Supply Chain Management refers to handling of the entire production flow of

goods and services to maximize quality, customer experience and profitability. It

involves right from the raw components to delivering the final product to
customers. In this article we shall take a look at the objectives and functions of
Supply Chain Management.

Objectives of Supply Chain Management

 To maximize overall value generated

The higher the SCM profitability, the higher is the success for supply chain. The
Supply chain profitability is the difference between the amount paid by the
customer to purchase a product and the cost incurred by an organization to produce
and supply the product to the customer.

 Cost quality improvement

This is another essential objective of SCM. It looks to achieve cost quality balance
and optimization.

 To look for sources of Cost and Revenue

Customer is the only source of revenue. Therefore there should be appropriate

management of the flow of information, product or funds. It is a key to the success
of supply chain.

 Shortening the time to order

SCM aims to reduce the time required for ordering and fulfilling the same.

 Delivery optimization

The SCM aims to meet the demands of the customer for guaranteed delivery of
high quality and low cost with less lead time.
  Demand fulfilment

Managing the demand and supply is a key yet challenging task for a company or
management personnel. Its objective is to fulfil customer demand through efficient
resources.

 Flexibility

SCM aims for flexibility. A Well managed supply chain provides flexible planning
and better control mechanism.

 Better Distribution

SCM aims to ensure improved distribution. It can maximize the distribution side
efficiency. Marketer or distributor can achieve optimized level distribution by
using all resources that are available properly.

 Cost Reduction

It’s another objective of SCM to reduce the system wide cost of a company to meet
service level requirement.

There are several other sub-objectives that can be derived from these long term
objectives.

 Inventory reduction with the value chain;

 Reduction of warehousing costs;
 Acceleration of cash to cash cycle;
 Reduction in throughput times;
 Improvement in delivery reliability;
 Safeguarding the just-in-time supply.
Importance of Supply Chain Management

You all would know that SCM is an integral part of business and it’s essential to
company’s success and customer satisfaction. In this segment we shall look at the
importance or the significance of SCM.

 Boosts Customer Service

Customers expect the right product to be delivered and they expect it to be

available at the right location. They expect right delivery time and also right after
sale support. Customers expect products to be serviced quickly. Therefore
considering all of this, the significance of SCM is critically high.

 Reduces operating costs

Retailers depend on supply chains to deliver expensive products in order to avoid

holding costly inventories in stores any longer than it’s required. Manufacturers
rely on supply chain to deliver reliably deliver materials to avoid material
shortages.

 Improves financial position

Firms value supply chain managers as they help in controlling and reducing supply
chain costs. It not only saves costs but also dramatically increases firm’s profits.
Firms’ appreciate the added value SCM contributes to the speed of product flow to
customers.

 Momentum

SCM streamlines everything, from product flow to any unexpected natural

disasters. With effective SCM, organizations can diagnose any sort of problem
easily.

 Integrated and co-operative logistics

SCM is the necessity of foundation for all societies. Effective supply chain meets
the requirements of producers and consumers. It takes an integrated approach
towards management.

Functions of Supply Chain Management

The functions of SCM include the following

 Purchasing

The first function of SCM is purchasing. During manufacturing process, raw

materials are needed. It is essential that these materials are procured and delivered
on time. Then only the production can begin. In order to make this happen,
coordination with suppliers and delivery companies is needed to avoid delays.

 Operations

Forecasting and demand planning is needed before materials are procured as the
demand market shall dictate how many units are to be produced and how much
material is needed for production. This function in SCM is vital as organizations
accurately forecast demand to avoid having too little or too much inventory that
would lead to revenue losses. Therefore, forecasting and demand planning should
be tied in with inventory management, production and shipping.

 Logistics

Logistics is a part of SCM that co-ordinates all planning aspects, purchasing,

production, and transportation aspects to ensure that products reach the end
consumer without hindrances. It is essential to have co-ordination with multiple
departments so that products are quickly shipped to customers.

 Resource Management
Resource management[1] ensures that right resources are allocated to the right
activities and that too in an optimized way. It ensures that optimized production
schedule is created to maximize operations efficiency.

 Information workflow

Sharing information and distribution is that what keeps all other functions
of supply chain management on track. If this information workflow and
communication is poor, it can hurt the entire chain.

Future of Supply Chain Management

Technology development goes hand in hand in the future of SCM. Whether its
allowing supply chain teams to add or improve their current processes, newly
created technologies have become essential as we move forward. At least for the
foreseeable future, there is a need for supply chain teams to have hands on
approach to various processes.

