Management of the flow of goods and services
In commerce, supply chain management (SCM) deals with a system of procurement (purchasing raw materials/components), operations management, logistics and marketing channels, through which raw materials can be developed into finished products and delivered to their end customers. A more narrow definition of supply chain management is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally". This can include the movement and storage of raw materials, work-in-process inventory, finished goods, and end to end order fulfilment from the point of origin to the point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.
SCM is the broad range of activities required to plan, control and execute a product's flow from materials to production to distribution in the most economical way possible. SCM encompasses the integrated planning and execution of processes required to optimize the flow of materials, information and capital in functions that broadly include demand planning, sourcing, production, inventory management and logistics—or storage and transportation.
Supply chain management strives for an integrated, multidisciplinary, multimethod approach. Current research in supply chain management is concerned with topics related to resilience, sustainability, and risk management, among others. Some suggest that the "people dimension" of SCM, ethical issues, internal integration, transparency/visibility, and human capital/talent management are topics that have, so far, been underrepresented on the research agenda.
Mission.
Supply chain management, techniques with the aim of coordinating all parts of SC, from supplying raw materials to delivering and/or resumption of products, tries to minimize total costs with respect to existing conflicts among the chain partners. An example of these conflicts is the interrelation between the sale department desiring to have higher inventory levels to fulfill demands and the warehouse for which lower inventories are desired to reduce holding costs.
Origin of the term and definitions.
In 1982, Keith Oliver, a consultant at Booz Allen Hamilton, introduced the term "supply chain management" to the public domain in an interview for the Financial Times. In 1983 WirtschaftsWoche in Germany published for the first time the results of an implemented and so called "Supply Chain Management project", led by Wolfgang Partsch.
In the mid-1990s, the term "supply chain management" gained popularity when a flurry of articles and books came out on the subject. Supply chains were originally defined as encompassing all activities associated with the flow and transformation of goods from raw materials through to the end user or final consumer, as well as the associated information flows. Mentzer "et al." consider it worthy of note that the final consumer was included within these early definitions. Supply chain management was then further defined as the integration of supply chain activities through improved supply chain relationships to achieve a competitive advantage.
In the late 1990s, "supply chain management" (SCM) rose to prominence, and operations managers began to use it in their titles with increasing regularity. A supply chain, as opposed to supply chain management, is a set of firms who move materials "forward", or a set of organizations, directly linked by one or more upstream and downstream flows of products, services, finances, or information from a source to a customer. Supply chain management is the management of such a chain.
Other commonly accepted definitions of supply chain management include:
Mentzer "et al." make a further distinction between "supply chain management" and a "supply chain orientation". The latter term involves a recognition that a business strategy cannot be fulfilled without managing the activities of suppliers and customers upstream and downstream, whereas the former term is used for "the actual implementation of this orientation".
Supply chain visibility, in its origins, was concerned with knowledge of the location/production stage and expected delivery date of incoming products and materials, so that production could be planned, but the development of the term has enabled it to be used to plan orders using knowledge of potential supplies, and to track post-production processes as far as delivery to customers.
Supply chain management software includes tools or modules used to execute supply chain transactions, manage supplier relationships, and control associated business processes. The overall goal of the software is to improve supply chain performance by monitoring a company's supply chain network from end-to-end (suppliers, transporters, returns, warehouses, retailers, manufacturers, and customers).
In some cases, a supply chain includes the collection of goods after consumer use for recycling or the reverse logistics processes for returning faulty or unwanted products back to producers up the value chain.
Functions.
Supply chain management is a cross-functional approach that includes managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods out of the organization and toward the end consumer. As organizations strive to focus on core competencies and become more flexible, they reduce ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other firms that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing managerial control of daily logistics operations. Less control and more supply chain partners lead to the creation of the concept of supply chain management. Supply chain management is concerned with improving trust and collaboration among supply chain partners, thus improving inventory visibility and the velocity of inventory movement.
Importance.
Organizations increasingly find that they must rely on effective supply chains, or networks, to compete in the global market and networked economy. In Peter Drucker's (1998) new management paradigms, this concept of business relationships extends beyond traditional enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple companies. According to Drucker, "the greatest change in corporate culture—and the way business is being conducted—may be the accelerated growth of relationships based not on ownership, but on partnership." This approach allows companies to leverage the strengths and capabilities of various partners to achieve greater efficiency and innovation, ultimately enhancing overall business performance.
In recent decades, globalization, outsourcing, and information technology have enabled many organizations, such as Dell and Hewlett-Packard, to successfully operate collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities. This inter-organizational supply network can be acknowledged as a new form of organization. However, with the complicated interactions among the players, the network structure fits neither "market" nor "hierarchy" categories. It is not clear what kind of performance impacts different supply-network structures could have on firms, and little is known about the coordination conditions and trade-offs that may exist among the players. From a systems perspective, a complex network structure can be decomposed into individual component firms. Traditionally, companies in a supply network concentrate on the inputs and outputs of the processes, with little concern for the internal management working of other individual players. Therefore, the choice of an internal management control structure is known to impact local firm performance.
