Supply Chain Management

The Supply Chain describes the succession of suppliers, manufacturers, storage facilities, distributors and customers that allow products to be ordered, produced and delivered.

The Supply Chain

Each level of the supply chain is described as a ‘tier’. There can be several tiers beneath the final supplier; some of these may also be suppliers to other companies operating in other supply chains.

Supply-Chain Management (SCM) is another aspect of Advanced Planning and Scheduling. It administers the flow of supplies, logistics, services and information through the supply-chain, from suppliers, manufacturers, sub-contractors, stores and distributors to customers and end-users. It involves business strategy, information flow and systems compatibility.

Benefits that can be accrued from supply-chain management include:

• Improved visibility of information between suppliers and customers: quicker response to changes in demand.
• Shared knowledge: reducing waste and inventories, improving product quality and services throughout the chain.
• Development of a longer term “learning network” for the benefit of customers, suppliers and individuals.

The environment in which SCM can be applied is changing. For many years manufacturing companies have been striving to improve their efficiency to remain competitive. These improvements are characterized by:

• A move to ‘Make to Order’ production.
• Sub-contracting non-core activities.
• Smaller manufacturing batches caused by an increase in product variants.
• Lower inventories.

The net effect of these changes has been to oblige companies within informal supply chains to become more dependent on one another.

For example, a specialist bicycle manufacturer has decided to reduce their inventory costs by buying in the saddles they require on a ‘make to order’ basis. In addition they have decided to sub-contract the plating of the frames to a specialist. Now, when they wish to bid for an order, they must first check on the capacity available in the saddle supplier and the plating sub-contractor, since both have a direct affect on their delivery lead-time.

These closer relationships mean that companies within a supply chain have a natural tendency to be involved in bids for new orders.

Initial applications of SCM were developed around the use of Electronic Data Interchange (EDI), the electronic exchange of purchase order etc.

While EDI fosters closer relationships between the companies within a supply chain, it tends to be a one-way relationship, driving demand from the end user back through the supply chain, without taking the true current capacity of the supply chain into account.
For example EDI is, for our purposes, primarily a way for an OEM (typically a car manufacturer) to place orders on their suppliers. The ability of the supplier to produce the components is taken for granted, i.e. capacity and materials are assumed to be available. EDI works best in vertically integrated supply chains, particularly where a large percentage of a supplier’s turnover (>25%) comes from one OEM client.

Other SCM solutions have order transfer facilities, but go a step further by controlling stock in multiple locations. In this role SCM attempts to maintain the required stock levels whilst deciding how and from where to fulfill particular customer orders. It is, therefore, only applicable to large companies, typically producing in high volume, making largely to stock and shipping from multiple warehouses.

A fundamental problem with many existing technologies is that they are mechanisms for companies to place their demand (requirements) on their suppliers, taking only a cursory account of the supplier’s capacity.

For the majority of SME manufacturers who make up loosely knit and may be transient supply chains, such technologies do not work. They are in a Make to Order not Make to Stock environment, and they want to co-operate in their supply chains by exchanging capacity data, rather than having requirements forced on them.

For example, today, if you wish to buy some specialized bearings, that you know are not stock items, then you ring the supplier to ask for a delivery promise. In effect you are asking the supplier to review their capacity and tell you when they can make the bearings.

Therefore SCM solutions should consider the availability of materials and resources throughout the supply chain in both “Make to Stock” and “Make to Order” environments and this is the basis of the Supply Chain Server.