Therefore it’s vital that supply chain teams understand the importance of
incorporating technology and not being intimidated by it.
Cycle view

The processes in a supply chain are divided into a series of cycles, each
performed at the interface between two successive stages of a supply
chain.
All supply chain processes can be broken down into the following four
process cycles:
1. Customer order cycle
2. Replenishment cycle
3. Manufacturing cycle
4. Procurement cycle
Each cycle occurs at the interface between two successive stages of the
supply chain. Not every supply chain will have all four cycles separated.
For example, a grocery supply chain in which a retailer stock finished
goods inventories and places replenishment orders, which a distributor is
likely to have all four cycles separated.

Dell, in contrast, sells directly to customers, thus bypassing the retailer and
distributor.
A cycle view of a supply chain is very useful when considering operational
decisions because it clearly specifies the rules and responsibilities of each
member of the supply chain. The detailed process description of a supply
chain in the cycle view forces a supply chain designer to consider the
infrastructure required to support these processes.

The cycle view of a supply chain is useful, for example, when setting up
information systems to support supply chain operations, as process
ownership and objectives are clearly defined.

Customer order cycle

The customer order cycle occurs at the customer/retailer interface and
includes all processes directly involved in receiving and filling the
customer’s order.

Typically, the customer initiates this cycle at a retailer site and the cycle
primarily involves filling customer demand. The retailer’s interaction with
the customer starts when the customer arrives or contact is initiated and
ends when the customer receives the order.

The processes involved in the customer order cycle include:

 Customer arrival
 Customer order entry
 Customer order fulfillment
 Customer order receiving
Customer arrival

The term “customer arrival” refers to the customer’s arrival at the location
where he or she has access to his or her choice sand makes a decision
regarding a purchase. The starting point for any supply chain is the arrival
of a customer.
 The customer walks into a supermarket to make a purchase
 The customer calls a mail order telemarketing center
 The customer uses the web or an electronic link to a mail order
form
From the supply chain perspective, the key flow in this process is the
customer’s arrival. The goal is to facilitate the contact between the
customer and the appropriate product so that the customer’s arrival turns
into a customer order.

At a supermarket, facilitating a customer order may involve managing

customer flows and product displays. At a telemarketing center, it may
mean ensuring that the customer does not have to wait on hold for too
long.

It may also mean having systems in place so that sales representatives can
answer customer queries in a way that turns calls into orders. At a website,
a key system may be searched capabilities with tools. That allow
customers to quickly locate and view products that interest them.
The objective of the customer arrival process is to maximize the conversion
of customer arrivals to customer orders.
Customer order entry

The term “customer order entry” refers to customers informing the retailer
what products they want to purchase and the retailer allocating products
to customers. At a supermarket, order entry may take the form of
customers loading all items that they intend to purchase onto their carts.
At a mail-order firm’s telemarketing center or website, order entry involves
customers informing the retailer of the items and quantities they selected.

The objective of the customer order entry process is to ensure that the order
entry is quick, accurate, and communicated to all other supply chain
processes that are affected by it.

Customer order fulfillment

During this process, the customer’s order is filled and sent to the
customer. At a supermarket, the customer performs this process. At a mail
order firm this process includes picking the order from inventory,
packaging it, and shipping it to the customer.
All inventories will need to be updated, which may result in the initiation
of the replenishment cycle. In general, customer order fulfillment takes
place from retailer inventory. In a build-to-order scenario, however, order
fulfillment takes place directly from the manufacturer’s production line.
The objective of the customer order fulfillment process is to get the correct
orders to customers by the promised due dates at the lowest possible cost.

Customer order receiving

During this process, the customer receives the order and takes ownership.
Records of this receipt are updated and payment completed. At a
supermarket, receiving occurs at the checkout counter. For a mail order
firm, receiving occurs when the product is delivered to the customer.

Replenishment cycle
The replenishment cycle occurs at the retailer/distributor interface and
includes all processes involved in replenishing retailer inventory. It is
initiated when a retailer places an order to replenish inventories to meet
future demand.

A replenishment cycle may be triggered at a supermarket that is running

out of stock of detergent or at a mail order firm that is low in stock of a
particular shirt.

The replenishment cycle is similar to the customer order cycle except that
the retailer is now the customer. The objective of the replenishment cycle
is to replenish inventories at the retailer at minimum cost while providing
high product availability.

