What is Supply Chain Management

Definition

Supply chain management (SCM) is the management of the processes that control the flow of goods and services within an organization. It includes all processes that turn raw materials into final products. It involves 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 - Supply Chain Management

 

The three major elements of supply chain management are demand, materials, and resource capacity. The goal of SCM is to increase the cash flow speed by synchronizing business processes based on constraints. Indexes of the management are throughput (item flow), inventory, and expense aiming for total optimization. In short, supply chain management is cash flow management.

 

The History of Supply Chain Management

Wikipedia identifies six major movements in the history and evolution of supply chain management: creation, integration, globalization, specialization phases one and two, and SCM 2.0.

 

The Creation Era generally refers to the early 20th century period with the advent of the assembly line. The concepts supporting this time period included a major focus on cost-reduction programs and downsizing. The term “supply chain management” was coined in 1982 by Keith Oliver, and 1999 when Handfield and Nichols Jr.’s seminal book Supply Chain Management was published.

 

The Integration Era covers the 1960s through the current day, encompassing significant technological advances for supply chain management. Integration refers to the development of electronic data interchange systems in the 60s, enterprise resource planning systems in the 90s, and the adoption of cloud-based collaboration systems in the 21st century.

 

The third era is called the Globalization Era, and refers to a period in which supply chains expanded beyond national boundaries into other continents. In the late 1980s, more and more organizations began integrating global sources into their businesses.

 

The Specialization Era is broken into two phases. Phase I deals with the period of time in the 1990s when companies began focusing on their core competencies and specializations, outsourcing non-core operations to other companies. This extended the supply chain to include third party companies and created specialized supply chain partnerships.

 

Phase II refers to a period when supply planning, collaboration, execution, and performance management began to be integrated into supply chain management. Supply chain managers needed new strategies to address quick and unexpected changes in demand, suppliers, and logistics providers. Supply chain specialization enables companies to improve their competencies by allowing them to focus on their core competencies and assemble networks of specialized partners to improve the performance of the overall supply chain. Outsourced technology hosting for supply chains debuted in the late 1990s under the application service provider model. This progressed to the on-demand model between 2003 and 2006, and to the software as a service model from 2006 to the present day.

 

The final era is called supply chain management 2.0 (SCM 2.0). SCM 2.0 utilizes solutions designed to deliver results by taking into account the turbulence of future change. This approach guides companies as the complexity and speed of the supply chain increase due to global competition, part price fluctuations, offshoring, talent attrition, and changes to transportation costs.

 

The Role of Supply Chains Within Manufacturing

Supply chain management synchronizes demand with a business unit by using materials, parts, and resources such as machines and workers to increase the flow from materials/parts supply to product selling. The cash flow speed is called throughput. The role of supply chains within manufacturing is to coordinate the flow of materials and resources through a rigorous process that ends up as a product within the hands of a user. This can cover anything from the largest, like aeroplanes, to the smallest, like a phone chip. Within any manufacturing organization, the supply chain holds the highest impact to the bottom line, impacting customer satisfaction and overall costs of the company.

 

The Impact of Globalization on Supply Chain Management

For most of modern manufacturing history, the movements of goods, people, and capital have been primarily regionalized. With the advent of globalization, SCM has become more complex. It is very common for American companies to have manufacturing facilities in Asia or Mexico and customers in many parts of the world. This system has also made it common for companies to outsource many aspects of the supply chain management to specialized third party organizations around the world.

The Benefits of a Globalized Supply Chain can be broken out into four key areas:

 

  • Expanded sourcing opportunities: working within a globalized environment gives room to source not only materials and products from far-off places, but also tap into workers that may be the best fit for businesses to achieve their goals.
  • The opportunity to reach new customers in new markets: businesses can consider entirely new customer segments based on new locations, representing new needs and product growth opportunities.
  • More room to grow: As business consider new sources for resources (people and products) and new avenues for customer growth, the other overall growth potential increases.
  • More opportunities to save money: Overall, the largest impact point of globalization is positive impact to the bottom line, saving money on materials and labor, and on transportation, all resulting in reduced spending and increased margins.

