Supply Chain Management

The automation of the enterprise systems reaches a high point with ERP solutions. Even after ERP implementation an organisation can see its system lines extending beyond-- towards its suppliers up the line and the customers down the line. It is only logical then to integrate the suppliers into a system made efficient with ERP implementation. Which is how supply chain management (SCM) came about.

The implementation of ERP is leveraged and taken to its logical extension by optimising the supply chain. By integrating an external entity and its factors within the system, SCM extends the decision support capability of ERP.

SCM came about as a result of a felt need among companies to integrate their internal resources and efficient systems with their external ones to have a competitive advantage in terms of shorter product life cycles, inventory control, real-time decision making and efficient customer response. SCM integrates organisation functions, diverse and divergent data centres across the companies to make a seamless and open system.

Supply chain management allows the organisation to integrate the supplier-centred processes within the framework and manage it efficiently. SCM gives a competitive advantage by tracking the flow of materials, foreseeing delivery schedule problems, reducing inventory and cycle time, improving customer delivery time, improving order processing and thereby the direct cost of the product. This makes it a must-have for JIT (just in time) practitioners.

SCM is a software solution that provides companies the systems and technology to use information and help decision-making across the entire chain of suppliers. It includes the company and its multiple suppliers and reflects the complex demand/ supply relationship between them. This means that relevant data has to be transported across the network within and outside the organisation. Ideally, a SCM should support a heterogeneous environment and application platforms, standards and messaging technologies. Key to SCM would be forecasting and demand planning tools to allow companies to keep pace with changes in demand and to give accurate forecasts. The major tools available in a SCM are(These are also some of the common modules available in different SCM applications) :

Demand Planning- This is a forecasting and demand planning tool to enable companies to keep track of demand fluctuations and produce accurate demand forecasts. This helps create a better demand plan by studying the causal, promotional, life cycle or any other effects of demand and hence better utilisation of assets.

Supply network planning and deployment-synchronises the market demand with sourcing and production activities to plan the flow of material through the supply chain network. This helps to optimise the distribution network resulting in minimised inventory levels, shorter response and lower costs. It can help to make optimised distribution plans, taking into consideration the constraints and rules of the business.

Production Planning and Scheduling- Creates optimised production schedules to ensure a smooth flow of resources. It can foresee the impact of a change in the production schedule on related processes. This helps minimise delay, improve resource utilisation and reduce 'work-in-progress'.

Some of the major SCM application vendors are:

i2 Technologies (named RHYTHM), QAD, Manugistics, American Software, Logility, Peoplesoft, SAP(named SCOPE) and Oracle.

How Different is SCM from ERP-While it is true that an ERP application can run and manage supply chain activities, there are a few things which will spell out the difference.

An ERP application is centred around the company where it is implemented and can only manage the transaction of that enterprise. ERP solutions cannot manage multi-company transactions that the supply chain model would involve. The demand forecasting modules in ERP packages cannot accept an out-of-turn parameter since their basic structure is rigid and sequential. Such drawbacks in ERP are overcome in SCM applications. Besides, SCM applications are easier, cheaper and take less time to implement. But the good thing is that SCM applications can easily 'sit' on existing ERP solutions.

The benefits of in terms of reduced inventory and cycle time are quite remarkable, with upto 25 percent in some cases. The inhibiting cost factor has restricted SCM to a very elite list of corporates in India like Timken Steel, Arvind Mills, Thermax, Ranbaxy, Bombay Dyeing and Hindustan Lever (not a comprehensive list).

What next? With the supply chain in control, it is the turn of the customer end to be automated. The extended supply chain gives a complete control of the flow of goods from raw materials supplied by vendors to the company and moving out as finished goods to reach the customer ultimately. The extension to the customer end is natural given that most companies have ERP applications in place and as such do not enjoy any competitive edge over the other. It had to come from including the customer in the chain and becoming more responsive to their requirements.

This is the concept of the extended supply chain management. Besides, the growth of e-commerce holds immense possibilities for SCM as it can bring together the supplier, the customer and the company like no other.