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Supply Chain Management 101: An Executive Guide to Supply Chain Management (SCM)

Supply Chain Management 101: An Executive Guide to Supply Chain Management (SCM)

Supply Chain Mangement topics covering definition, objectives, solutions and the impact of globalisation.

What is the relationship between ERP and SCM?

Many SCM applications are reliant upon the kind of information that is stored in the most quantity inside ERP software. Theoretically you could assemble the information you need to feed the SCM applications from legacy systems (for most companies this means Excel spreadsheets spread out all over the place), but it can be nightmarish to try to get that information flowing on a fast, reliable basis from all the areas of the company. ERP is the battering ram that integrates all that information together in a single application, and SCM applications benefit from having a single major source to go to for up-to-date information.

Most CIOs who have tried to install SCM applications say they are glad they did ERP first. They call the ERP projects “putting your information house in order.” Of course, ERP is expensive and difficult, so you may want to explore ways to feed your SCM applications the information they need without doing ERP first. These days, most ERP vendors have SCM modules so doing an ERP project may be a way to kill two birds with one stone. Companies will need to decide if these products meet their needs or if they need a more specialised system.

Applications that simply automate the logistics aspects of SCM are less dependent upon gathering information from around the company, so they tend to be independent of the ERP decision. But chances are, you'll need to have these applications communicate with ERP in some fashion. It's important to pay attention to the software's ability to integrate with the Internet and with ERP applications because the Internet will drive demand for integrated information. For example, if you want to build a private Web site for communicating with your customers and suppliers, you will want to pull information from ERP and supply chain applications together to present updated information about orders, payments, manufacturing status and delivery.

What is the goal of installing supply chain management software?

Before the Internet came along, the aspirations of supply chain software devotees were limited to improving their ability to predict demand from customers and make their own supply chains run more smoothly. But the cheap, ubiquitous nature of the Internet, along with its simple, universally accepted communication standards have thrown things wide open. Now, you can connect your supply chain with the supply chains of your suppliers and customers together in a single vast network that optimises costs and opportunities for everyone involved. This was the reason for the B2B explosion; the idea that everyone you do business with could be connected together into one big happy, cooperative family.

Of course, reality isn’t quite that happy and cooperative, but today most companies share at least some data with their supply chain partners. The goal of these projects is greater supply chain visibility. The supply chain in most industries is like a big card game. The players don't want to show their cards because they don't trust anyone else with the information. But if they showed their hands they could all benefit. Suppliers wouldn't have to guess how many raw materials to order, and manufacturers wouldn't have to order more than they need from suppliers to make sure they have enough on hand if demand for their products unexpectedly goes up. And retailers would have fewer empty shelves if they shared the information they had about sales of a manufacturer's product in all their stores with the manufacturer. The Internet makes showing your hand to others possible, but centuries of distrust and lack of coordination within industries make it difficult.

Over the last few years most companies have gotten over the trust issue. In many cases “gotten over” is a euphemism for “have been bullied into sharing supply chain information from a dominant industry player.” Want to sell your goods in a large retail chain? Better be prepared to share data.

The payoff of timely and accurate supply chain information is the ability to make or ship only as much of a product as there is a market for. This is the practice known as just-in-time manufacturing, and it allows companies to reduce the amount of inventory that they keep. This can cut costs substantially, since you no longer need to pay to produce and store excess goods.

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