SUPPLY CHAIN MANAGEMENT SCM An Introduction Supply Chain Management / Materials Management controls the procurement, storage, movement

t and consumption of materials that can be used by company for production processes. It has become a very powerful technique as it increases the responsiveness to the changing business conditions and enhances the competitiveness of the organization. Purchase management is the process that includes various responsibilities, such as buying quality goods in right quantity, from the appropriate place, at right time and at right price. Stores management includes various responsibilities, such as receiving the raw materials, protecting the materials from damage and spoilage and keeping the finished goods until they are dispatched. The Supply Chain What is Supply Chain Management? The Supply chain encompasses all of those activities associated with moving goods from the raw material stage through to the end user. OR SCM is the combination of art & science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers. Supply chain management today Company s supply chain management department functions Inventory management Procurement Transportation service Materials handling Warehousing management Customer service performance monitoring Order processing / customer service Importance of SCM Materials are the most important resources for any company since no goods can be produced without them. It covers various aspects of materials and supplies the necessary materials when required for converting them into finished products. The basic task of SCM is to improve the productivity of materials. The Supply Chain

Supply Chain Management Procurement Cycle Integrated approach to SCM / MM Materials planning Determines the needs of the consumers in advance, translate sales projection into production requirements & makes accurate estimation of materials that are required for production. Make-or-buy decisions Decides what items can be produced at the home plant and which should be obtained from the outside sources based on the total cost available for production. Purchasing Provides constant supply of RMs, parts, components & consumables to meet the target of the production. Receiving & inspection Collects materials & inspects them to ensure their quality. This helps to decide whether the materials should be accepted or not for further production. Storage Provides right place to store materials, uses proper methods of preservation & also provides proper security against theft & malpractices. Inventory control Maintains optimum investment in inventories and also ensures supplying materials, which are required for the production, at the right time. Distribution of materials Ensures the fastest & efficient supply of materials to the customers. Ensures efficient transportation of incoming and outgoing Transportation materials. Disposal of obsolete and scrap materials Analyze the requirement of materials and select the most economical channel to dispose off the materials. Developing new sources of supply Locate, select and develop new sources to supply materials for improving the product quality and reducing the total cost of production. Import substitution Reduces purchasing cost by developing native sources of supply for imported materials and therefore, saves foreign exchange. Materials research Analyses all the factors such as economic analysis, market analysis, price analysis, transportation analysis, lead-time analysis etc. that affects the functions of the SCM / MM. Minimizes the wastages of materials by determining the Waste management causes for rejection and scrap of materials. Methods for Improving Forecasts Objectives of SCM / MM The basic objectives of SCM / MM in an organization are: Maintains steady flow of materials to ensure that the production of the products does not get interrupted.

Adopts cost reduction techniques like MRP and value analysis to manage the total cost required in proper management of materials. Provides right materials, of right quality, in the right quantity and at right time to ensure the production of high quality product. Implements scientific inventory control techniques to reduce inventory investment. Maintains records of purchase, stores etc. Preserves stocks so that any loss of material caused due to deterioration, pilferage can be kept at minimum. Improves producer-consumer relationship by producing high quality products. Improves firm s strength in the market by producing the best quality products at the lower possible cost. Minimize wastage of materials and therefore reduce operating cost. Disposal of surplus materials that are not required for the production process. Functions of SCM / MM The main function of the SCM / MM is to obtain and control all the materials and items required by organization. Planning & Programming of materials It determines the needs of the consumers in advance and makes exact estimation of various materials that are required and the time when they are required for production process. Purchasing of materials It ensures the uninterrupted supply of materials to achieve the goal of production. Purchasing of materials should be always done after market research. Inventory control It maintains the sufficient inventory level of materials to meet customer needs. It also enables an organization to determine an appropriate inventory level by keeping in mind the carrying inventory level. Store keeping It manages the physical storage of materials, since it is required to store the materials until they are not consumed or sold. It is the responsibility of the materials management to receive, store, move, and issue materials until they are not consumed. Stores accounting It maintains the records of materials to determine the reorder level. This helps a storekeeper to order the materials when the stock reaches the reorder level. Transportation It manages the proper handling and transportation of incoming and outgoing materials. Materials economics It helps reduce the cost incurred while purchasing, tendering, packaging, handling, moving, storing and inspecting materials. Utilizing various cost reduction techniques such as value analysis, variety reduction, CPM & MRP help in reduction of materials cost.

Waste management It minimizes the wastage of materials by determining the causes for rejection of materials. Cost Involved in SCM Basic Cost of materials paid by a company to a supplier. Government levies & taxes Cost paid to the gov. i.e. excise duty, sales tax etc. by a company. Ordering Costs such as tendering, stationery, postage, receiving, inspection & bill payment, staff & delivery that incurred while purchasing. Inventory carrying Costs such as losses due to deterioration of materials, insurance premium & storage & preservation expenditure that incurred for maintaining inventory of materials. Packaging Cost that incurred while packaging the products. Materials handling Cost that incurred while moving & storing the materials. Shipment Cost that incurred while transporting materials from suppliers to buyers. Insurance Premium cost that incurred for insuring materials. In addition to this cost, there are certain costs that occur due to the defects in designing product, poor quality of material, rework & rejection of product during inspection. Benefits of SCM / MM Since all the activities regarding SCM / MM are placed under MM department Co-ordination between them is much better. All data related to the materials are collected & analyzed at one place. It helps to take optimal decisions & maintains right balance among various conflicting issues. It helps to the reduction of the cost of materials. Improves the relationship with other depart. staff, as the staff from other departs are not required to solve the materials related problem. Supply Chain Management Key Issues Manufacturing Strategy The important tasks involved in manufacturing strategy are Division of business into several product families. Examination performed by market, competitor & stakeholder in order to establish the organization objectives. Determination of the existing competences & capabilities of the organization. Examination of resources behind these competences. Determination of variation between desired objectives & current performance & activity.