What is supply chain management?

Supply chain and supply chain management are two different terms, though they are frequently used interchangeably. The term supply chain is a network model or framework of how materials or information moves through the value chain to produce a product or service to meet a customer requirement.

The supply chain management (SCM) involves management skills and technology in delivering a product or service to the end consumer at maximum efficiency in terms of cost, speed, quality, and customer service.

APICS defined supply chain management 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.

Going back the shirt’s supply chain, each activity within the supply network requires strategies and timely execution to satisfy customer demand. Their activities complement each other – from supplier tier 2 to manufacturer to retail – to ensure a customer requirement is met.

Managing a less complex supply chain would be easy – like shirts. But when your product needs components from foreign suppliers, compliance from multiple authorities, adherence to customer specifications, that is when the process gets large and complex. Now, you must deal with different stakeholders and cultures. Welcome to the global supply chain.

Players in the supply chain

Referencing our shirt’s supply chain, there are organizations involved in the creation of the product. These firms are the primary members of the simple, basic supply chain as follows;

–  Supplier
–  Manufacturer
–  Distributor
–  Retailer
–  Customer

However, given the complexities in today’s supply chain, players above need to be enabled with additional capabilities to survive. The chain must extend to accommodate other supply chain participants. The extended supply chain is where supplier’s suppliers are added in the upstream side and customer’s customers on the downstream supply chain. The pressure to compete successfully in the market causes the existence of service providers for logistics, IT, marketing, etc.

These providers help the company’s supply chain more secure and agile. They provide a range of needed solutions to all participants in the supply chain. For instance, an IT company provides an ERP system to the business extending its capability from real-time information sharing to global compliance to customer analytics.

In summary, expanded supply chain constitutes;

–  Supplier’s suppliers (tier 2, tier 3,…)
–  Manufacturer (including sub-contractors)
–  Distributor
–  Retailer
–  Customer’s customers
–  Service providers

Why is supply chain complex?

The supply chain consists of multiple organizations located globally working together in fulfilling customer requirements. It needs a supply chain design infrastructure that enables collaboration across processes. The complexity starts when a company begins to deal with various entities to make the product. The task to manage these interactions, processes, and activities within the required level of efficiency build complexity in execution.

Figure 3. The global supply chain of Boeing 787. Source: U.S. Chamber of Commerce website.

You get the idea of how intricate and critical the supply chain for Boeing. Almost every part of the plane has different suppliers from different countries. That means that if you are the supply chain director of Boeing, you must deal with each one of them effectively to ensure components they supply meet Boeing’s standards and specifications.

Boeing’s supply chain is the perfect example of supply chain complexity because it sourced materials globally, requires a high degree of performance precision, and complies rigorous regulations. As a result, Boeing is vulnerable to risks including exposure to currency fluctuation, inventory visibility, resource scarcity, changing regulations, economic uncertainty, and several others directly or indirectly impacting the supply chain.

Your company may not be Boeing’s, but for sure you resemble the same supply chain structure. The moment you begin to source components from multiple vendors, that is when you feel the pressure of managing many moving elements in the supply chain.

Research from APICS and Michigan State University showed that there were three sources of supply chain complexity. They are;

–  Customer accommodation
–  Globalization
–  Supplier network expansion

Being able to understand and determine the source of complexity will help you solve issues to improve your operations.

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