SUPPLY CHAIN MANAGEMENT

In commerce, supply-chain management (SCM), the management of the flow of goods and services, involves the
movement and storage of raw materials, of work-in-process inventory, and of finished goods from point of origin to point of
consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of
products and services required by end customers in a supply chain. Supply-chain management has been defined as the "design,
planning, execution, control, and monitoring of supply-chain activities with the objective of creating net value, building a
competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance
globally." SCM practice draws heavily from the areas of industrial engineering, systems engineering, operations management,
logistics, procurement, information technology, and marketing and strives for an integrated approach.[citation needed]
Marketing channels play an important role in supply-chain management. Current research in supply-chain management is
concerned with topics related to sustainability and risk management, among others. Some suggest that the “people dimension”
of SCM, ethical issues, internal integration, transparency/visibility, and human capital/talent management are topics that have,
so far, been underrepresented on the research agenda.

Mission

Supply-chain management, techniques with the aim of coordinating all parts of SC from supplying raw materials to
delivering and/or resumption of products, tries to minimize total costs with respect to existing conflicts among the chain
partners. An example of these conflicts is the interrelation between the sale department desiring to have higher inventory
levels to fulfill demands and the warehouse for which lower inventories are desired to reduce holding costs.

Origin of the term and definitions

In 1982, Keith Oliver, a consultant at Booz Allen Hamilton introduced the term "supply chain management" to the
public domain in an interview for the Financial Times.

In the mid-1990s, more than a decade later, the term "supply chain management" gained currency when a flurry of
articles and books came out on the subject. Supply chains were originally defined as encompassing all activities associated with
the flow and transformation of goods from raw materials through to the end user, as well as the associated information flows.
Supply-chain management was then further defined as the integration of supply chain activities through improved supply-chain
relationships to achieve a competitive advantage.

In the late 1990s, "supply-chain management" (SCM) rose to prominence, and operations managers began to use it in
their titles with increasing regularity.

Other commonly accepted definitions of supply-chain management include:

The management of upstream and downstream value-added flows of materials, final goods, and related information
among suppliers, company, resellers, and final consumers.
 The systematic, strategic coordination of traditional business functions and tactics across all business functions within
a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance
of the individual companies and the supply chain as a whole.

A customer-focused definition is given by Hines (2004:p76): "Supply chain strategies require a total systems view of
the links in the chain that work together efficiently to create customer satisfaction at the end point of delivery to the consumer.
As a consequence, costs must be lowered throughout the chain by driving out unnecessary expenses, movements, and
handling. The main focus is turned to efficiency and added value, or the end user's perception of value. Efficiency must be
increased, and bottlenecks removed. The measurement of performance focuses on total system efficiency and the equitable
monetary reward distribution to those within the supply chain. The supply-chain system must be responsive to customer
requirements."

The integration of key business processes across the supply chain for the purpose of creating value for customers and
stakeholders.

According to the Council of Supply Chain Management Professionals (CSCMP), supply-chain management
encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics
management. It also includes coordination and collaboration with channel partners, which may be suppliers, intermediaries,
third-party service providers, or customers. Supply-chain management integrates supply and demand management within and
across companies. More recently, the loosely coupled, self-organizing network of businesses that cooperate to provide product
and service offerings has been called the Extended Enterprise.

A supply chain, as opposed to supply-chain management, is a set of organizations directly linked by one or more
upstream and downstream flows of products, services, finances, or information from a source to a customer. Supply-chain
management is the management of such a chain.

Supply-chain-management software includes tools or modules used to execute supply chain transactions, manage
supplier relationships, and control associated business processes.

Supply-chain event management (SCEM) considers all possible events and factors that can disrupt a supply chain.
With SCEM, possible scenarios can be created and solutions devised.

In many cases, the supply chain includes the collection of goods after consumer use for recycling. Including third-party
logistics or other gathering agencies as part of the RM re-partition process is a way of illustrating the new endgame strategy.

