Supply Chain Management Concepts
Shortly after your alarm clock goes off and the coffee maker kicks on, the aroma of your favorite coffee fills the air. The supply chain is responsible for getting those coffee beans across the world and to your kitchen. Something so common in every household, takes a great deal of planning, demand forecasting, procurement, and logistical expertise to move those beans to local sellers while still fresh. Without a strong supply chain in place, your caffeine-fix options would be severely limited.
SCM involves a series of key activities and processes that must be completed in an efficient (fuel-conserving, cost-reducing, etc.) and timely manner. Otherwise, product will not be available when needed by consumers like you.
The Seven Rights of Fulfillment
The ability to meet customer requirements, for everything from coffee beans to Crocs, is built upon the expectation that everything is done correctly in the supply chain. And that means doing it right the first time – no mulligans, no mistakes are allowed. In the quest to provide quality service and satisfy customers, world-class companies along the supply chain are guided by the Seven Rights of Fulfillment.
If you think about it, every order needs to be executed according to these seven goals. You must attempt to deliver a “perfect order” to every customer every time. Doing it right the first time makes the customer happy, saves the cost of fixing errors, and doesn't require extra use of assets. Thus, every part of the organization has a vested interest in pursuing perfection.
A “perfect order” delivery is only attained when all Seven Rights of Fulfillment are achieved. To accomplish a perfect order fulfillment, the seller has to have your preferred product available for order, process your order correctly, ship the entire order via the means that you request, provide you with an advanced shipping notification and tracking number, deliver the complete order on time and without damage, and bill you correctly. A seller’s ultimate goal is to make the customer happy by doing the job right, which gives them a good reason to use the seller’s services again in the future.
If the goal of SCM is to provide high product availability through efficient and timely fulfillment of customer demand, then how is the goal accomplished?
Obviously, you need effective flows of products from the point of origin to the point of consumption. But there’s more to it. Consider the diagram of the fresh food supply chain. A two-way flow of information and data between the supply chain participants creates visibility of demand and fast detection of problems. Both are needed by supply chain managers to make good decisions regarding what to buy, make, and move.
Other flows are also important. In their roles as suppliers, companies have a vested interest in financial flows; suppliers want to get paid for their products and services as soon as possible and with minimal hassle. Sometimes, it is also necessary to move products back through the supply chain for returns, repairs, recycling, or disposal.
Because of all the processes that have to take place at different types of participating companies, each company needs supply chain managers to help improve their flows of product, information, and money. This opens the door of opportunity to you to to a wide variety of SCM career options for you!
Supply chain activities aren't the responsibility of one person or one company. Multiple people need to be actively involved in a number of different processes to make it work.
It's kind of like baseball. While all the participants are called baseball players, they don't do whatever they want. Each person has a role – pitcher, catcher, shortstop, etc. – and must perform well at their assigned duties – fielding, throwing, and/or hitting – for the team to be successful.
Of course, these players need to work well together. A hit-and-run play will only be successful if the base runner gets the signal and takes off running, while the batter makes solid contact with the ball. The team also needs a manager to develop a game plan, put people in the right positions, and monitor success.
Winning the SCM “game” requires supply chain professionals to play similar roles. Each supply chain player must understand his or her role, develop winning strategies, and collaborate with their supply chain teammates. By doing so, the SCM team can flawlessly execute the following processes:
- Planning – the plan process seeks to create effective long- and short-range supply chain strategies. From the design of the supply chain network to the prediction of customer demand, supply chain leaders need to develop integrated supply chain strategies.
- Procurement – the buy process focuses on the purchase of required raw materials, components, and goods. As a consumer, you're pretty familiar with buying stuff!
- Production – the make process involves the manufacture, conversion, or assembly of materials into finished goods or parts for other products. Supply chain managers provide production support and ensure that key materials are available when needed.
- Distribution – the move process manages the logistical flow of goods across the supply chain. Transportation companies, third party logistics firms, and others ensure that goods are flowing quickly and safely toward the point of demand.
- Customer Interface – the demand process revolves around all the issues that are related to planning customer interactions, satisfying their needs, and fulfilling orders perfectly.
Seven Principles of SCM
More than ten years ago, a research study of 100+ manufacturers, distributors, and retailers uncovered some widely used supply chain strategies and initiatives. These ideas and practices were distilled down to seven principles and presented in an article in Supply Chain Management Review, a magazine widely read by SCM professionals.
- Principle 1: Segment customers based on the service needs of distinct groups and adapt the supply chain to serve these segments profitably.
- Principle 2: Customize the logistics network to the service requirements and profitability of customer segments.
- Principle 3: Listen to market signals and align demand planning accordingly across the supply chain, ensuring consistent forecasts and optimal resource allocation.
- Principle 4: Differentiate product closer to the customer and speed conversation across the supply chain.
- Principle 5: Manage sources of supply strategically to reduce the total cost of owning materials and services.
- Principle 6: Develop a supply chain-wide technology strategy that supports multiple levels of decision making and gives clear view of the flow of products, services, and information.
- Principle 7: Adopt channel-spanning performance measures to gauge collective success in reaching the end-user effectively and efficiently.
Though they are more than a decade old, these timeless principles highlight the need for supply chain leaders to focus on the customer. They also stress the importance of coordinating activities (demand planning, sourcing, assembly, delivery, and information sharing) within and across organizations.
Here's an excerpt from the article:
“Managers increasingly find themselves assigned the role of the rope in a very real tug of war—pulled one way by customers’ mounting demands and the opposite way by the company’s need for growth and profitability. Many have discovered that they can keep the rope from snapping and, in fact, achieve profitable growth by treating supply chain management as a strategic variable.”
These savvy managers recognize two important things:
- They think about the supply chain as a whole—all the links involved in managing the flow of products, services, and information from their suppliers' suppliers to their customers' customers (that is, channel customers, such as distributors and retailers).
- They pursue tangible outcomes—focused on revenue growth, asset utilization, and cost.”
Source: David L. Anderson, Frank F. Britt, and Donavon J. Favre, “The Seven Principles of Supply Chain Management, Supply Chain Management Review, (1997).