SUPPLY CHAIN MANAGEMENT

A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both services, and manufacturing organisations, although the complexity of the chain may vary greatly from industry to industry and firm to firm.

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organisations along the supply chain operated independently. These organisations have their own objectives and these are often conflicting. Marketing’s objective of high customer service and maximum sales conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximise output and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. The result of these factors is that there is not a single, integrated plan for the organisation—there were as many plans as businesses. Clearly, there is a need for a mechanism through which these different functions could be integrated. Supply chain management is a strategy through which such an integration can be achieved.

Supply chain management is typically viewed to lie between fully

vertically integrated firms, where the entire material flow is owned by a single firm , and those where each channel member operates independently. Therefore, coordination between the various players in the chain is key in its effective management. Supply chain management can be compared to a well- balanced and well-practiced ‘relay team’—such a team is more competitive when each player knows how to be positioned for the hand-off. The relationships are the strongest between players who directly pass the baton, but the entire team needs to make a coordinated effort to win the race.

Supply chain management, then, is the active management of supply chain activities to maximise customer value and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective and efficient ways possible. Supply chain activities cover everything, such as:

(i) Product development,

(ii) Sourcing,

(iii) Production,

(iv) Logistics, and

(v) Information systems (for proper coordination).

The organisations that make up the supply chain are ‘linked’ together through physical flows and information flows. Physical flows involve the transformation, movement, and storage of goods and materials. They are the most visible piece of the supply chain. But just as important are information flows—information flows allow the various supply chain partners to coordinate their long-term plans, and to control the day-to-day flow of goods and material up and down the supply chain.