Functions

Supply-chain management is a cross-functional approach that includes managing the movement of raw materials into
an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods
out of the organization and toward the end consumer. As organizations strive to focus on core competencies and become more
flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being
outsourced to other firms that can perform the activities better or more cost effectively. The effect is to increase the number of
organizations involved in satisfying customer demand, while reducing managerial control of daily logistics operations. Less
control and more supply-chain partners lead to the creation of the concept of supply-chain management. The purpose of
supply-chain management is to improve trust and collaboration among supply-chain partners thus improving inventory visibility
and the velocity of inventory movement.

Importance

Organizations increasingly find that they must rely on effective supply chains, or networks, to compete in the global
market and networked economy. In Peter Drucker's (1998) new management paradigms, this concept of business relationships
extends beyond traditional enterprise boundaries and seeks to organize entire business processes throughout a value chain of
multiple companies.

In recent decades, globalization, outsourcing, and information technology have enabled many organizations, such as
Dell and Hewlett Packard, to successfully operate collaborative supply networks in which each specialized business partner
focuses on only a few key strategic activities. This inter-organizational supply network can be acknowledged as a new form of
organization. However, with the complicated interactions among the players, the network structure fits neither "market" nor
"hierarchy" categories. It is not clear what kind of performance impacts different supply-network structures could have on
firms, and little is known about the coordination conditions and trade-offs that may exist among the players. From a systems
perspective, a complex network structure can be decomposed into individual component firms. Traditionally, companies in a
supply network concentrate on the inputs and outputs of the processes, with little concern for the internal management
working of other individual players. Therefore, the choice of an internal management control structure is known to impact local
firm performance.

In the 21st century, changes in the business environment have contributed to the development of supply-chain
networks. First, as an outcome of globalization and the proliferation of multinational companies, joint ventures, strategic
alliances, and business partnerships, significant success factors were identified, complementing the earlier "just-in-time", lean
manufacturing, and agile manufacturing practices. Second, technological changes, particularly the dramatic fall in
communication costs (a significant component of transaction costs), have led to changes in coordination among the members
of the supply chain network.

Many researchers have recognized supply network structures as a new organizational form, using terms such as
"Keiretsu", "Extended Enterprise", "Virtual Corporation", "Global Production Network", and "Next Generation Manufacturing
System”. In general, such a structure can be defined as "a group of semi-independent organizations, each with their capabilities,
which collaborate in ever-changing constellations to serve one or more markets in order to achieve some business goal specific
to that collaboration".

Supply-chain management is also important for organizational learning. Firms with geographically more extensive
supply chains connecting diverse trading cliques tend to become more innovative and productive.

The security-management system for supply chains is described in ISO/IEC 28000 and ISO/IEC 28001 and related
standards published jointly by the ISO and the IEC. Supply-Chain Management draws heavily from the areas of operations
management, logistics, procurement, and information technology, and strives for an integrated approach.

Historical developments

Six major movements can be observed in the evolution of supply-chain management studies: creation, integration,
and globalization, specialization phases one and two, and SCM 2.0.

Creation era

The term "supply chain management" was first coined by Keith Oliver in 1982. However, the concept of a supply chain
in management was of great importance long before, in the early 20th century, especially with the creation of the assembly
line. The characteristics of this era of supply-chain management include the need for large-scale changes, re-engineering,
downsizing driven by cost reduction programs, and widespread attention to Japanese management practices. However, the
term became widely adopted after the publication of the seminal book Introduction to Supply Chain Management in 1999 by
Robert B. Handfield and Ernest L. Nichols, Jr. which published over 25,000 copies and was translated into Japanese, Korean,
Chinese, and Russian.

Integration era

This era of supply-chain-management studies was highlighted with the development of electronic data interchange
(EDI) systems in the 1960s, and developed through the 1990s by the introduction of enterprise resource planning (ERP)
systems. This era has continued to develop into the 21st century with the expansion of Internet-based collaborative systems.
This era of supply-chain evolution is characterized by both increasing value added and reducing costs through integration.

