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What is Supply Chain Management?

Supply Chain Management (SCM) is the most misunderstood or rather abused term(inology). Right or wrong, there are numerous interpretations of this buzzword, all with an intention of showing that they are at the forefront of emerging business management practices. People also incorrectly use the following three terms interchangeably: Supply Chain Management, Supply Management and Supply Chain.

At the same time, there is a lot of confusion between what is Operations Management (OM) and what is Supply Chain Management (SCM). Some people think OM is a subset of SCM and some think that SCM is a subset of OM. There are also others who think that SCM is the same old OM with a new and fancy label. I have been to several seminars and conferences where speakers have said that SCM has been existing since the era of Adam and Eve. Once I sought clarification from Late Prof. David F. Ross and even he wrote to me that there is no agreement on this topic even in the academic world globally. However, I see that most business schools globally have renamed their MBA in OM to MBA in SCM but still teaching almost the same syllabus.

Even in the corporate world, there is a lot of confusion. I have seen many MNCs that have renamed their procurement function as Supply Chain Management function. Some other companies renamed their planning function as a Supply Chain Management function. And, some companies have renamed their logistics function as Supply Chain Management function. Then there are other companies who have created a Supply Chain Management Department to manage their “end-to-end” Supply Chain but their definition of “end-to-end” is from sourcing till delivery. And, therefore, all functions like planning, procurement, operations, logistics, etc. report to this newly created Supply Chain Management Department.

Associations worldwide have also added to this confusion by projecting that they impart SCM knowledge to ensure that members do not leave them to join other associations. Associations focused only on procurement, or only on manufacturing, or only on logistics, or only on freight-forwarders, etc., all call themselves associations focused on SCM. To confuse more, a new term has been coined: Supply Management, for procurement function that is often misunderstood as Supply Chain Management.

 

So, what is SCM? 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 (source: https://en.wikipedia.org/wiki/Supply_chain_management).

Let’s understand the term Supply Chain first. Every organization is a link in a chain (or rather web) that supplies goods and services to consumer or end-customer. The (forward) chain starts from mother nature (source of raw material, e.g. mines, forest, farms, animals, water, atmosphere, etc.) and ends at consumer or end-customer.like you and me. We also have a reverse supply chain that returns materials back to mother nature. This supply chain has been existing since the era of Adam and Eve but now this chain has become too long, web-like, global and too complex. Traditionally, each link in the chain managed itself and did not attempt to coordinate with its preceding links (suppliers) or succeeding links (customers). Every link tried to forecast the demand without having full visibility of the chain that resulted in what is known as the bullwhip effect.

With the advent of information technology, network connectivity, automated data transfer in real-time across the world, etc. the idea of “managing” the Supply Chain emerged. SCM is based on the foundation of information visibility and data transfer in real time across the entire supply chain using modern information technology. The idea is to “manage” the whole supply chain (mother nature to consumer) like a single entity. Obviously, this necessitates that one link (organization) in the supply chain acts as a “Channel Master” or “Nucleus Firm” that has the primary responsibility of “managing” the whole supply chain. This is the model of Supply Chain Management.

Since, Point of Sale (POS) is the primary interface with consumers, if POS data is made visible to the whole supply chain, it will eliminate the need of forecasting, or at least let forecasting be done only by retailers and not by everyone, completely eliminating the bullwhip effect. The traditional push (forecast driven) systems can be replaced by pull (demand driven) systems. The irony is, though we have more computing power and better forecasting algorithms, forecast accuracy is deteriorating day by day due to long lead times, complex supply chains, fast-changing consumer taste, shorter product life cycle, and volatile demand, where past does not necessarily represent the future. Therefore, Supply Chain Management is moving towards being totally demand-driven (“pull” as opposed to “push” or forecast driven). Some examples of supply chains are from stump to rump (toilet tissues), from cow to cone (ice cream), from ore to blade (shaving blades), etc.

One can easily imagine that to achieve this dream of SCM,.mutual trust, real-time information visibility and information sharing is required between all SCM partners in the whole supply chain. This is not an easy task to achieve but must be done and will be done in the future world that will be completely connected through information technology and networking. In current scenarios probably no supply chain is totally connected and centrally managed. But that will be the future. However, collaboration does exist between partners to some extent. Take the example of e-tailers. They have brought sellers, financial institutions and logistics service providers on a single platform in real-time.

Therefore, the essential role of the Supply Chain Management function is to ensure collaboration among partners across the whole supply chain. The typical activities of SCM function involve aligning of SCM strategies in the whole supply chain, Customer Relationship Management (CRM), Supplier Relationship Management (SRM), Product Life-cycle Management (PLM), building mutual trust, making information available and its sharing transparent in the whole supply chain, signing mutual contracts, ensuring equal sharing of risks and rewards among SCM partners, managing SCM risk, doing collaborative planning for the whole supply chain, implementing supply chain event management, measuring performance globally (for the whole supply chain), implementing sustainability, etc. Though SCM function interacts with all functions of an organization like procurement, operations, logistics, etc., it does not replace them. SCM function works outside the organization to ensure that the whole supply chain works in a collaborative fashion like a single entity. Though there needs to be an SCM function in every organization, the most powerful SCM function will be with “Channel Master” or “Nucleus Firm”.

 

So, concluding the discussion, SCM is not operations, or procurement, or supply management, or logistics, or production, or warehousing, or planning of a company’s activities, etc., SCM is a new concept that needs to be implemented globally by building trust and data sharing among supply chain partners. The two terms of supply chain and supply chain management are not synonyms.

You may want to download the free mobile app called “APICS Dictionary” and review definitions of all the above-mentioned terms used, one-by-one. To learn more about Supply Chain Management, you may also study the APICS CSCP (Certified Supply Chain Professional) body of knowledge.

— Ravindra K. Tulsyan, CFPIM, CIRM, CSCP, SCOR-P, CDDP, PLS, CLTD