Globalization has also brought about increased risk, some that compound one another. This means it is even more critical for manufacturers to increase visibility into theirs and their suppliers operations.  Manufacturers must manage increasing supply chain complexity as second and third tier suppliers become more common. They must also increase their access to information, all while improving quality at lower cost. This increasing global complexity has limited the ability of manufacturers to anticipate and manage risk.

 

How Does It Differ From Value Chain Management?

The difference between a value chain and a supply chain is that a supply chain is the process of all parties involved in fulfilling a customer request, while a value chain is a set of interrelated activities a company uses to create a competitive advantage. Value chains place a great amount of focus on things such as product testing, innovation, research and development, and marketing. Supply chain management is more concerned with materials costs and effective product delivery.

Role of Supply Chain Management in Various Industries

 

Supply Chains in Manufacturing - Supply chains power modern manufacturing.

Finished goods are no longer 100 percent made by brand names. Now, parts and materials are sourced from outside vendors who provide them across a global supply chain. According to an infographic from the National Institute of Standards and Technology’s Hollings Manufacturing Extension Partnership, 230,000 small manufacturers contribute to US supply chains and 42 percent of all US manufacturing workers are employed by small manufacturers. This creates a ever-growing, complex web of materials providers, suppliers, distributors, logistics companies and manufacturers. Supply chain management must evolve accordingly in order to keep up with increasing complexity, risk, and variables in global demand or suppliers.

 

Supply Chains in Consumer Packaged Goods

In retail product industries, supply chains focus more on logistics and transportation. Higher volumes of finished goods going to more customers creates different challenges regarding fulfillment, shortages, transportation costs, and more. Retail supply chains often have multiple warehouses and a complicated web of transportation processes.

Key Aspects of Supply Chain Management Systems: Processes and Workflow

 

Purchasing

In manufacturing supply chain management, purchasing is a subset of procurement that generally refers to buying the materials or parts needed to manufacture a finished product. Purchasing requires teams to maintain knowledge of price and availability trends as well as supplier performance.

 

Supplier Management

According to Wikipedia, supplier relationship management is the systematic, enterprise-wide assessment of suppliers’ assets and capabilities with respect to overall business strategy, determination of what activities to engage in with different suppliers, and planning and execution of all interactions with suppliers, in a coordinated fashion across the relationship life cycle, to maximize the value realized through those interactions.

 

Its focus is to develop two-way, mutually beneficial relationships with supply partners to deliver greater innovation and competitive advantage than could be achieved independently.

 

Supplier relationship management should not be confused with supplier performance management, which is the practice of measuring and managing a supplier’s performance in order to cut costs and gain a competitive market advantage. Manufacturers monitor actual performance, identify performance gaps or areas of improvement, and ensure suppliers are achieving the desired performance levels.

 

Inventory Management and Optimization

Inventory optimization is the process of balancing the amount of working capital tied up in inventory with materials and parts with demand for those parts. In short, the goal is to have exactly the right amount of inventory (and no more), in just the right places, at just the right time in order to meet on-time delivery requirements.

 

In the past it was common for manufacturers to carry too much inventory in order to avoid part shortages. This approach achieved its goal, but was ineffective at reducing the amount of working capital tied up in inventory. More effective supply chain management required new methods to determine the right inventory levels for each part and keep working capital under control. For companies that implement inventory optimization initiatives, a 10 to 30 percent inventory reduction is common.

SCM - Optimization

Traditionally, many manufacturers employed the “binge and purge” approach to inventory, in which they would overproduce parts and materials and reduce levels by brute force. This safety-time process has proven inadequate for all but the simplest products. Somewhat more common is the rule of thumb approach, which involves setting days of supply targets for each item. These rules are easy to understand but DOS does not take into account variability in demand.

 

In 2019, it is becoming increasingly more common for manufacturers to employ algorithm- and AI-based software solutions that predict future changes to demand and prescribe appropriate actions for supply chains to take in order to maintain inventory at optimum levels.

 

Inventory can be broken down into nine categories: anticipatory stock, cycle stock, early arrival stock, marketing stock, obsolete stock, pipeline stock, prebuilt stock, and safety stock.