A supply chain can be classified as a stage 1, 2 or 3 network. In a stage 1–type supply chain, systems such as
production, storage, distribution, and material control are not linked and are independent of each other. In a stage 2 supply
chain, these are integrated under one plan and enterprise resource planning (ERP) is enabled. A stage 3 supply chain is one that
achieves vertical integration with upstream suppliers and downstream customers. An example of this kind of supply chain is
Tesco.

Globalization era
 It is the third movement of supply-chain-management development, the globalization era, can be characterized by
the attention given to global systems of supplier relationships and the expansion of supply chains beyond national boundaries
and into other continents. Although the use of global sources in organizations’ supply chains can be traced back several decades
(e.g., in the oil industry), it was not until the late 1980s that a considerable number of organizations started to integrate global
sources into their core business. This era is characterized by the globalization of supply-chain management in organizations
with the goal of increasing their competitive advantage, adding value, and reducing costs through global sourcing.

Specialization era (phase I): outsourced manufacturing and distribution

In the 1990s, companies began to focus on "core competencies" and specialization. They abandoned vertical
integration, sold off non-core operations, and outsourced those functions to other companies. This changed management
requirements, as the supply chain extended beyond the company walls and management was distributed across specialized
supply-chain partnerships.

This transition also refocused the fundamental perspectives of each organization. Original equipment manufacturers
(OEMs) became brand owners that required visibility deep into their supply base. They had to control the entire supply chain
from above, instead of from within. Contract manufacturers had to manage bills of material with different part-numbering
schemes from multiple OEMs and support customer requests for work-in-process visibility and vendor-managed inventory
(VMI).

The specialization model creates manufacturing and distribution networks composed of several individual supply
chains specific to producers, suppliers, and customers that work together to design, manufacture, distribute, market, sell, and
service a product. This set of partners may change according to a given market, region, or channel, resulting in a proliferation of
trading partner environments, each with its own unique characteristics and demands.

Specialization era (phase II): supply-chain management as a service

Specialization within the supply chain began in the 1980s with the inception of transportation brokerages, warehouse
management (storage and inventory), and non-asset-based carriers, and has matured beyond transportation and logistics into
aspects of supply planning, collaboration, execution, and performance management.

Market forces sometimes demand rapid changes from suppliers, logistics providers, locations, or customers in their
role as components of supply-chain networks. This variability has significant effects on supply-chain infrastructure, from the
foundation layers of establishing and managing electronic communication between trading partners, to more complex
requirements such as the configuration of processes and work flows that are essential to the management of the network itself.

Supply-chain specialization enables companies to improve their overall competencies in the same way that
outsourced manufacturing and distribution has done; it allows them to focus on their core competencies and assemble
networks of specific, best-in-class partners to contribute to the overall value chain itself, thereby increasing overall
performance and efficiency. The ability to quickly obtain and deploy this domain-specific supply-chain expertise without
developing and maintaining an entirely unique and complex competency in house is a leading reason why supply-chain
specialization is gaining popularity.

Outsourced technology hosting for supply-chain solutions debuted in the late 1990s and has taken root primarily in
transportation and collaboration categories. This has progressed from the application service provider (ASP) model from
roughly 1998 through 2003, to the on-demand model from approximately 2003 through 2006, to the software as a service
(SaaS) model currently in focus today.

Supply-chain management 2.0 (SCM 2.0)

Building on globalization and specialization, the term "SCM 2.0" has been coined to describe both changes within
supply chains themselves as well as the evolution of processes, methods, and tools to manage them in this new "era". The
growing popularity of collaborative platforms is highlighted by the rise of TradeCard's supply-chain-collaboration platform,
which connects multiple buyers and suppliers with financial institutions, enabling them to conduct automated supply-chain
finance transactions.
 Web 2.0 is a trend in the use of the World Wide Web that is meant to increase creativity, information sharing, and
collaboration among users. At its core, the common attribute of Web 2.0 is to help navigate the vast information available on
the Web in order to find what is being bought. It is the notion of a usable pathway. SCM 2.0 replicates this notion in supply
chain operations. It is the pathway to SCM results, a combination of processes, methodologies, tools, and delivery options to
guide companies to their results quickly as the complexity and speed of the supply-chain increase due to global competition;
rapid price fluctuations; changing oil prices; short product life cycles; expanded specialization; near-, far-, and off-shoring; and
talent scarcity.

