Supply chain management (SCM) is the art and science of creating and accentuating synergistic relationships among the trading members that constitute supply and distribution channels. Supply chain managers strive to deliver desired goods or services to the “right person,” in the “right quantity,” at the “right time,” in the most effective and efficient manner. Usually, this is achieved by negotiating or achieving a balance between conflicting objectives of customer satisfaction and cost-efficiencies. Each link in each supply chain represents an intersection where supply meets demand, and directing the product and information flows at these crossroads is at the core of SCM.
Strategic and tactical issues in SCM
A holistic supply chain comprises multiple processes for suppliers, manufacturers, and distributors. Each process employs a distinct focus and a related dimension of excellence. Key issues in managing an entire supply chain relate to (a) analyzing product strategies, (b) network design and the related sourcing strategy employed, and (c) a strategic and tactical analysis of decisions in logistics, manufacturing, distribution, and after-sale service. It is our view that by analyzing product demand characteristics and the supply chain’s capabilities and crafting a fit between them, an individual manager can ensure that the specific process strategy employed does not create dissonance in the entire supply chain.
SCM has evolved from process reengineering efforts to coordinate and integrate production planning at the factory level to initiatives that expand the scope of strategic fit beyond a single enterprise (Chopra & Mind, 2001). Positive results from intra-functional efforts extended the SCM philosophy throughout the enterprise. Process improvements at the firm level highlighted the need for suppliers and customers of supply chain-managed firms to adopt the SCM philosophy. A supply chain is only as strong as its weakest link. How the chain defines strength is at the core of a supply chain’s strategy and, therefore, its design.
How will each network investment facilitate the supply chain strategy? Consider a manufacturing plant. If the plant is set up to produce only a specific product type, the chain will be more efficient, but less flexible than it would be if the plant produced multiple product types. A supply chain providing innovative products will likely perform better with flexible manufacturing facilities.
What locations should be chosen for facilities? A good decision in this dimension is essential because the cost ramifications of a suboptimal location could be substantial. Shutting down or moving a facility is significant not only in terms of financial resources but also in terms of the impact on employees and communities. Other factors that should be considered are the available infrastructure for physical and information transportation, the flexibility of production technologies employed, external or macroeconomic influences, political stability, location of competitors, availability of required labor and materials, and the logistics costs contingent on site selection.
Depending on the expected level of output for a facility, capacity allocations should be made so that idle time is minimal. Underutilization results in a lower return on investment and is sure to get the attention of company executives. On the other hand, under-allocating capacity (or large utilizations) will create a bottleneck or constricted link in the supply chain. This will result in unsatisfied demand and lost sales or increased costs as a result of satisfying demand from a no optimal location. The capacity allocation decision is a relatively long-term commitment, which becomes more significant as the sophistication and price of the production technology increase.
Supply and Distribution
Who will serve our needs, and whose needs will we serve? This is a recurring question. Decisions regarding the suppliers to a facility and the demand to be satisfied by a facility determine the costs of material inputs, inventory, and delivery. Therefore, as forces driving supply or demand (or both) change, this decision must be reconsidered. The objective here is typically to match suppliers and markets to facilities to minimize not only the system-wide costs but also the customer responsiveness of the supply chain. In general, these criteria are often orthogonal, implying that the sourcing and distribution decisions require a multiobjective focus with some prioritization of the cost and responsiveness aspects.
A primary driver of a firm’s SCM success is an effective sourcing strategy. The firm’s ability to deliver its goods and services to customers in a timely manner hinges on obtaining the appropriate resources from the firm’s suppliers. Because manufacturing firms typically spend more than 50% of earned revenue on purchased materials, the costs of disruptions to production due to supply inadequacies are especially significant. Furthermore, a firm’s financial and strategic success is fused to its supply base.