 

From Logistics Management:

Cycle stock is the inventory due to production frequencies. Early arrival stock is due to uncertainties in coordinated delivery times. Marketing stock is additional inventory placed at customer locations to stimulate demand or satisfy retailer shelf-space requirements. Obsolete stock is inventory of unsalable product that is often left on the books for accounting and finance purposes. Pipeline stock is based on the lead times in the supply chain. Prebuild stock is inventory built ahead of demand due to capacity limitations. There are several classes of safety stock each specific to a type of variability; be it forecast variability, supply variability, or manufacturing variability.

 

Physical vs. Information Flows

Product flow refers to the movement of goods from a supplier to the end consumer. In supply chain, physical goods flow downstream from the source to the consumer. Flow is from one process or assembly section to another, with each section serving as a supplier to the next and acquisition taking place at each stage from the previous stage along the flow of the supply chain.

 

Information flow deals with high levels of information including product data, pricing, inventory levels, order information, delivery status, and financial information. Effective information flow requires a great deal of bidirectional communication and coordination with suppliers, transportation vendors, and contractors.

 

General Strategies

General strategies for supply chain management in today’s dynamic environment lead with customer-driven planning. Any manufacturer’s operating model needs to lead with real-time demand insights and demand shaping.

 

Another critical piece that’s required to support the ever-changing and global nature of customer demand is to build out a supply chain that is dynamic and responsive, where agility is a key capability. Changing market opportunities require that the entire team across the supply chain, from the frontline through to executives, have the ability to shift gears quickly from one set of requirements to another, in short order.

 

Lastly, product innovation, the starting point for all manufacturing, can occur with the development cycle in mind. Products that are built for sustainability, that can be easily reconfigured, or that use basic components that are broadly sourced, will provide for the most agile platform to build the products and meet changing demands as needs from customers change.

Departments Within Supply Chain Management

 

Procurement & Sourcing

Procurement is the process of getting the goods and/or services a company needs to fulfill its business model. This involves financing purchases, negotiating prices, buying goods, and performing inventory management

 

Sourcing is the process of locating the best and least expensive suppliers for the goods a manufacturer needs. This includes scouting, negotiation, quality assurance, and market research.

 

While often mentioned closely, procurement and sourcing are separate disciplines that both share strong relationships with a manufacturer’s suppliers. For example, once sourcing is finished assessing purchasing needs, conducting market research, and identifying suppliers, then the procurement team is responsible for budgeting, ordering, and communicating with suppliers.

 

Warehousing

In supply chain management, a warehouse is a planned space for the efficient storage and handling of goods and materials. Efficient warehousing involves planning, laying out, and handling goods according to how they are expected to move through the supply chain When raw materials or finished goods come into the warehouse, supply chains must have information about where the goods go as they are passed along the product flow.

 

Transportation and Logistics

An effective supply chain management strategy must take into account the complexities of transportation and logistics. Any stoppage along the supply chain can be extremely costly. Manufacturers must maintain transportation and logistics partners that are fluid enough to respond to sudden changes in demand in an often volatile global marketplace.

 

Logistics is the process of planning, implementing, and controlling procedures for the efficient and effective transportation and storage of goods. This includes packaging, documentation, insurance, storage, navigating regulations, and mitigating risk and expenditure. Logistics managers must also determine the mode of transportation for every part at every stage of the supply chain.

 

Supplier Management

Supplier Management, or Supplier Relationship Management (SRM), is a critical part of any supply chain organization. Tasked with owning the relationships with third party suppliers, any supplier manager is responsible for strategically managing and orchestrating interactions with organizations that supply goods to their own. The chief goal is to maximize the value of those supplier interactions and ensure that customer delivery commitments are met on a regular basis.

SCM - Supplier Management

Teams within the supplier management area of the business often balance both strategic and reactive tactics in managing their third party interactions. The types of companies these teams may be working with include manufacturers, wholesalers, distributors, vendors and even inventors, both locally and across the globe.

 

The Supplier Relationship Management teams may typically be found either within the manufacturing line of business within a corporation, or, sitting in procurement.

