Supply chain management (SCM) systems
The supply chain consists of the series of activities that moves materials from suppliers, through the organisation to customers. Each product or service will have its own supply chain, which may involve many organisations in processing, transportation, warehousing and retail. A representation of the structure of a supply chain is shown in Figure 6.4. Activities on the input side to the organisation are termed ‘upstream’ or ‘supply side’ and are divided into tiers of suppliers. Upstream suppliers that supply the organisation directly are termed ‘first-tier’ and suppliers that supply first-tier organisations are termed ‘secondtier’ and so on. Examples of upstream suppliers are component and sub-assembly suppliers.
The supply chain consists of the series of activities that moves materials from suppliers, through the organisation to customers. Each product or service will have its own supply chain, which may involve many organisations in processing, transportation, warehousing and retail. A representation of the structure of a supply chain is shown in Figure 6.4. Activities on the input side to the organisation are termed ‘upstream’ or ‘supply side’ and are divided into tiers of suppliers. Upstream suppliers that supply the organisation directly are termed ‘first-tier’ and suppliers that supply first-tier organisations are termed ‘secondtier’ and so on. Examples of upstream suppliers are component and sub-assembly suppliers.
Activities on the output side are termed ‘downstream’ or ‘demand side’ and are divided into tiers of customers. Examples of downstream customers are wholesalers and retailers. There will be a separate supply chain for each product or service an organisation produces and this structure is sometimes referred to as the ‘supply network’ or ‘supply web’. The terms used in the area of supply chain management are defined in a number of ways and so the most common terms are first defined as they will be used in this text (Figure 6.5). Supply chain management and logistics are terms used to refer to the management of the flow of materials through the entire supply chain. Some-times logistics or business logistics refer to activities in the downstream portion of the chain. Inbound (or inward) logistics is used to describe the activity of moving material in from suppliers and outbound (or outward) logistics is used to describe the activity of moving materials out to customers.
The movement of materials within the organisation is termed materials management (materials management can also be used to refer to the management of upstream supply chain activities). Supply chain activities can be presented around the areas of procurement from suppliers and physical distribution management which deals with downstream activities such as warehousing and transportation to customers. Supply chain management enterprise systems connect the ERP system to an organisation’s customers and suppliers. Two areas where SCM systems are able to improve supply chain performance will be examined. The first area is the area of supply chain visibility and thesecond is of supply chain integration
The movement of materials within the organisation is termed materials management (materials management can also be used to refer to the management of upstream supply chain activities). Supply chain activities can be presented around the areas of procurement from suppliers and physical distribution management which deals with downstream activities such as warehousing and transportation to customers. Supply chain management enterprise systems connect the ERP system to an organisation’s customers and suppliers. Two areas where SCM systems are able to improve supply chain performance will be examined. The first area is the area of supply chain visibility and thesecond is of supply chain integration
Supply chain visibility
One of the key issues in supply chain design is that organisations need to cooperate with one another in order to provide customer satisfaction. One of the reasons for that cooperation is to limit fluctuations in demand which occur in these networks which affects performance. The behaviour of supply chains that are subject to demand fluctuations has been described as the bullwhip effect. The effect occurs when there is a lack of synchronisation between supply chain members, when even a slight change in consumer sales will ripple backwards in the form of magnified oscillations in demand upstream. There are other factors which increase variability in the supply chain. These include a time lag between ordering materials and getting them delivered, leading to over-ordering in advance to ensure sufficient stock is available to meet customer demand. Also the use of order batching (when orders are not placed until they reach a predetermined batch size) can cause a mismatch between demand and the order quantity. Price fluctuations such as price cuts and quantity discounts also lead to more demand variability in the supply chain as companies buy products before they need them. In order to limit the bullwhip effect certain actions can be taken.
One of the key issues in supply chain design is that organisations need to cooperate with one another in order to provide customer satisfaction. One of the reasons for that cooperation is to limit fluctuations in demand which occur in these networks which affects performance. The behaviour of supply chains that are subject to demand fluctuations has been described as the bullwhip effect. The effect occurs when there is a lack of synchronisation between supply chain members, when even a slight change in consumer sales will ripple backwards in the form of magnified oscillations in demand upstream. There are other factors which increase variability in the supply chain. These include a time lag between ordering materials and getting them delivered, leading to over-ordering in advance to ensure sufficient stock is available to meet customer demand. Also the use of order batching (when orders are not placed until they reach a predetermined batch size) can cause a mismatch between demand and the order quantity. Price fluctuations such as price cuts and quantity discounts also lead to more demand variability in the supply chain as companies buy products before they need them. In order to limit the bullwhip effect certain actions can be taken.
The major aspect that can limit supply chain variability is to share information amongst members of the supply chain and so improve supply chain visibility. In particular it is useful for members to have access to the product demand of the final seller, so that all membersin the chain are aware of the true customer demand. Enterprise systems can be used to connect to organisations within a supply chain and so information, generated by systems such as electronic point-of-sale (EPOS) systems which are used by retailers to collect customer demand information and RFID technologies (Chapter 5) which can be used to track inventories, can be transmitted to warehouses and suppliers further down the supply chain. If information is available to all parts of the supply chain it will also help to reduce lead times between ordering and delivery by using a system of coordinated or synchronised material movement.
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