In the 21st century, changes in the business environment have contributed to the development of supply chain networks. First, as an outcome of globalization and the proliferation of multinational companies, joint ventures, strategic alliances, and business partnerships, significant success factors were identified, complementing the earlier "just-in-time", lean manufacturing, and agile manufacturing practices. Second, technological changes, particularly the dramatic fall in communication costs (a significant component of transaction costs), have led to changes in coordination among the members of the supply chain network.
Many researchers have recognized supply network structures as a new organizational form, using terms such as "Keiretsu", "Extended Enterprise", "virtual supply chain", "Global Production Network", and "Next Generation Manufacturing System". In general, such a structure can be defined as "a group of semi-independent organizations, each with their capabilities, which collaborate in ever-changing constellations to serve one or more markets in order to achieve some business goal specific to that collaboration".
The importance of supply chain management proved crucial in the 2019-2020 fight against the coronavirus (COVID-19) pandemic that swept across the world. During the pandemic period, governments in countries which had in place effective domestic supply chain management had enough medical supplies to support their needs and enough to donate their surplus to front-line health workers in other jurisdictions. The devastating COVID-19 crisis in US has turned many sectors of the local economy upside down, including the country's storied logistics industry. Some organizations were able to quickly develop foreign supply chains in order to import much needed medical supplies.
Supply chain management is also important for organizational learning. Firms with geographically more extensive supply chains connecting diverse trading cliques tend to become more innovative and productive.
The security-management system for supply chains is described in ISO/IEC 28000 and ISO/IEC 28001 and related standards published jointly by the ISO and the IEC. Supply Chain Management draws heavily from the areas of operations management, logistics, procurement, and information technology, and strives for an integrated approach.
Supply chain resilience.
An important element of SCM is supply chain resilience, defined as "the capacity of a supply chain to persist, adapt, or transform in the face of change". For a long time, the interpretation of resilience in the sense of engineering resilience (= robustness) prevailed in supply chain management, leading to the notion of "persistence". A popular implementation of this idea is given by measuring the "time-to-survive" and the "time-to-recover" of the supply chain, allowing to identify weak points in the system. The APICS Certified Supply Chain Professional (CSCP) program emphasizes the importance of managing risks and enhancing resilience. According to APICS, in order to manage global interruptions and preserve operational continuity, a robust supply chain is vital.
More recently, the interpretations of resilience in the sense of ecological resilience and social–ecological resilience have led to the notions of "adaptation" and "transformation", respectively. A supply chain is thus interpreted as a social-ecological system that – similar to an ecosystem (e.g. forest) – is able to constantly adapt to external environmental conditions and – through the presence of social actors and their ability to foresight – also to transform itself into a fundamentally new system. This leads to a panarchical interpretation of a supply chain, embedding it into a system of systems, allowing to analyze the interactions of the supply chain with systems that operate at other levels (e.g. society, political economy, planet Earth).
For example, these three components of resilience can be discussed for the 2021 Suez Canal obstruction, when a ship blocked the canal for several days. Persistence means to "bounce back"; in our example it is about removing the ship as quickly as possible to allow "normal" operations. Adaptation means to accept that the system has reached a "new normal" state and to act accordingly; here, this can be implemented by redirecting ships around the African cape or use alternative modes of transport. Finally, transformation means to question the assumptions of globalization, outsourcing and linear supply chains and to envision alternatives; in this example this could lead to local and circular supply chains that do not need global transportation routes any longer.
Historical developments.
Six major movements can be observed in the evolution of supply chain management studies: creation, integration, globalization, specialization phases one and two, and SCM 2.0.
Creation era.
The term "supply chain management" was first coined by Keith Oliver in 1982. However, the concept of a supply chain in management was of great importance long before, in the early 20th century, especially with the creation of the assembly line. The characteristics of this era of supply chain management include the need for large-scale changes, re-engineering, downsizing driven by cost reduction programs, and widespread attention to Japanese management practices. However, the term became widely adopted after the publication of the seminal book "Introduction to Supply Chain Management" in 1999 by Robert B. Handfield and Ernest L. Nichols, Jr., which published over 25,000 copies and was translated into Japanese, Korean, Chinese, and Russian.
Integration era.
This era of supply chain management studies was highlighted with the development of electronic data interchange (EDI) systems in the 1960s and developed through the 1990s by the introduction of enterprise resource planning (ERP) systems. This era has continued to develop into the 21st century with the expansion of Internet-based collaborative systems. This era of supply chain evolution is characterized by both increasing value-added and