 

Returns Management

Returns management is the supply chain management practice of managing returns, reverse logistics, gatekeeping, and avoidance. The goal is to manage the reverse flow efficiently, identify opportunities to reduce unwanted returns, and to control reusable assets after the return.

 

For manufacturers, returns represent a sizeable negative impact to their bottom line. A return incurs transportation costs to the customer, then back to the company. A third transportation charge is incurred if a replacement product is sent. Employees are also paid to process the return and once the item is returned to inventory, it incurs inventory carrying costs. These and other financial considerations must be taken into account as supply chain managers seek to implement efficient returns management practices.

 

It is critical to think strategically about returns management within your broader supply chain strategy. A strong returns policy is critical enhancing profitability by managing the logistics of handling returns. It is critical to have the right people involved from the beginning, whether that be sales, operations, logistics, customer service, and finance. An effective returns policy is cross-functional.

Pursuing a Career in Supply Chain Management

 

Relevant Academic Degrees

A supply chain management bachelor’s degree is designed to prepare students to manage all elements of the supply chain including acquisition, storage, transportation, and delivery of products. The degree typically includes classes in business administration, economics, warehouse management, operations management, logistics, and purchasing.

 

Well Known Schools and Programs in Supply Chain Management

Year over year, Michigan State University ranks as the top school for supply chain management in multiple surveys. Here is the 2017 top ten list according to Industry Week and US News.

SCM - Top Supply Chain SchoolsTogether with professional supply chain association APICS, Michigan State University has been engaged in research projects investigating business practices of more than 50 supply chain organizations. The school has also established the Midland Research Institute for Value Chain Creation. Its purpose is to undertake collaborative solutions-focused research for commercial and humanitarian applications. Michigan State was also ranked top graduate school for supply chain management.

 

SCM - Top Supply Chain SchoolsMassachusetts Institute of Technology is home to the Center for Transportation and Logistics. They are also establishing an international presence in Asian, European, and Latin American countries through the establishment of the MIT Global SCALE (Supply Chain and Logistics Excellence) Network, which seeks to develop local supply chain talent in these areas and open up opportunities for innovation.

 

SCM - Top Supply Chain SchoolsThe University of Tennessee Haslam’s Global Supply Chain institute performs a number of research projects regularly. Recently, a study was undertaken to identify best practices for leveraging transparency in supply chains for financial profit. The school also hosts a biannual Supply Chain Forum which includes over 150 senior executives from top corporations and is aimed addressing critical supply chain strategies.

 

SCM - Top Supply Chain SchoolsOhio State’s Fisher College of Business provides classes in logistics and supply chain management, under the Department of Marketing and Logistics. The school’s Global Supply Chain Forum gives supply chain professionals and academics the opportunity to identify and address critical issues related to customer satisfaction and operational excellence.

 

SCM - Top Supply Chain SchoolsArizona State’s W.P. Carey Department of Supply Chain conducts significant research in supply chain management, with a focus on supplier relations, supplier selection, purchasing negotiations, operations, transportation, inventory, warehousing, benchmarking, third-party vendors, and supply chain electronic software.

 

SCM - Top Supply Chain SchoolsThe Supply Chain & Information Systems (SC&IS) department at Penn State’s Smeal College of Business is home to the Center for Supply Chain Research (CSCR). SC&IS offers supply chain programs for undergraduate, graduate, and doctorate students, with a focus on research, benchmarking, and corporate sponsorship.

 

SCM - Top Supply Chain SchoolsThe University of Michigan is home to the Tauber Institute, which is a joint venture between the Stephen M. Ross School of Business and the College of Engineering. Its focus is cross-disciplinary education in global operations management, supply chain, and manufacturing.

 

SCM - Top Supply Chain SchoolsCarnegie Mellon’s Smart Transportation Research Institute, Traffic21, researches infrastructure, transportation routing and access, artificial intelligence, web applications, and autonomous vehicles. In one project, the institute is exploring the design and application of adaptive traffic signal control strategies.

 

SCM - Top Supply Chain SchoolsThe University of Texas at Austin’s Center for Transportation Research administers up to 200 research projects every year. The focus is on transformative developments in transportation engineering and planning. The CTR was recently chosen by the US Department of Transportation to help lead the new Automated Vehicle Proving Ground Partnership program in Texas.

