To understand the basic rules of Supply Chain Management (SCM) , we firstly need to understand what is a supply chain. Actually, we can think about supply chain with visualizing a group of organizations that are aimed to produce a final product to sell it to the end-user and increase the profits with the help of the successful communication between each other.
A supply chain starts from a supplier and end with the end-user, in other words the customer. Within those points, it is required to have the manufacturer of the product and distributor of that product to deliver it to the customer. So, a fundamental supply chain consists of at least a supplier, a manufacturer, a distributor and a specific customer group that can consume the finished product and satisfy from using the product or service.
Of course, the management of the relationship within the whole supply chain became an important figure for the managers to increase the business process between collaborators and the profits. The aim of using SCM methods is to get the right materials from the right place at the right time within an acceptable cost and quantity. The a company can provide those conditions within a supply chain, it can be interpreted as an effective supply chain for that company to increase the profits.
As the SCM becomes important within and between the companies, SCM software applications started to be used in organizations. Some organizations have been using SCM system as a major application and some of them decides to use it as a component of a major ERP system that is integrated already. It depends on the type of the business process of a specific company to select on of these options, however, SCM also requires the data that especially comes from the customer.
Because of that, SCM systems are designed to take the data from legacy systems and use this data to evaluate decisions and make the customer demand forecast. Because most of the big companies has an integrated ERP system on those days, the SCM is directly related to the ERP and CRM to get the information of customers of the company. So, CRM is the major component as a collaborator with SCM. It is important because all the supply of the components of the product or service is directly depends of the customer demand. To estimate the demand correctly, SCM uses the customer information and forecasts the demand with the help of it. If the communication between CRM and SCM is not efficient, the forecasting can be a huge problem for the company. If the ERP system that is integrated to the company covers all the components like CRM, SCM and other requires functions, the communication between all the other components of ERP and SCM will be very efficient; not only with CRM, also with Finance Resource Management (FRM), Manufacturing Resource Planning (MRP), Human Resource Management (HRM) and others.
There are five basic stages that explains how SCM works.
- The planning stage is to identify the most appropriate strategy for the product that is demanded by the customer. This is the most important part, if the planning phase does not cover all the details of the strategic movements of the product or service, producing that product can increase the costs.
- The development phase of the SCM is to find the appropriate suppliers and allow them to provide the required supplement fo r a product.
- The other phase is making the product. It actually covers the main production process to create an efficient product for the customer.
- The delivering phase is all about the logistics movements of the product. The product is delivered to the necessary location so that the customer can achieve to the product and buy it.
- The return phase is also important. There may be some problems about the product and customer may not be satisfied about that; to handle and solve those problems, return of defective product and providing a new one is necessary.
Key Features of SCM
Inventory Management: For companies that has SCM application can manage the inventory transactions so that they can see the status of required raw materials and spare parts of product. With this way, they can activate the necessary orders in order to provide full supplement during the manufacturing process. The Inventory management directly allows companies to reduce inventory costs.
Order Management: Companies that has SCM software also can manage and monitor the status of the orders that are being delivered from the suppliers so that they can directly get real-time information about where the order is and when it will be arrived.
Procurement: SCM software also allows companies to automate the sourcing and purchasing processes in order to meet the demand of the customer.
Logistics: With the information that is managed and monitored from the SCM software, companies can increase the customer satisfaction with showing the real-time status of the product and where those products can be found and bought.
Forecasting and Planning: The forecasting is very important for companies that are aimed to increase the efficiency of the business processes between its’ collaborators with using a specific SCM software. After estimating the total customer demand, the managers can get into the planning stage to provide the enough quantity of product to satisfy the customer.