Supply chain management & logistics
The supply chain is the systems and networks used by a company to move the product from the origin to the point of sale. This includes the movement of raw materials to the point of production.
Supply chain management
Supply chain management is the process of planning and organising the supply chain as efficiently as possible.
Supply chain management has become an important consideration for firms as supply chains become increasingly complex. The supply chain is the movement of all raw materials from their origin to the production facility (or facilities) and then on to the final consumer. In a globalised market place firms are sourcing raw materials from suppliers all over the world.
New technologies have allowed for ever-increasing flexibility in channel processes. Physical Distribution Management (PDM) is carried out by specialist companies, which use logistics (computer controlled distribution) to maximise channel efficiency and create cost-effective distribution.
Maintaining supply chain efficiency
To ensure an efficient supply chain, a company may have to look at a number of areas of operation. These may include:
- Supplier relationships - working closely with suppliers is an essential element of an efficient supply chain. This may require suppliers being located close physically to the main production facility and perhaps working on a just-in-time basis. This should reduce average levels of stocks. Firms may require shared computer systems to manage the process and to support closer supplier relationships.
- High quality IT hardware and software systems - many supply chains are managed by computer software and given their complexity, this is essential if they are to reach optimum efficiency. As well as high quality software, good hardware systems will be required to minimise or even eliminate any down-time in the supply chain.
- Efficient management of orders and customer communication systems - many companies now sell directly through e-commerce (B2B e-commerce as well as B2C e-commerce) and need to ensure that they have efficient communication systems.
- Strategic sourcing of raw materials - sourcing raw materials may be a trade-off between cost, quality and availability. The cheapest raw materials may be the furthest away and therefore lead to higher transport costs and a longer lead time.
- Ensuring an appropriate mix of production locations to be able to serve all customer markets as quickly and efficiently as possible.
- Efficient distribution and logistics management - to make sure that the product gets to the customer as quickly and cost-effectively as possible may require the use of vehicle routing analysis systems.
- Efficient stock (inventory) management systems - an efficient stock control system is a vital part of any supply chain and the efficient management of stock levels will help to reduce costs. This may involve the use of just-in-time to build closer supplier relationships (see above).
- Benchmarking against competitors - globalisation has led to radical changes in supply chains and it is essential for a firm to benchmark their supply chain against their competitors if they are to ensure they will remain competitive.
- Demand forecasting - being able to forecast customer demand will help with production and distribution planning and so help improve the supply chain.
A solution that many companies have adopted is the outsourcing of their supply chain management to a specialist supply chain company. For companies who perhaps do not have the skills or expertise within the company, this may offer an efficient solution.
There is often some confusion between the two terms logistics and supply chain management. Supply chain management is generally considered to have a broader focus and apply to the whole process of managing relationships with suppliers, customers and perhaps retailers. In other words it the management of the supply chain across multiple enterprises. Logistics on the other hand is usually considered to refer to the procedures and processes for distributing products within a single company.