Supply Chain Management involves the flow of materials, information, and finances as they move in a level process from supplier, to manufacturer, to wholesaler, to retailer, and finally to the consumer. SCM involves coordinating and integrating these flows among all companies involved. Each level of the supply chain is described as a “tier.” There can be several tiers beneath the final supplier.
In the example given, materials flow downstream through a manufacturing level (tier) transforming the raw materials, which are the components or parts. These are assembled on the next level to form products. The products are shipped to distribution centers, and from there on to retailers and customers.
Logistics Management is the part of SCM that efficiently plans, implements, and controls the delivery and storage of goods and services.
Supply chain management flows can be divided into three main flows:
There are three levels of decisions associated with SCM:
The following five steps are typical purchase procedures:
Focusing on certain areas within the supply chain can reduce costs. There might be times when buying in bulk is cost effective. JIT, FIFO and LIFO will be discussed in the following Inventory Management section of this lesson.
Manufacturing Resource Planning (MRP) as part of SCM can help plan and determine the supply needs and timelines for new manufacturing processes in order to predict product delivery schedules, and respond to changes in the market or product. It is a software based production planning and inventory control system used to manage manufacturing processes. The three major objectives of MRP are:
Sophisticated software systems with Web interfaces are competing with Web-based Application Service Providers (ASP) who provide SCM service for companies who rent their service. A number of major Web sites offer e-procurement marketplaces, which is the business-to-business purchase and sale of supplies and services over the Internet. Manufacturers can trade and even make auction bids with suppliers.
The five basic Supply Chain Management steps are:
· FOB (Free On Board) Factory Pricing where the buyer bears the shipping cost.
· Freight Absorption Pricing in which paying some of the transportation costs are in line with competitors.
· Uniformed Delivery Pricing in which a standard price is set no matter the location.
· Zone Pricing in which you charge different prices for different geographical locations.