Introduction to Supply Chain Management

Abstract

Supply chain management is a vital course to every company, in which it keeps many major departments operating through careful planning and action. With that being said, this does not make up for one individual department, rather several departments working together. While researching supply chain management, it was discovered that there are several essential components which strategize and analyze several factors that apply to a company. It was also discovered that supply chain management can also be customized as it operates on different systems. In a given scenario, a hospital is seeking to improve its supply chain management. After analyzing a push, pull, and hybrid system, it was determined that a hybrid system would best suite the organization due to its complexity in both products and services being offered.

Supply chain management (SCM) can be applied to nearly every industry. Particularly for the healthcare industry, a local hospital is inquiring about the company’s ability to improve its logistics and supply chain while maintaining its customer value. It currently has a rudimentary, localized operation in place without an overall governance or strategy process in place. The company has requested an initial briefing on modern supply chain management techniques. For this scenario, understanding several method of SCM is presented as a basic understanding through essential components. Also, how SCM can be used through a push, pull, or hybrid system. Once the basics are understood, managers can determine the best method and how to implement it into the company's business practices.

To begin with, the company should understand SCM and what it does. SCM is the study, analysis, planning, and control of all the component processes associated with creating a product or service and distributing it to customers, (AIU Online, 2012). There have been several considerations that SCM is the same as logistics management, however this is only a part to a whole. Logistics management is responsible for activities related with the transportation of goods and/or service. On the other hand, SCM is much more broad as it is responsible for many duties such as: planning, vendors, supplies, customers, and strategies. Some also confuse operations management with SCM, but that form of management is more focused towards manufacturing and the company as a whole. Since SCM is so complex, that there are many tools and methods used. The essential components are planning, sourcing, manufacturing, delivering, and network return management.

The planning component develops a strategy to help manage sourcing, production, and logistics affiliated with products or services. During the planning phase, the plan should analysis the best opportunity for resources, necessary requirements, and how it will be implemented without interfering with current operations. Using the Theory of Constraints (TOC) can be an effective approach during this phase. A basic example for the planning phase is a manufacturing facility that has recently acquired a new production contract- new customer and new product type. Here the SCM will need to strategize a plan for the sourcing, manufacturing, and the delivery components.

The sourcing component is this process that requires the planning phase to be well established. This will determine supply sources for the company's products and/or services, as well as the associated schedule and payment plan, (AIU Online, 2012). In addition, the sourcing phase also manages an evaluation on supplier metrics and the company's current inventory. For an example situation, SCM may determine which supplier to use for a new acquired production contract on a new type of product.

Next is the manufacturing component. This component is based on scheduling actual production activities- production, staging, and testing of products and/or services. Production will also require managing the inventory and logistics necessary to complete and transport products and/or services to customers. Since testing is present, quality management such as ISO 9000 or Total Quality Management (TQM) could be included. An example for this component could be how SCM will schedule the prototype product into the current manufacturing processes (staging and testing) without conflicting the regular production goals.

The final components are the delivery and network return. For the delivery components, it works to deliver the order fulfillment to the customer by selecting the right transportation method and determine the best route. An example would be, if the new customer is located abroad and the manufacturing company needs to use international transportation methods to deliver the product (air or boat freight delivery). In addition, manage an electronic system that receives customers orders. During the network return component, this process manages a way of return for defective products. Typical methods used for this process include transportation, restocking, customer credit, and disposition of defective items, (AIU Online, 2012). Although this can become a very complex component, an example would be how a cellular company operates a customer service line for customers with defective products or errors in the cellular plan. If a product is defective and covered under warranty, SCM would be responsible on how to retrieve the product from the customer and how to send the customer a new product. In regards to errors in the cellular plan, SCM would manage how to implement credit into the customer account.

After understanding the basics and essential components to SCM, consider what systems to use, either being a pull, P\push, or hybrid system. To begin with, the push system, also known as Make-to-stock (MTS), places product upstream in the supply chain where it is required, ("Explaining Push and Pull Models", 2007). This most commonly occurs to ensure consumer demand is fulfilled prior to their order requests. This type of forecasting predicts the anticipated demand in efforts customers orders or to increase current inventory. Below is an example diagram for the operational flow to a push system:

Next is the pull system, which is also known as Make-to-order (MTO). The pull system is the exact opposite to a push system. As a push system builds up inventory before actual demand occurs, the pull system regulates production to occur only during which a customer order has been processed. This type of system can also be viewed as a Just In Time (JIT) manufacturing process, ("Push-pull manufacturing", 2008). Below is a example to a basic pull system:

Finally there is the hybrid system, that combines the use of both a push and a pull system. SCM managers may use the forecasting of a push system to determine what would be necessary to stock up on. On the contrary, products and/or services with an average or low demand may be utilized through a the pull system. Specifically for a hospital seeking to improve its logistics and supply chain, this would be the best system to implement into the organization. By analyzing the common relationships of patients aid, overall, this can help determine what is to be utilized as a push or pull system. For example, consider the most common problem a patient has are reparatory illnesses; by using a push system, the hospital can stock up on inventory and staff in order to aid each patient as often as possible. For potential patients with a rare cases of illnesses, such as a venomous snake bite, the hospital can maintain a limited supply of inventory and rush patients to other facilities if necessary. Also, in regards to the logistics, the hospital may want to analyze how often ambulances rush patients into the facility. Consider days may be more demanding than nights, then a push system could be applied during the day and a pull system at night.

In conclusion, SCM has many components and shouldn't be confused for one single department. The basic components to SCM, in order, are planning, sourcing, manufacturing, delivering, and network return management. Planning determines how SCM will be developed. Sourcing specializes in the supplies that will be used. Manufacturing prepares the production activities. Delivering is developed to transport products and/or services to customers. Finally network return management determines what to do in case the customer sends back defective products. Specially how SCM is operated, there can be a pull system where the company begins production once an order has been processed; or a push system, which increase inventory before an order has been processed; or a hybrid system combining both a push and a pull.

References

AIU Online. (2012). MGMT450: Unit 1: Supply Chain Management and Purchasing. [Course Materials]. Retrieved from AIU Online Virtual Campus. Production Planning and Quality Management: MGMT450-1204B-01 website.

Explaining push and pull models. (2007). Retrieved from, http://kongandallan.com/en/us_pdf/EPPS0711U.pdf

Push-pull manufacturing. (2008). Retrieved from, http://www.lean-manufacturing-japan.com/scm-terminology/push-pull-manufacturing.html

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