Supply Chain Management – Definition, Types, and the Process of SCM

In Business Skills, Management Skills
The Process of Supply Chain Management

One of the main cores of Supply Chain Management is the Distribution. Distribution is a part of the supply chain, in which it’s the activities of moving goods or services and its ownership from one place (from a factory to a distributor center or from a distributor center to retail or agents) to other places. Meanwhile, the most common problem in a distribution is the management of the supply of finished products at each distribution spot.

Commonly, the main activity in the manufacturing industry is to convert various raw materials and their supporting materials become finished goods and distribute them to the customers. Basically, by carrying out such activities, so the Supply Chain has been formed. But for a manufacturing company, Supply Chain activities require a professional management in order to be effective and efficient in the implementation. Such management is usually called Supply Chain Management which is often abbreviated as SCM.

The Definition of Supply Chain Management (SCM)

Explicitly, Supply Chain Management (SCM) refers to a series of activities that include coordination, scheduling and controlling procurement, production, inventory and delivery of products or services to the customers that include daily administration, operations, logistics, and processing Information from customers to the suppliers.

To simply define, Supply Chain Management is a mechanism that connects all parties that are concerned and the activities that are involved in converting raw materials into finished goods. The concerned parties or the involved activities are responsible for delivering finished goods of a production to the customers at the right time and place as efficient as possible. So, when a company comes to make an efficient Supply Chain Management, it is wise to identify the 7 wastes in lean manufacturing.

Basically, Supply Chain Management is a management branch that involves manufacturers, logistics providers, and customers.

Types of Distribution in Supply Chain Management

There are 2 types of distribution in Supply Chain Management, including:

Pull Distribution System

The implementation of pull distribution system is suitable in a condition with a high flexibility and supply that has a little limitation. An example of pull distribution is DRP (Distribution Requirement Planning). In the DPR pull distribution system, the center of the point is the customer. As an illustration, in a large demand from customers, the end of the on-demand distribution will be the need for procurement on the distribution over it. At this level, the requirement must be fulfilled by the level of distribution over it (e.g. agent) until to the distributor level, the main distributor, and most last is the manufacturer.

Push Distribution System

The implementation of Push Distribution System is suitable for a condition where the capacity or supply is limited. The determination of the number of the products is executed by using a Fair Share Allocation technique. Such way, the determination of the quantity and delivery time is executed in the central (manufacturer or major distributor), in which the center of the distribution is at the Factory.

Read also: Types of Supply Chain Management

The Process of Supply Chain Management

Customer

Basically, the customer is the first chain who gives the order, especially OEM-oriented companies (Original Equipment Manufacturer) in most manufacturing industries. The customer decides to purchase the product of the concerned company by contacting the company’s sales department. In the customer order, there are some basic important information points such as Product Delivery Date and the amount of the goods.

Planning

After the customer made the order, the Planning Department will prepare a Production Planning to produce the required products. At this stage, the Planning Department is also aware of the need for raw materials and supporting materials in producing the product.

Purchasing

After receiving the Production Planning, in this case of the need for raw materials and the supporting materials, the Purchasing Department shall specify the raw materials and supporting materials and place the order and assure the date of the receipt and the amount required.

Inventory

At this step, the Factory Department of the manufacturing company checks the accuracy of the quality and quantity of the raw and supporting materials that have been received, and then store them in the Warehouse for before using them in the production stage.

Production

The Production Department will use the raw and supporting materials to carry out the production process to meet order quantity of the customer. Then, the finished goods are stored in the warehouse and ready to be delivered to the customer in accordance with the specified schedule and requirements.

Transportation

Shipping Department will arrange the time of the departure of the finished products from the Warehouse in accordance with the schedule that is determined by the customer.

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