 

SCM - Top Supply Chain SchoolsFounded in 1988, Purdue University’s Dauch Center for the Management of Manufacturing Enterprises and the Global Supply Chain Management Initiative Center have promoted education and research in operations, manufacturing, and supply chain management.

Typical Jobs (and Job Descriptions) in Supply Chain

 

Analysts:

A supply chain analyst uses analytical and quantitative methods to understand, predict, and enhance supply chain processes. They assemble data, analyze performance, identify problems, and develop recommendations to support supply chain management planning and operations. They are responsible for monitoring processes, identifying gaps, and developing improvements to processes. A supply chain analyst must have database and spreadsheet skills and leverage them to improve inventory turns and employee productivity.

 

Analysts are expected to gather and interpret data related to costs, productivity, and demand patterns. They are also responsible for investigating problems, finding root causes, and developing solutions. The role requires strong quantitative and analytical skills, as well as a familiarity with logistics and production planning.

SCM - Buyers

 

Buyers:

In supply chain management, a buyer controls and manages the purchasing of materials and services. They are responsible for improving supplier performance and must have expertise in a number of areas including procurement, negotiation, and contract management. In some cases, buyers are responsible for inventory management and analysis.

 

Consultants:

A supply chain management consultant works closely with supply chain clients to develop strategies and operating models for planning, procurement, product design, manufacturing, and fulfillment. They also assist in connecting suppliers and customers across complex supply chains.

 

A consultant’s key responsibilities include diagnosis of issues and root cause analysis, supervising business architecture and process design, development of performance measurements/KPIs, and developing processes and architectures for business units such as sourcing and procurement.

 

Supply Chain Manager:

A supply chain manager is responsible for coordinating resources across the supply chain to ensure the effective use of resources across the manufacturing processes. They typically monitor forecasts and quotas, stay on top of changing customer demands, and coordinate efforts across departments and also externally with suppliers.

 

Procurement Manager:

The procurement team is often found within the logistics or finance teams, responsible for the efficient acquisition of resources used in production. A procurement manager’s chief job is to ensure adherence to the company’s purchasing policies, which are designed to create consistency across the organization and enable teams to meet budget demands. One of the top skills required of a procurement manager is negotiation: with suppliers, with internal teams.

 

Supply Chain Management Job Boards

Below is a list of resources for finding careers in supply chain management. These are listed in no particular order:

 

 

Major Supply Chain Management Organizations and Publications

Below is a list of some of the premier media outlets, associations and organizations in supply chain.

 

Associations and Organizations:

 

Media Outlets:

 

Certifications in Supply Chain Management

Here are the top 8 supply chain certifications for the modern marketplace:

 

  • APICS Certified Supply Chain Professional certification (CSCP)
  • APICS Certified in Production and Inventory Management (CPIM)
  • APICS Supply Chain Operations Reference (SCOR-P) Endorsement
  • ISM Certified Professional in Supply Management (CPSM)
  • ISM Certified Professional in Supplier Diversity (CPSD)
  • SCPro Council of Supply Chain Management Professionals (CSCMP)
  • SOLE Certified Professional Logistician (CPL)
  • NCMA Certified Professional Contract Manager (CPCM)

 

Supply Chain Management Software Basics

 

What is an ERP?

Enterprise Resource Planning (ERP) refers to the systems and software used by organizations to manage business activities like accounting, procurement, inventory management, project management, and manufacturing. An ERP integrates these functions into one system to provide accurate information across the organization. This allows employees in different business units to have access to the same information and make more accurate decisions faster.

 

Analytics for Supply Chain Professionals

Supply Chain analytics refers to the processes of discovery and interpretation of data in order to promote better decision making at every level of the organization. In short, supply chain analytics gives companies the information and insights to make better decisions.

 

For the first 50 years, starting in the 1950s, analytics consisted of charts and graphs compiled by hand. Basic summaries of historical data required slow, menial analysis that took weeks or even months to perform. Even when these descriptive approaches became digitized, data teams continued to spend the bulk of their work hours gathering and preparing data for analysis.