Business-process integration

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Successful SCM requires a change from managing individual functions to integrating activities into key supply-chain
processes. In an example scenario, a purchasing department places orders as its requirements become known. The marketing
department, responding to customer demand, communicates with several distributors and retailers as it attempts to determine
ways to satisfy this demand. Information shared between supply-chain partners can only be fully leveraged through process
integration.

Supply-chain business-process integration involves collaborative work between buyers and suppliers, joint product
development, common systems, and shared information. According to Lambert and Cooper (2000), operating an integrated
supply chain requires a continuous information flow. However, in many companies, management has concluded that optimizing
product flows cannot be accomplished without implementing a process approach. The key supply-chain processes stated by
Lambert are:

Customer-relationship management

Customer-service management

Demand-management style

Order fulfillment

Manufacturing-flow management

Supplier-relationship management

Product development and commercialization

Returns management

Much has been written about demand management.[39] Best-in-class companies have similar characteristics, which include the
following:

Internal and external collaboration

Initiatives to reduce lead time

Tighter feedback from customer and market demand

Customer-level forecasting

One could suggest other critical supply business processes that combine these processes stated by Lambert, such as:

Customer service management process

Customer relationship management concerns the relationship between an organization and its customers. Customer
service is the source of customer information. It also provides the customer with real-time information on scheduling and
product availability through interfaces with the company's production and distribution operations. Successful organizations use
the following steps to build customer relationships:

Determine mutually satisfying goals for organization and customers

Establish and maintain customer rapport

Induce positive feelings in the organization and the customers

Procurement process

Strategic plans are drawn up with suppliers to support the manufacturing flow management process and the
development of new products. In firms whose operations extend globally, sourcing may be managed on a global basis. The
desired outcome is a relationship where both parties benefit and a reduction in the time required for the product's design and
development. The purchasing function may also develop rapid communication systems, such as electronic data interchange
(EDI) and Internet linkage, to convey possible requirements more rapidly. Activities related to obtaining products and materials
from outside suppliers involve resource planning, supply sourcing, negotiation, order placement, inbound transportation,
storage, handling, and quality assurance, many of which include the responsibility to coordinate with suppliers on matters of
scheduling, supply continuity (inventory), hedging, and research into new sources or programs. Procurement has recently been
recognized as a core source of value, driven largely by the increasing trends to outsource products and services, and the
changes in the global ecosystem requiring stronger relationships between buyers and sellers.[40]

Product development and commercialization

Here, customers and suppliers must be integrated into the product development process in order to reduce the time
to market. As product life cycles shorten, the appropriate products must be developed and successfully launched with ever-
shorter time schedules in order for firms to remain competitive. According to Lambert and Cooper (2000), managers of the
product development and commercialization process must:

Coordinate with customer relationship management to identify customer-articulated needs;

Select materials and suppliers in conjunction with procurement; and

Develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow
for the given combination of product and markets.

Integration of suppliers into the new product development process was shown to have a major impact on product
target cost, quality, delivery, and market share. Tapping into suppliers as a source of innovation requires an extensive process
characterized by development of technology sharing, but also involves managing intellectual[41] property issues.

Manufacturing flow management process

The manufacturing process produces and supplies products to the distribution channels based on past forecasts.
Manufacturing processes must be flexible in order to respond to market changes and must accommodate mass customization.
Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Changes in the manufacturing flow process
lead to shorter cycle times, meaning improved responsiveness and efficiency in meeting customer demand. This process
manages activities related to planning, scheduling, and supporting manufacturing operations, such as work-in-process storage,
handling, transportation, and time phasing of components, inventory at manufacturing sites, and maximum flexibility in the
coordination of geographical and final assemblies postponement of physical distribution operations.

