What is supply chain management? Essay Example
What is supply chain management? Explain how managing the flow of information well facilitates the flow of inventory? Similarly, explain how managing the flow of inventory well improves cash flow?
Supply Chain Management (SCM) involves the management of a system of interrelated businesses concerned in the ultimate provision of services and product packages demanded by end customers (Baganha and Cohen, 2008). Supply chain management also refers to the management of a network of providing raw material from the different suppliers to various customers’ level until the product moves to the consumer as a finished product (Cachon and Fisher, 2000). It includes production plants, suppliers, supermarkets and wholesale dealers in spite of the types of products being manufactured or produced. Supply chain not only deals with the flow of materials, it also involves flow of money and information to store department, to producers and to consumers from the suppliers.
Today, in business all of us are realizing the force and stress to generate more with less resource which needs the effective inventory management. The effective management of inventory means business has to establish a continuous system that is adaptable and concentrates on improving performance and efficiency. It is the evidence that the effective management of inventory ultimately results into the higher cash flows. In a supply chain the inventory management is beneficial, but it is little complicated to manage inventory because it based upon the unpredictability of product demand and efficiencies of suppliers.
Supply chain management provides the strategy of lean production and just-in-time management for the proper inventory management. The implementation of this strategy assists to remove wasteful and expensive inventory. Just-in-time system helps the organization to manage stock levels in order to avoid the holding and carrying cost by establishing the great relationship with the suppliers. The raw products are only asked to purchase when customer ordered for the product. This avoids the unnecessary blockage of capital funds in form of inventory in stores. Integration of supply chain into inventory management allows for synchronized real time exchange of information, planning, negotiation and bidding, transaction occurrence, and reporting of performance. Integrated supply chain into stores department will help enclose all of the communication techniques available from Electronic Data Interchange (EDI) enablers and Quick Response (QR) to the internet (Hopp and Spearman, 2007). The system requires contributors, both downstream and upstream, to use latest technologies and implement the techniques to:
- Enhance service to demanding, stores that are named as inventory-lean by presenting them with the products that consumers really want in a specific time;
- Minimize inventory and reduce costs of attendant; and
- Release capital funds that are bounded in terms of inventory for other projects and purposes. (Cachon and Fisher, 2000)
Supply chain management system need that every phase of the supply chain in inventory management i.e., purchases, manufacturing and distribution operationally incorporated for the best result. At present, the technology is vital that permits the supply chain to become system to be integrated and thus minimize the requirement of inventory. Some illustrations are the electronic program of Advance Ship Notices (ASN) to counsel and inform customers of the shipment contents and its expected date of delivery. The purchase orders transmission through Electronic Data Interchange (EDI) can offer more accurate and timely data to suppliers, establishing possibility for more valuable information in production and management planning (Lee and Billington, 2003). In addition to this, the system of freight tracking now are being implemented in the management of product movement that offers flexibility that can be practiced to respond to quickly changing external and internal needs for instance changes in the schedule of production or changes in delivery requirements of customer product.
The management of inventory management through supply chain management system can only be beneficial when the flow of information from higher level to lower level of a supply chain is modernized. So, strategic planning for the effective and efficient information distribution is necessary for supplying goods at the expected rate of customer. Mutual analyzing and sharing of the accurate information and benchmarks between the customer and supplier at all stages of the supply chain management system is critical and it also cares for the relationship of customer and supplier. Therefore, integrating standards for information flow in the management of inventory in an organization will certainly result in increased cash flows and profits. (Lee and Billington, 2003)
Baganha, M. P. and Cohen, M. A. (2008). The stabilizing effect of inventory in supply chains. New York: Wiley.
Cachon, G. P. and Fisher, M. (2000). Supply chain inventory management and the value of shared information. Boston: McGraw Hill.
Hopp, W. J. and Spearman, M. L. (2000). Factory Physics. Boston: McGraw-Hill/Irwin.
Lee, H. L., and Billington, C. (2003). Material management in decentralized supply chains. Oxford: Oxford University Press.
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