Functions of the Supply Chain Management

So far, we’ve delved a little into the history and definition of Supply Chain Management (SCM) through previous articles. So, in this article, we’ll try to understand various functions which constitute the entire network of Supply Chain. You may roughly assume these functions as individual departments inside the umbrella of supply chain management, like the different departments you had in your college. It means, all the below functions which we’re going to discuss are subsets of supply chain and effective management of these functions is extremely important for an organization to be healthy and successful.

So, let’s start discussing various function in a supply chain management one by one. Before starting, let me warn you about something, you may find a different list in different websites/blogs while listing out various functions of the supply chain management. It is because, some Supply chain specialists tend to bifurcate any of below said functions further, for instance some website may define procurement, sourcing, and purchase as independent functions and some defines these functions as a single entity of procurement and supply management. This is particularly true when the complexity of Supply chain is higher. Having said that, the below list is sufficient for an introductory knowledge on this topic. So, let’s get to the business.

Demand planning and forecasting

No business would like to lose out to any competition, and no one can predict accurately what will happening the future. This is where demand planning and forecasting comes into play. Demand forecasting is the process of analyzing and assessing the future demand for a product and thus to provide input to shape a company’s strategy for the future. A near accurate demand forecasting is so vital as this will be the basis for planning resources and capacity for an upcoming time-period. A company would be planning for men, materials, and machines for an upcoming timeline based on the demand forecasting.

Demand planning and forecasting can be done through various qualitative and quantitative methods. Some of those widely used methods include; consumer surveys, trend projection, market analysis, expert opinion, etc. Since none of these methods can give you an accurate demand forecast for every industry, a demand planner in a company must employ the best method suited for the industry and keep the forecast updated frequently. Accurate forecasting helps a company to have an edge over its competitors by ensuring healthy cash flow and inventory levels.

Material Requirement planning

Material Requirement Planning or MRP is one of the key functions in Supply Chain Management. MRP helps an organization to plan for its raw materials and component it requires to build a product based on the customer demand or forecast The above simplified block diagram will give you an idea of how an MRP works.

As you can see in the block diagram, MRP derives the requirement from three sources, (i) Bill of Material of a product, (ii) Master production schedule or demand forecast (iii) Other inventory parameters decided (like current stock status, Safety stock or max stock level). MRP gives input to the procurement team on what materials are required and when it is required. It also provides input to the manufacturing team to plan and release work orders on time.

Procurement and supply base management

Procurement is the function which helps an organization to source, purchase and maintains its supply base. It comprises of sourcing, purchase and supply base management. Procurement team leads the discussion with a company’s vendor base regarding the price and delivery terms of various raw materials and components; place Purchase Orders (PO’s) to suppliers to ensure timely delivery of material; and manages and develops its supply base. The procurement team is so vital for an organization as timely communication and feedback can help an organization to have a high on-time delivery performance and keeping inventory under the optimum level simultaneously.

Manufacturing

Once you receive the raw materials, it’s showtime for the manufacturing team. Manufacturing is the function which transforms raw material into the product which can be sold to a customer. Manufacturing team would have already received manpower, machines, and would be equipped with infrastructure required to satisfy the demand forecast well in advance. Manufacturing team also receives the necessary documents from the technical or product design team to train every member involved in manufacturing the product.

Generally, the manufacturing team also consists of a Quality Assurance (QA) team whose duty is to ensure that the product meet all the customer demand. This will help to reduce rework/ warranty costs improving the profitability of the company. Also, the manufacturing department has the responsibility to continuously improve the production method by minimizing non-value-added activity to improve the efficiency of operation.

Inventory management

The main motto of any company is to increase profitability and to have a healthy cash flow. Though it is important to have enough inventory in hand to avoid stock-out or production loss, it’s a huge crime to have excess inventory due to two major reasons. First, having a huge inventory will reduce the cash in hand of a company as a company would have to pay to its suppliers to buy raw materials. Second, having excess inventory means a huge risk of obsolescence and shelf life damage. Due to these factors optimizing the inventory levels is a vital factor for the profitability of a company.

Inventory management is, in fact, the process of controlling and managing raw materials, semi-finished goods, and finished goods to maximize efficiency and profitability by reducing the inventory level to minimum possible levels. You may say the ultimate aim of inventory management is to ensure raw materials only Just in Time for production (though this is not quite practical in every case due to various reasons).

Warehousing

Once a supplier dispatches the material to a factory, it’s the responsibility of the warehousing team to receive, store, retrieve and distribute as per the requirement. They’re also responsible for the packaging, storage, and dispatch of finished goods once manufacturing team completes their action. In modern days, we’ve various automated and semi-automated material handling devices to increase the speed and accuracy of warehousing operations. There are also various Warehouse Management Systems which is linked to the company’s ERP (Enterprise Resource Planning) which helps to integrate and track various materials on real-time basis.

Transportation and logistics

Transportation and logistics is the function which connects various entities in the whole supply chain network. Once the warehousing team has packed the product ready to be shipped to respective customer, we’d need a mode of transport to carry the goods to customer factory. This is what transportation and logistics team does. They help in transporting various raw materials, components and even manpower from one location to another, for example, from supplier factory to distribution center, distribution center to the customer place, etc. In short transportation links various partners and stakeholders in a supply chain.

As the innovation in the field of SCM is touching its ever time high, more cost-effective and faster logistics model are coming into play. Today, various supply chains are interlinked through trucks, trains, ships, planes, pipelines, tunnels and combination of these. It is the responsibility of a logistics manager to design a cost-effective and fastest logistics model according to the requirement of his/her business.

Customer service operations

Do not confuse customer service operations with a general service business, for example, consultancy or IT service company. Customer service operations support the customer through after-sales service support and commissioning. They interact with various other functions of the supply chain like operations, manufacturing, procurement, logistics to obtain material, men and machinery to support a customer with the product your company sold. It’s vital to hold inventory of various materials which is critical for customer service support to help avoid downtime or sort out issues your product encountered after the sale.

Customer service operation is very vital for an organization as it can help a company get future businesses, bad service support may even lead to blacklisting of your company!

So, we’ve discussed a little about various functions of supply chain management through this post. If you’ve found this post useful, kindly share it among your peers. Please feel free to comment or contact me in case you wish to discuss the topic further.