The processes involved in the replenishment cycle include:

 Retail order trigger

 Retail order entry
 Retail order fulfillment
 Retail order receiving
Retail order trigger

As the retailer fills customer demand, inventory is depleted and must be

replenished to meet future demand. A key activity the retailer performs
during the replenishment cycle is to devise a replenishment or ordering
policy that triggers an order from the previous stage.
The objective when setting replenishment order triggers is to maximize
profitability by ensuring economies of scale and balancing product
availability and the cost of holding inventory. The outcome of the retail order
trigger process is the generation of a replenishment order that is ready to be
passed on to the distributor or manufacturer.
Retail order entry

This process is similar to customer order entry at the retailer. The only
difference is that the retailer is now the customer placing the order that is
conveyed to the distributor. This may be done electronically or by some
other medium. Inventory or production is then allocated to the retail
order.

The objective of the retail order entry process is that an order is entered
accurately and conveyed quickly to all supply chain processes affected by the
order.
Retail order fulfillment

This process is very similar to customer order fulfillment except that it

takes place at the distributor. A key difference is the size of each order as
customer orders tend to be much smaller than replenishment orders.
The objectives of the retail order fulfillment are to get the replenishment
order to the retailer on time while minimizing costs.
Retail order receiving

Once the replenishment order arrives at a retailer, the retailer must

receive it physically and update all inventory records. This process
involves product flow from the distributor to the retailer as well as
information updates at the retailer and the flow of funds from the retailer
to the distributor.

The objective of the retail order receiving process is to update inventories

and displays quickly and accurately at the lowest possible cost.

Manufacturing cycle
The manufacturing cycle typically occurs at the distributor/manufacturer
(or retailer/manufacturer) interface. This includes all processes involved in
replenishing distributor (or retailer) inventory.

The manufacturing cycle view of supply chain is triggered by customer

orders (as is the case with Dell), replenishment orders from a retailer or
distributor (Wal-Mart ordering from P&G), or by the forecast of customer
demand and current product availability in the manufacturer’s finished-goods
warehouse.

One extreme in a manufacturing cycle is an integrated steel mill that collects

orders that are similar enough to enable the manufacturer to produce in large
quantities. In this case, the manufacturing cycle is reacting to customer
demand (referred to as a pull process). Another extreme is a consumer
products firm that must produce in anticipation of demand.

In this case, the manufacturing cycle is anticipating customer demand

(referred to as a push process).

The processes involved in the manufacturing cycle include:

1. Order arrival from the finished-goods warehouse, distributor,

retailer, or customer
2. Production scheduling
3. Manufacturing and shipping
4. Receiving at the distributor, retailer, or customer
1 Order arrival

During this process, a finished-goods warehouse or distributor sets a

replenishment order trigger base on the forecast of future demand and current
product inventories. The resulting order is then conveyed to the
manufacturer.

In some cases, the customer or retailer may be ordering directly from the
manufacturer.
In other cases, a manufacturer may be producing to stock a finished products
warehouse.

Another situation could be, the order is triggered bases on product

availability and a forecast of future demand. This process is similar to the
retail order trigger process in the replenishment cycle.
2 Production scheduling

This process is similar to the order entry process in the replenishment cycle
where inventory is allocated to order. During the production scheduling
process, orders (or forecasted orders) are allocated to a production plan.

Given the desired production quantities for each product, the

manufacturer must decide on the precise production sequence. If there
are multiple lines, the manufacturer must also decide which products to
allocate to each line.
 The objective of the production scheduling process is to maximize the
proportion of orders filled on time while keeping costs down.
3 Manufacturing and Scheduling

This process is equivalent to the order fulfillment process described in the

replenishment cycle. During the manufacturing phase of the process, the
manufacturer produces to the production schedule. During the shipping
phase of this process, the product is shipped to the customer, retailer,
distributor, or finished product warehouse.
The objective of the manufacturing and shipping process is to create and ship
the product by the promised due date while meeting quality requirements and
keeping costs down.
4 Receiving

In this process, the product is received at the distributor, finished-goods

warehouse, retailer, or customer and inventory records are updated. Other
processes related to storage and fund transfers also take place.

Procurement cycle
The procurement cycle occurs at the manufacturer/supplier interface. This
includes all processes necessary to ensure that materials are available for
manufacturing to occur according to schedule.