Physical distribution

This concerns the movement of a finished product or service to customers. In physical distribution, the customer is
the final destination of a marketing channel, and the availability of the product or service is a vital part of each channel
participant's marketing effort. It is also through the physical distribution process that the time and space of customer service
become an integral part of marketing. Thus it links a marketing channel with its customers (i.e., it links manufacturers,
wholesalers, and retailers).
Outsourcing/partnerships

This includes not just the outsourcing of the procurement of materials and components, but also the outsourcing of
services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on
those activities in the value chain in which it has a distinctive advantage and outsource everything else. This movement has
been particularly evident in logistics, where the provision of transport, storage, and inventory control is increasingly
subcontracted to specialists or logistics partners. Also, managing and controlling this network of partners and suppliers requires
a blend of central and local involvement: strategic decisions are taken centrally, while the monitoring and control of supplier
performance and day-to-day liaison with logistics partners are best managed locally.

Performance measurement

Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and
profitability. Taking advantage of supplier capabilities and emphasizing a long-term supply-chain perspective in customer
relationships can both be correlated with a firm's performance. As logistics competency becomes a critical factor in creating
and maintaining competitive advantage, measuring logistics performance becomes increasingly important, because the
difference between profitable and unprofitable operations becomes narrower. A.T. Kearney Consultants (1985) noted that
firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to
experts[according to whom?], internal measures are generally collected and analyzed by the firm, including cost, customer
service, productivity, asset measurement, and quality. External performance is measured through customer perception
measures and "best practice" benchmarking.

Warehousing management

To reduce a company's cost and expenses, warehousing management is concerned with storage, reducing manpower
cost, dispatching authority with on time delivery, loading & unloading facilities with proper area, inventory management
system etc.

Workflow management

Integrating suppliers and customers tightly into a workflow (or business process) and thereby achieving an efficient
and effective supply chain is a key goal of workflow management.

Supply chain

In the study of supply-chain management, the concept of centroids has become an important economic
consideration. A centroid is a location that has a high proportion of a country's population and a high proportion of its
manufacturing, generally within 500 mi (805 km). In the US, two major supply chain centroids have been defined, one near
Dayton, Ohio, and a second near Riverside, California.

The centroid near Dayton is particularly important because it is closest to the population center of the US and
Canada. Dayton is within 500 miles of 60% of the US population and manufacturing capacity, as well as 60% of Canada's
population.[47] The region includes the interchange between I-70 and I-75, one of the busiest in the nation, with 154,000
vehicles passing through per day, of which 30–35% are trucks hauling goods. In addition, the I-75 corridor is home to the
busiest north-south rail route east of the Mississippi River.[47]

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Tax-efficient supply-chain management

Tax-efficient supply-chain management is a business model that considers the effect of tax in the design and
implementation of supply-chain management. As the consequence of globalization, cross-national businesses pay different tax
rates in different countries. Due to these differences, they may legally optimize their supply chain and increase profits based on
tax efficiency.

Sustainability and social responsibility in supply chains

 Supply-chain sustainability is a business issue affecting an organization's supply chain or logistics network, and is
frequently quantified by comparison with SECH ratings, which uses a triple bottom line incorporating economic, social, and
environmental aspects.[55] SECH ratings are defined as social, ethical, cultural, and health' footprints. Consumers have become
more aware of the environmental impact of their purchases and companies' SECH ratings and, along with non-governmental
organizations (NGOs), are setting the agenda for transitions to organically grown foods, anti-sweatshop labor codes, and locally
produced goods that support independent and small businesses. Because supply chains may account for over 75% of a
company's carbon footprint, many organizations are exploring ways to reduce this and thus improve their SECH rating.

