are not experiencing a reduction in demand.
A drop in demand from the ultimate consumer often requires extensive retooling of the supply chain.Â Negotiations with partners may be necessary in order to reduce flow of goods.Â This may spark contract negotiations if there is a fixed relationship, and if renegotiating fails, the pricing of the goods may need to be inflated or adjusted.
The Role of Supply Chain Management
More organizations are recognizing the strategic importance of SCM, and have elevated these positions to executive levels.Â Many of the global, more distributed enterprises, like Wal-Mart, have even made supply chain managers their CEOs. Considering how critical the proper flow of materials and products are to an organization, it is not surprising that organizations that receive and deliver to areas around the world depend heavily on SCM professionals.
What leading companies are doing is leveraging SCM expertise into more efficient, streamlined operations for their partners as well as internal processes.Â A supply chain manager that is actively monitoring activity upstream and downstream may be able to predict periods of heightened or reduced activity and convey this to other members of the executive team.Â In these successful organizations, the supply chain manager often takes on the role of the enterpriseâs driver because they are most in tune with the external environment.
SCM also adds value to the ultimate product through cost-cutting, or more re-investment.Â Enhanced efficiency in the supply chain naturally translates into lower prices for the consumer, but it may also result in more investment in research & development which will lead to higher quality or appeal for the consumer in the long term.
Truly agile SCM strategies also allow for rapid modification of production processes.Â If the end-user is beginning to lose interest in the product, the SCM professional may be able to recognize this and initiate a re-tooling of the production process to enhance appeal or reconfigure for an entirely new product line.