 

Decision makers rarely made decisions based solely on analytics insights. In fact, most data teams were far-removed from the decision making process. The long, labor-intensive nature meant that insights were often out of date before they were presented to decision makers. This left leaders to make decisions based on instinct and intuition, rather than scientific data.

SCM - Analytics for Supply Chain

 

As technology progressed, analytics approaches also advanced. With the advent of the ERP system in the 1990s, supply chains now had access to more data than they had ever imagined. By the mid-2000s, analytics tools like business intelligence (BI) had begun providing forward-looking projections that allowed them to better forecast and make more accurate decisions.

 

Prescriptive analytics approaches, backed by artificial intelligence (AI), combine future predictions with suggested actions that will result in the best possible outcomes. The collection and analysis are performed automatically by software that connects to a company’s ERP system and is available to everyone in the organization from the cloud.

Modern supply chain analytics is made up of three core components:

 

  • Data analytics: the process for examining data to draw conclusions about the information. In supply chain, this involves data about inventory, logistics, finance, accounting, and more.
  • Data visualization: placing data in a visual context for the sake of helping people understand it and identify patterns and trends.
  • Technology platform: the technological infrastructure that allows for the capture, storage, retrieval, aggregation, analysis, and reporting of all transactions that take place in a supply chain

Supply chain analytics uses data from every area of the business to generate insights for future decisions. Order management, shipping execution, requirement planning, creation of purchase orders, receivables, cash management, supplier performance, and reporting are some of the many areas that supply chain analytics taps into.

 

Reporting is one of the primary features of supply chain analytics platforms. Standard reports reveal what happened and when. An example of this would be a quarterly financial report. These are rarely used for long-term planning. Ad hoc reports target more specific datasets and seek to answer pointed questions.

 

SCM - Analytics

Statistical analysis seeks to answer the question, “Why” and identify opportunities for improvement. Using a narrow dataset, statistical analysis provides a deep dive to identify trends and causes. Forecasting reveals what will happen if current trends continue. This allows companies to order the right amount of inventory at the right times to keep levels optimized.

 

Predictive modeling takes into account past analysis and future predictions to suggest likely outcomes for a certain set of actions of certain circumstances. Optimization, or prescriptive analytics, seeks to bring about the best possible outcomes by providing recommended next steps.

 

There are many benefits to using analytics in supply chain. When it comes to planning and scheduling, forward-looking analytics can provide visibility into inventory levels across multiple sites. Real-time information leads to higher-quality decision support.

 

Demand planning is also greatly improved by the use of analytics. Past trends can help predict future demand, indicating what—and how much—a company will need in order to meet demand.

 

Analytics allows supply chains to plan and optimize inventory levels in order to reduce the amount of cash is tied up in inventory. Prescriptive analytics software provides recommended order actions based on smart order policies, keeping inventory levels low and making cash available for other activities.

 

In many supply chains, supplier performance is an important area for improvement. Modern analytics allows companies to see in real time not only which suppliers are providing the most value, but how to improve the low-performing ones. With this information, purchasing teams can make more profitable decisions by working with the most reliable, profitable suppliers.

 

What is a Warehouse Management System?

A warehouse management system (WMS) is designed to optimize the management of distribution centers. A central database is used to store critical warehouse information for SKUs and resources, identifying specifically where items are located, storage requirements etc. Someone using this type of software is planning the distribution of goods across the supply chain network.

 

Software for Inventory Management

Inventory Management software helps inventory management professionals track inventory levels, customer orders, and deliveries of product to customers. Key features of a typical software platform in this category include asset tracking, reorder points, barcode and RFID readers, and demand forecasting.

 

Continuous Improvement in Supply Chain Management

 

What is Continuous Improvement in Supply Chains?

Continuous improvement is an improvement method for identifying opportunities to make work more streamlined and eliminate waste. The process is often used for improvements to processes, services, or products. In short it means, “getting better all the time.”  Many different ideologies or approaches (see below) can be incorporated into continuous improvement for supply chain management.

