What is supply chain management

30/11/2010

The term Supply Chain Management was developed in the 1980’S to describe the need to integrate the key business processes, from end user through original suppliers. Original suppliers are those that provide products, services and information that add value for customers and other stakeholders. The basic idea behind supply chain management is that companies and corporations involve themselves in a supply chain by exchanging information the is relevant to and varies with market fluctuations and production capacity.

If all information is accessible to any concerned company, every company in the supply chain can seek to improve their entire supply chain rather than only improve based on a local interest. This is intended to lead to better planned overall production and distribution. This in turn cuts costs and better overall results including in terms of profit to the companies involved.

Successful supply chain management leads to better global competition in the global market where competition is no longer of the company versus company form but rather takes on a supply chain versus supply chain form.

Supply chain and the relationship between supply and demand

The primary objective of supply chain management is to fulfill customer demands through the most efficient use of resources, including distribution capacity, inventory and labour. Supposedly a supply chain marries up demand with supply with the minimal inventory. Doing this at ful optimisation maximises profits for a company. Optimising the supply chain can be done through removing bottle necks with suppliers, careful sourcing of products to balance out lowest material cost and transportation, implementing Just In Time techniques to optimize manufacturing flow and maintaining the right mix and location of factories and warehouses to serve customer markets, and using location/allocation, vehicle routing analysis, dynamic programming and, of course, traditional logistics optimization to maximize the efficiency of the distribution side.

The difference between supply chain and logistics

There is often confusion over the terms supply chain and logistics. It is now generally accepted that the term Logistics applies to activities within one company/organization involving distribution of product whereas the term supply chain also encompasses manufacturing and procurement and therefore has a much broader focus as it involves multiple enterprises, including suppliers, manufacturers and retailers, working together to meet a customer need for a product or service.

several companies chose to outsource the logistics aspect of supply chain management by partnering with a Third-party logistics provider. Companies also outsource production to contract manufacturers.