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Supply Chain Management (SCM) involves the coordination of all supply activities of an organization from its supplier and delivery of products to its customers. Its essentially the optimization of material flows and the associated information flows involved with an organizations operations. Supply Chain Management (SCM) includes not only supplier and buyer, but also the intermediaries such as the suppliers suppliers and the customers
customers. It is the coordination of supply activities of an organization from its suppliers and partners to its customers. For most commercial and not for profit organization we can distinguish between upstream supply chain and down stream supply chain. An organizations supply chain can be viewed from a systems perspective as the acquisition of resources (inputs) and their transformation (processes) into products and services (outputs) which are then delivered to customers. Such a perspective indicates that as part of moving to e-business, organizations can review the transformation process and optimize it in order to deliver products to customers with greater efficiency and lower cost. The position of the system boundary for the SCM extends beyond the organization- in involves not only improving the internal processes, but also processed performed in conjunction with suppliers, distributors and customers. The process perspective has also a strategic importance that provides great opportunities to improve product performance and deliver superior value to the customers. As a result, Supply Chain Management can dramatically have an impact on the profitability of a company through reducing operating costs and increasing customer satisfaction and so loyalty and revenue. Upstream supply chain is the transactions between an organization and its suppliers and intermediaries, equivalent to buy side e-commerce. On the other hand downstream supply chain is the transactions between an organization and its customers and intermediaries, equivalent to sell side ecommerce. For the companies that have first-tier suppliers, second-tier and even thirdtier suppliers or first-, second- and higher-tier customers maintain a supply chain network. A supply chain network is the link between an organization and all partners involved in multiple supply chain.
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THE Physical Distribution Management (PDM) focuses upon the physical movement of goods by treating stock management, warehousing, order processing and delivery as related rather than separate activities. Although information systems were developed to manage these processes they were often paper-based and not integrated across different functions. However, some leading companies started using EDI at this time. PDM was essentially about the management of finished goods but not about the management of materials and processes that impacted upon the distribution process. PDM was superseded by logistics management which viewed manufacturing storage and transport from raw material to final consumer as integral parts of a total distribution process.
Material Requirement Planning (MRP) and Just-In Time (JIT) Logistics Management
The Just-in time (JIT) philosophy is still a relatively recent development of logistics management, its aim being to make the process of raw materials acquisition, production and distribution as efficient and flexible as possible in terms of material supply and customer service. Minimum order quantities and stock levels were sought by the customer and therefore manufacturers had to introduce flexible manufacturing processes and systems interfaced directly with the customer who could call an order directly against a prearranged schedule with a guarantee that it would be delivered on time.
Materials Requirement Planning systems were important in maintaining resources at an optimal level. The design for manufacture technique was used to simplify the number of components required for manufacture. However, none of the above methods looked at the management of total supply chain. An associated phenomenon is lean production and lean supply where supply chain efficiency is aimed at eliminating waste and minimizing inventory and work in progress.
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Effective management of supply chain involved much closer integration between the supplier, customer and intermediaries and in some instances involved one organization in the channel taking over functions that were traditionally the domain of the intermediary. Bottlenecks or undersupply/oversupply can have a significant impact on the organizations profitability. The two primary goals of supply chain management are to maximize the efficiency and effectiveness of the total supply chain for the benefit of all the players, not bust one section of the channel, and to maximize the opportunity for the customer purchase by ensuring adequate stock levels at all stages of the process. These two goals impact upon the sourcing of raw materials and stockholding. A recent phenomenon has been the rapid in global sourcing of supplies from preferred suppliers, particularly amongst multinational or global organizations. The internet will provide increased capability for the smaller players to globally source raw materials and therefore improve their competitiveness. The internet will revolutionize the dynamics of international commerce and in particular lead to the more rapid internalization of small and medium sized enterprise. The web will reduce the competitive advantage of economies of scale in many industries, making it smaller companies to compete on a worldwide basis. New integrated information systems such as the SAP Enterprise Resource Planning (ERP) system have helped manage the entire supply chain. ERP systems include modules which are deployed throughout the business and interface with suppliers. Technology ha enabled the introduction of faster, more responsive and flexible ordering, manufacturing and distribution systems, which has diminished even further the need for warehouses to be located near to markets that they serve.
rather than inventory. This stage has been taken a bit further by suggesting that customer information capture will sere customers rather than vendors in future. Currently customers leave a trail of information behind them as they visit sires and make transactions. This data can be captured and then used by suppliers and agents to improve targeting offers. However, as customers become more aware of the value of information and as technology n the internet enables them to protect private information relating to site visits and transactions, then the opportunity grows for intermediaries to act as customer agents not supplier agents.
Two prominent models are very widely used. They are illustrated below
Supplier Supplier
Manufacturer Manufacturer
Distributor Distributor
Retailer Retailer
Customer Customer
Supplier Supplier
Manufactur
Distributor Distributor
Retailer Retailer
Customer Customer
Renata Limited is following the pull model of supply chain as they are demand oriented and this model has been the strategy for many organizations.
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efficient and enabler and lower cost communications within the new structure. Supply chain management options can be viewed as a continuum between internal control of the supply chain elements and the external control of supply chain elements through outsourcing. The two end elements of the continuum are usually referred to as vertical integration and virtual integration.
Vertical integration refers the extent to which supply chain activities are undertaken and controlled within the organization. Virtual integration refers the majority of supply chain activities ate undertaken and controlled outside the organization by third parties.
Vertical Disintegration
Virtual
Characteristics: Total reliance on linked third parties. Close relationships with Suppliers.
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There was a general trend in during the second half of twentieth century from vertical integration through vertical disintegration to virtual integration.
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