Supply chain management is a vital, yet often underappreciated facilitator of trade that fosters customer convenience, business success and social development.
Customers benefit greatly from supply chain management, yet few people think about the planning, cost or activities involved in getting fuel to the filling station, fresh foods to the store shelf, or getting essential medical supplies to the hospital emergency room. People just assume that products will be readily available without worrying about how much their quality of life depends on productive, efficient supply chains.
Before an organization tries to focus on supply chain management its leaders must determine what the supply chain encompasses. Just as you can’t manage what you can’t measure, you can’t plan and execute what you haven’t clearly defined. Therefor it is important to articulate the overall purpose, scope and components of a supply chain.
A current definition of the supply chain states that a supply chain is “a series of integrated enterprises that must share information and coordinate physical execution to ensure a smooth, integrated flow of goods, services, information, and cash through the pipeline.” (From Coyle, Langley, Novak and Gibson 2013)
One important feature is the concept of an integrated network or system. A simple depiction of a supply chain is linear with organizations linked only to their immediate upstream suppliers and downstream customers. It also only focuses on one-way material flow, which fails to consider vital information and financial flows as well as reverse material flows. This misconception oversimplifies reality and fails to reveal the dynamic nature of a supply chain network.
In the global market, supply chains require a multiplicity of relationships and numerous paths through which products and information travel. This is better described in which the supply chain is a web or network of participants and resources.
This network of organizations, their facilities and transportation linkages, facilitate the procurement of materials, transformation of materials into desired products, and distribution of products to desired customers.
Simple representation aside, it is important to understand that no two supply chains are exactly alike. An organization's supply chain and relationships will be influenced by its industry, geographic scope of activity, supply base, product variety, fulfillment methods, and demand patterns.
Supply management does not have a long history relative to other disciplines such as accounting or economics. However, concepts that underpin supply chain management have been in existence for many decades. For example, today's supply chain strategies continue to draw upon the customer focus of early 20th century catalog retailers and the military logistics goal of “getting the right people and the appropriate supplies to the right place at the right time and in the proper condition”.
From a business perspective, the origins of supply chain management lie in a wide variety of related but initially fragmented activities. Purchasing, inventory management, warehousing, order processing, transportation, and related functions that were conducted independently. Each one had its own budget, processes, priorities, and key performance indicators, but this disaggregated approach was suboptimal and did not lead to lowest total costs.
Eventually company leaders began to realize the problems of fragmentation and began to integrate related activities.
Inbound transportation, purchasing and production related activities were coordinated in support of manufacturing. Inventory management, order processing and outbound transportation and related activities comprised the physical distribution function.
Later these two areas evolved in to the logistics function or process that coordinates and integrates the inbound and outbound flows of the organization.
A true supply chain emerges when multiple organizations synchronize their respective processes and adopt a more holistic supply chain management philosophy that includes strategic consideration of related areas. This includes finance, marketing, planning and technology.
Although the field of supply chain management has rapidly evolved over the last 30 years, many organizations are in the early stages of their supply chain development, and few have fully achieved their desired state of supply chain maturity.
Late developers of supply chain management must deliberately replace functional silos and cost goals with aligned internal processes. This is often the most challenging aspect of evolving to supply chain management.
LaLonde (1999) noted “The obstacles to supply chain integration encountered within an organization are far more difficult to overcome than the external challenges”.
After an organization integrates its internal processes and adopts unified cost and service performance targets, focus shifts toward building external relationships and extending the enterprise. Collaboration with key suppliers and customers, robust capabilities, and advanced technologies help the organization drive cross-channel value.