What is the essence of Supply Chain Management (SCM)?
During the nineties, several authors tried to put the essence of SCM into a single definition. Its constituents are:
- The object of the management philosophy
- The target group
- The objective(s) and
- The broad means for achieving these objectives
The object of SCM obviously is the supply chain which represents a “. . . network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumer” (Christopher, 1998, p. 15). In a broad sense, a supply chain consists of two or more legally separated organizations, being linked by material, information and financial flows. These organizations may be firms producing parts, components and end products, logistic service providers and even the (ultimate) customer himself. So, the above definition of a supply chain also incorporates the target group – the ultimate customer.
As Fig. 1.1 shows, a network usually will not only focus on flows within a (single) chain but will have to deal with divergent and convergent flows within a complex network resulting from many different customer orders to be handled in parallel. In order to ease complexity, a given organization may concentrate only on a portion of the overall supply chain.
As an example, looking in the downstream direction the view of an organization may be limited by the customers of its customers while it ends with the suppliers of its suppliers in the upstream direction.
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| Fig. 1.1. Supply chain (example) |
In a narrow sense, the term supply chain is also applied to a large company with several sites often located in different countries. Coordinating material, information and financial flows for such a multinational company in an efficient manner is still a formidable task. Decision-making, however, should be easier, since these sites are part of one large organization with a single top management level.
A supply chain in the broad sense is also called an inter-organizational supply chain, while the term intra-organizational relates to a supply chain in the narrow sense. Irrespective of this distinction, a close cooperation between the different functional units like marketing, production, procurement, logistics and finance is mandatory – a prerequisite being no matter of course in today’s firms.
The objective governing all endeavors within a supply chain is seen as increasing competitiveness. This is because no single organizational unit now is solely responsible for the competitiveness of its products and services in the eyes of the ultimate customer, but the supply chain as a whole.
Hence, competition has shifted from single companies to supply chains. Obviously, to convince an individual company to become a part of a supply chain requires a win-win situation for each participant in the long run, while this may not be the case for all entities in the short run.
One generally accepted impediment for improving competitiveness is to provide superior customer service. Alternatively, a firm may increase its competitiveness by fulfilling a prespecified, generally accepted customer service level at minimum costs.
There are two broad means for improving the competitiveness of a supply chain. One is a closer integration of the organizations involved and the other is a better coordination of material, information and financial flows (Lee and Ng, 1998, p. 1). Overcoming organizational barriers, aligning strategies and speeding up flows along the supply chain are common subjects in this respect.
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We are now able to define the term Supply Chain Management as the task of integrating organizational units along a supply chain and coordinating material, information, and financial flows in order to fulfill (ultimate) customer demands with the aim of improving the competitiveness of a supply chain as a whole.
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