Supply chain management
Introducing supply chain management
Supply chain management (SCM) and logistics is an entire topic all of its own with a wealth of publications, knowledge and education available out there so it is impossible to do justice to the topic in this book. However, we do need to explore SCM at a high level as it is a key component within an overall SRM approach, although has not traditionally been regarded as such. So far we have considered how we can have the right relationships with those immediate suppliers that are important to us but SCM looks beyond these to where there is no direct contractual relationship but to where a different type of intervention can bring competitive advantage.
Historically, the practice of SCM has been regarded as separate to the practice of strategic purchasing (where board level representation is expected and the role of chief procurement officer (CPO) is now commonplace). To the uninitiated, SCM may well be regarded as an approach to take care of transportation, logistics, warehousing; tactical, transactional and concerned with little more than the movement of goods. Today, however, effective SCM is much more than that and is also increasingly being recognized as a strategic contributor with new roles of chief supply chain officer now emerging, especially in organizations where the performance and security of the supply chain is critical. Yet, despite this, SCM and strategic purchasing remain quite different professions. The reason for this is perhaps historic - SCM has been around for millions of years and has been behind any requirement to get the right stuff to the right place in good condition exactly when needed, repeatedly and reliably. The principles surrounding ensuring an effective flow of materials and information to satisfy a customer have altered little from the building of the pyramids to the relief of hunger in Africa (Christopher, 2011). Yet strategic purchasing and SRM are the new kids on the block. Twenty-five years ago there was very little knowledge or thinking on this subject but since then purchasing has been transformed in leading edge companies; no longer the subservient function that buys things for the rest of the business, it is now the function that adds significant value and helps drive corporate strategy using approaches such as category management to help deliver the results.
A distinction also remains in the educational space in these two areas. For example, in the UK I could sign up to do an MSc in Logistics and Supply Chain Management with one of the reputable universities specializing in this area or alternatively an MSc in Strategic Procurement Management. Each has modules to introduce the other, but they are two very separate specialisms taught by different experts, using different tools and approaches, with candidates making a choice to go into one profession or the other. Furthermore, in the workplace this disparity continues with functional divides - the 'running' of supply chains is often something that sits separate from a purchasing function, perhaps being the remit of a dedicated logistics function, operations, production or even a commercial function.
So why change? Surely purchasing can look after the immediate suppliers and categories of spend and a supply chain function manage logistics and the flow of materials in order to satisfy the customer? Indeed they could but today there is now an imperative for convergence of SCM with strategic purchasing: the very thing that has increased the significance of both independently is now the very thing that now driving these two worlds to collide. That is the demands and increasing risk of our changing environment:
• The global marketplace drives global supply chains and distribution networks.
• Global distribution drives fewer 'supersized' production facilities and provides economies of scale over many regional factories.
• Global supply chains drive fewer, 'supersized' inventories.
• Corporate social responsibility means we are now interested in what happens in a global supply chain, but first-hand knowledge and understanding is more difficult to secure.
• Consumer demands for personalization are now being met through clever production technology and good logistics.
• Regional variations and localization can similarly be catered for so one product facility can produce a range of different products for different markets on the same production line in real time.
All of these factors present new challenges to an organization and levels of risk that must be taken seriously. As supply chains become bigger, more technical and more complex they become more vulnerable to environmental catastrophes and global changes. Furthermore things don't stand still and the benefits of global sourcing always demand a trade off between economies of scale and low cost production to cost of transportation. What might be beneficial today could be prohibitive tomorrow, especially as economies in third world regions develop. In fact, the trend towards offshoring and shifting production to low-cost providers has, in recent years, begun to reverse due to the cost advantage now being squeezed as the economies in developing countries develop, transportation costs have increased, true costs of low-cost country sourcing are more than anticipated and concerns are growing over carbon footprint (Christopher, 2011).
SCM is no longer just about logistics, it is a practice that can help bring significant value to a business by reducing and managing risk and bringing competitive advantage by enabling a firm to satisfy its end customers. However, the greatest impact comes when SCM is connected to, and integrated with, the wider strategic purchasing within the organization and SRM is the means by which to do this.