Continuous Improvement allows companies to employ better practices and make their teams more efficient. This could apply to business practices, software, accounting, and even HR.

 

Six Sigma

Six Sigma is a set of techniques and tools used in continuous improvement. It was first employed by Motorola in 1980, and over the next 15 years became ubiquitous in the manufacturing industry. Six Sigma uses quality management to improve product quality by identifying and removing the causes of defects and ensuring conformity in manufacturing and business processes.

To achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities. Six Sigma is accomplished through two sub-methodologies: DMAIC and DMADV. DMAIC stands for define, measure, analyze, improve, control, and is intended to improve existing processes. DMADV stands for define, measure, analyze, verify, and is intended to develop new processes or products at Six Sigma levels.

 

Lean Sigma

Lean Sigma, or may be called Lean Six Sigma, is a continuous improvement method that combines lean principles with Six Sigma to improve performance by eliminating waste and reducing variation in processes in order to prevent defects. Lean Six Sigma focuses on eliminating the eight kinds of waste: defects, overproduction, waiting, non-utilized talent, transportation, inventory, motion, and extra-processing. In essence, “waste” is any activity in a process that isn’t required to manufacture a product or provide a service.

 

Total Quality Management (TQM) Explained

Total Quality Management is a continuous improvement management system that emphasizes all employees being involved in creating a customer-focused organization. Its primary concern is improvement through discipline in culture and activities of the company. The eight principles of TQM are customer-focused, total employee involvement, process-centered, integrated system, strategic and systematic approach, continuous improvement, fact-based decision making, and communication.

 

Kaizen

Kaizen is a set of continuous improvement activities that seek to eliminate waste by improving standardized processes. In supply chain management and manufacturing, Kaizen (Japanese for “improvement”) was first introduced in Japan following World War II and gained significant notoriety being employed by Toyota. The Kaizen cycle is known as Plan, Do, Check, Act, often used in conjunction with the “Five Whys” root cause analysis which seeks to identify why a failure or abnormality has occurred.

Kaizen generally follows five basic tenets: teamwork, personal discipline, improved morale, quality, and suggestions for improvement. The goal is for the organization to produce three major outcomes: elimination of waste, good housekeeping, and standardization of processes. Continuous improvement takes place with the idea that everything can be improved upon and everyone from the CEO to the assembly line workers must constantly strive to innovate. The kaizen principle also holds that the people who perform specialized tasks should be included to effect change on the processes.

SCM - Continuous Improvement

Kanban

Kanban is a methodology developed by Toyota in the 1940s that seeks to align inventory levels with actual consumption of those parts or materials. By reducing inventory levels to only what was needed to fulfill demand, companies can free up working capital. Kanban was instrumental in the advent of “just in time” (JIT) manufacturing. Modern electronic Kanban systems integrate into manufacturer’s ERP systems  for real-time supply-demand signaling. When a material or part is consumed, the electronic kanban system can initiate the production and shipment of replenishment material by signaling suppliers and buyers.

 

Value Stream Mapping (VSM)

Value Stream Mapping is often a key component of any Lean or Six Sigma initiative. This technique involves the visualization of key steps required to deliver a product or service. The process flow goes from origin right through to the customer and is used to help project teams identify weak points in the process, or waste points, that would benefit from improvements. Any process map well-designed keeps the focus on the customer and involves a current state view followed by a future state view, allowing comparison between how things are from how they could be in order to drive improvement initiatives.

Value Stream Mapping can be traced back to the early 1900s, although gained traction through the popularization of the Toyota Production System in the 1950s and the subsequent lean manufacturing movement that went global in the 1990s. Due to the unique perspective, the one from the customer, and showcasing how each step adds, or does not add, value to their product or service, VSM became a critical tool of choice for any continuous improvement initiative, whether specifically tied to Six Sigma or Lean or not.

 

Supply Chain Terms

 

ABC Analysis - A form of inventory analysis that applies the pareto principle in order to achieve inventory control. Annual demand is multiplied by unit cost, generating a value for each item in inventory. Items are then ranked in descending order of cost.