For example, in July 2009, Wal-Mart announced its intentions to create a global sustainability index that would rate
products according to the environmental and social impacts of their manufacturing and distribution. The index is intended to
create environmental accountability in Wal-Mart's supply chain and to provide motivation and infrastructure for other retail
companies to do the same.

It has been reported that companies are increasingly taking environmental performance into account when selecting
suppliers. A 2011 survey by the Carbon Trust found that 50% of multinationals expect to select their suppliers based upon
carbon performance in the future and 29% of suppliers could lose their places on 'green supply chains' if they do not have
adequate performance records on carbon.

The US Dodd–Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama in July
2010, contained a supply chain sustainability provision in the form of the Conflict Minerals law. This law requires SEC-regulated
companies to conduct third party audits of their supply chains in order to determine whether any tin, tantalum, tungsten, or
gold (together referred to as conflict minerals) is mined or sourced from the Democratic Republic of the Congo, and create a
report (available to the general public and SEC) detailing the due diligence efforts taken and the results of the audit. The chain
of suppliers and vendors to these reporting companies will be expected to provide appropriate supporting information.

Incidents like the 2013 Savar building collapse with more than 1,100 victims have led to widespread discussions about
corporate social responsibility across global supply chains. Wieland and Handfield (2013) suggest that companies need to audit
products and suppliers and that supplier auditing needs to go beyond direct relationships with first-tier suppliers. They also
demonstrate that visibility needs to be improved if supply cannot be directly controlled and that smart and electronic
technologies play a key role to improve visibility. Finally, they highlight that collaboration with local partners, across the
industry and with universities is crucial to successfully managing social responsibility in supply chains.

Circular supply-chain management

Circular Supply-Chain Management (CSCM) is "the configuration and coordination of the organizational functions
marketing, sales, R&D, production, logistics, IT, finance, and customer service within and across business units and
organizations to close, slow, intensify, narrow, and dematerialize material and energy loops to minimize resource input into and
waste and emission leakage out of the system, improve its operative effectiveness and efficiency and generate competitive
advantages". By reducing resource input and waste leakage along the supply chain and configure it to enable the recirculation
of resources at different stages of the product or service lifecycle, potential economic and environmental benefits can be
achieved. These comprise e.g. a decrease in material and waste management cost and reduced emissions and resource
consumption.

Components

Management components

SCM components are the third element of the four-square circulation framework. The level of integration and
management of a business process link is a function of the number and level of components added to the link.[60][61]
Consequently, adding more management components or increasing the level of each component can increase the level of
integration of the business process link.

Literature on business process reengineering[62][63][64] buyer-supplier relationships,[65][66][67][68] and

SCM[18][69][70] suggests various possible components that should receive managerial attention when managing supply
relationships. Lambert and Cooper (2000) identified the following components:

Planning and control

 Work structure

Organization structure

Product flow facility structure

Information flow facility structure

Management methods

Power and leadership structure

Risk and reward structure

Culture and attitude

However, a more careful examination of the existing literature leads to a more comprehensive understanding of what
should be the key critical supply chain components, or "branches" of the previously identified supply chain business
processes—that is, what kind of relationship the components may have that are related to suppliers and customers. Bowersox
and Closs (1996) state that the emphasis on cooperation represents the synergism leading to the highest level of joint
achievement. A primary-level channel participant is a business that is willing to participate in responsibility for inventory
ownership or assume other financial risks, thus including primary level components.[79] A secondary-level participant
(specialized) is a business that participates in channel relationships by performing essential services for primary participants,
including secondary level components, which support primary participants. Third-level channel participants and components
that support primary-level channel participants and are the fundamental branches of secondary-level components may also be
included.

Consequently, Lambert and Cooper's framework of supply chain components does not lead to any conclusion about
what are the primary- or secondary-level (specialized) supply chain components —that is, which supply chain components
should be viewed as primary or secondary, how these components should be structured in order to achieve a more
comprehensive supply chain structure, and how to examine the supply chain as an integrative one.