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Supply chain management

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It has been suggested that Bullwhip Effect be merged into this article or section. (Discuss)

Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.

According to the Council of Supply Chain Management Professionals (CSCMP), a professional association that developed a definition in 2004, Supply Chain Management "encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies."[1]

Supply chain event management (abbreviated as SCEM) is a consideration of all possible occurring events and factors that can cause a disruption in a supply chain. With SCEM possible scenarios can be created and solutions can be planned.

Some experts distinguish supply chain management and logistics management, while others consider the terms to be interchangeable. From the point of view of an enterprise, the scope of supply chain management is usually bounded on the supply side by your supplier's suppliers and on the customer side by your customer's customers.

Supply chain management is also a category of software products.


Supply chain management problems

Supply chain management must address the following problems:

  • Distribution Network Configuration: Number and location of suppliers, production facilities, distribution centers, warehouses and customers.
  • Distribution Strategy: Centralized versus decentralized, direct shipment, cross docking, pull or push strategies, third party logistics.
  • Information: Integrate systems and processes through the supply chain to share valuable information, including demand signals, forecasts, inventory and transportation.
  • Inventory Management: Quantity and location of inventory including raw materials, work-in-process and finished goods.


Resolution to supply chain problems span Strategic, Tactical, and Operational levels of activities. SCOR is an operations reference model for supply chain promoted by the Supply-Chain Council.


  • Strategic network optimization, including the number, location, and size of warehouses, distribution centers and facilities.
  • Strategic partnership with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics.
  • Product design coordination, so that new and existing products can be optimally integrated into the supply chain.
  • Information Technology infrastructure, to support supply chain operations.
  • Where to make what and make or buy decisions


  • Sourcing contracts and other purchasing decisions.
  • Production decisions, including contracting, locations, scheduling, and planning process definition.
  • Inventory decisions, including quantity, location, and quality of inventory.
  • Transportation strategy, including frequency, routes, and contracting.
  • Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise.
  • Milestone Payments


  • Daily production and distribution planning, including all nodes in the supply chain.
  • Production scheduling for each manufacturing facility in the supply chain (minute by minute).
  • Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers.
  • Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers.
  • Inbound operations, including transportation from suppliers and receiving inventory.
  • Production operations, including the consumption of materials and flow of finished goods.
  • Outbound operations, including all fulfillment activities and transportation to customers.
  • Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers.
  • Performance tracking of all activities

The Bullwhip Effect

A new theory [2] suggests that the problem of supply chain management has focused on the supplier where it needs instead to focus on the consumer. Using the analogy of a freeway, traffic flow theorist Carlos Daganzo of the Institute of Transportation Studies at Berkeley found that failures in the supply chain tend to be caused by bottlenecks at the consumer end of the supply chain, which caused ripple effects all the way back to the supplier (the bullwhip effect). The just in time inventory strategy is an example of a strategy that addresses this problem of supply chain management, but it is, of course, not applicable at all levels of demand.

Supply Chain Management and inaccuracy problems

According to a survey conducted by Andersen (1996), on a typical afternoon in a U.S. supermarket, 8.2% of the items are out of stock and this number is nearly doubled for items that are advertised. The cost of stockouts in U.S. supermarkets alone are estimated a $7 to $12 billion of sales. In the same study, it was estimated that 33% of out-of-stock items are located in the store, just not in the correct location. Before being stored on store shelves, items pass through several processes which are the supply system, order preparation process and the shipment and the receiving process. Once received in the store, all products are initially stored within the backroom. Then, the shelf stock is replenished from time to time during the selling season as retail shelf space is limited. During these processes, execution errors that may occur would compromise the availability of products on shelves. One can distinguish two root causes of poor product avaiblity: i) One part of products ordered is not received by the store, ii) All products ordered are received but one part is not available on shelf due to internal store execution problems. In the second case, The store may be out of stock of a product, when in fact the product is available in the back of the store or is placed on the wrong shelf.[3]

See also


  1. ^ Council of Supply Chain Management Professionals: CSCMP Definition of Supply Chain Management.
  2. ^ The Beer Game and the Bullwhip
  3. ^ Inacuracy problems in SCM

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