The role of supply chain management in business

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The role of supply chain management in business
Supply Chain Management transformed the British automotive industry. (Digital Vision./Digital Vision/Getty Images)

Supply Chain Management is an all-encompassing field for businesses. It concerns the practice of matching production to sales and ordering supplies to meet the demand of the manufacturing effort to fulfil those sales. This includes purchasing, inventory, warehouse management, production planning, “Work in Process,” sales, marketing, distribution and customer satisfaction. There are few functions of a business that do not come under the overall remit of Supply Chain Management.

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The Chain

“Supply chain” gets its name from the concept of visualising the processes of business interlinking in a chain. For example, the customer of one business is the supplier of another. To get a product to the public, several companies use the goods and services provided by other companies. Eventually, chaining backwards along the path, we arrive at raw materials, but even then, the delivery of a material like planks of wood, for example, involves a series of companies who grow, transport, import, process and source the wood.

Model

British business learned a lot from Japanese companies that came to the UK in the eighties to produce here. The successful Japanese business model for manufacturers centres on “Just-in-Time” manufacturing. This strategy treats inventory as a cost and tries to minimise its presence on the company’s premises. Therefore, Japanese manufacturers have almost no warehouse space. Raw materials are delivered straight onto the production line and finished goods get put straight onto the truck for delivery.

Safety

Stores are a buffer against failure. The Supply Chain Management philosophy rarely plans for failure. In the traditional British model, a manufacturer would order more supplies before their current stock of raw materials ran out. They maintained a safety level of stock in case the supplier had problems and could not deliver immediately. The SCM approach demands that suppliers are pledged to deliver immediately; otherwise they do not get the contract to supply goods. Under SCM, it is worth paying more to a supplier for a guarantee of delivery times, than getting a discount from an unreliable supplier.

Impact

The impact of SCM on British business is wide ranging. The elimination of safety stock requires that SCM dominates every process in the organisation’s routine. Industrial Relations, logistics, marketing and even the design of access roads to the factory, refocus their priorities and standard practices to achieve the goals of Supply Chain Management.

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