 

ABC Classification - After ABC Analysis, items are separated into three classes for stock planning: A, B, and C. The A group contains the 10 to 20 percent of items that are the highest value. The B and C groups usually contain parts with lower values, but the classes have higher volumes.

SCM - Training

Benchmarking - The processes used in supply chain management of comparing current performance to either a company’s past performance or the performance of a competitor for the purpose of improvement. Benchmarking takes place under the idea that best practices will deliver best performance, and thus the focus is on improving processes in order to gain a competitive advantage.

 

Excess Stock - Additional inventory whose levels exceed forward demand and require desposal action

 

Finished Good - top level finished product that is distributed for sale as a completed item

 

Inventory - the goods, parts, and materials held by an organization for production or future sale

 

Just-in-time (JIT) -  an inventory philosophy which seeks to synchronize operations and materials delivery so that they occur just at the time they are needed, effectively eliminating the need to carry stock

 

Logistics - in supply chain management, logistics is the organization and positioning of parts, materials, and finished goods to meet user and customer demands

 

Obsolete Stock - parts or materials held in inventory that have been replaced and have no organizational reason to be held

 

Raw Material - materials or parts that are purchased from suppliers and used to produce finished goods

 

Safety Stock - inventory held to protect against shortages in the event of variations in consumption or delivery times

 

Supply Chain - an organization of business processes that enables customer demand for a finished product to be satisfied

 

Supply Chain Management - the management of the processes that control the flow of goods and services within an organization as it transforms raw materials into finished goods and distributes them for customer demand

 

FAQs

 

Q: How is supply chain management important to business?

A: Effective SCM improves customer service by ensuring every part is in the right place at the right time in order to meet customer delivery demands. It also reduces production costs by forecasting future demand and alleviating costly shortages. Finally, SCM frees up working capital by reducing inventory levels/costs and minimizing expenses associated with logistics and transportation.

 

Q: Who works in supply chain management?

A: SCM consists of a wide range of personnel, spanning across many sites, warehouses, countries, and even continents. The Institute for Supply Management identifies 14 critical positions in SCM. They are:

 

  • Disposition/investment recovery
  • Distribution
  • Inventory control
  • Logistics
  • Manufacturing supervision
  • Materials management
  • Packaging
  • Procurement/purchasing
  • Product/service development
  • Quality
  • Receiving
  • Strategic sourcing
  • Transportation/traffic/shipping
  • Warehousing/stores

 

Q: Is supply chain management in high demand?

A: As technology has advanced and globalization increased, the demand for top supply chain talent has increased. There is especially a higher need for analysts and logistics specialists who have backgrounds in mathematic or data driven fields and can accurately predict future trends.

 

Q: What is supply chain management vs. business analytics

Business analytics deals with only one segment of SCM: data analysis. SCM is an overall company structure for moving goods through the company and into finished products for consumption. Business analytics gathers and analyses data in order to provide decision support for procurement, warehousing, logistics, transportation, and more.

 

Q: Are procurement and supply chain the same thing?

A: No, although they are closely related. Procurement refers to a specific segment of SCM that deals with acquiring materials, goods, or parts in order to fulfill customer demands. In essence, the procurement process is over once the company is in possession of the goods they need. Supply chain refers to the overall process of changing goods, materials, and parts into finished products that are ready for market. One key difference is that supply chain’s role continues to delivery of the finished products to customers.

SCM - FAQ

 

Q: What is supply chain management like as a career

A: Globalization and outsourcing have made supply chains increasingly complex and critical to the success of manufacturers. Entry level supply chain professionals are able to gain invaluable insights into the overall operations of a company. Buyers, analysts, and planners work with finance, sales, marketing, engineering, IT, and quality assurance. Middle managers can expect to apply the expertise they’ve gained via entry level experience to managing teams of buyers, analysts, etc. Director level positions are typically held by employees who have become experts in a number of fields within the company, having spent time in various departments executing different tasks.

 

Q: What are the top jobs in supply chain management

A: Typical executive-level jobs within the supply chain profession include these titles: Chief Operating Officer, VP of Operations, Chief Supply Chain Officer, VP of Supply Chain, Chief Procurement Officer, VP of Procurement, Head of Manufacturing Operations.

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