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What Do You Need to Know about Supply Chain Management (SCM)?

The first thing one needs to understand is that SCM doesn’t replace what we’ve learned about management over the last 50 years; it builds upon it. The analogy that a chain is only as strong as its weakest link holds here as well. Organizations must first be able to provide quality products or services in a timely, cost-effective manner if they want to tackle broader supply chain issues. Therefore, programs such as Total Quality Management, Just-in-Time manufacturing, concurrent product development, and the like are just as relevant today as they were in the past. In fact, it’s interesting to note that many of the firms that have emerged as SCM leaders had already established their reputations in other areas beforehand.

The second thing to understand about SCM is that it often requires significant changes in the firm’s organizational structure. SCM issues cut across functional areas and even business entities. Therefore, the responsibility and authority for implementing SCM must be placed at the highest levels of an organization. Firms that attempt to imbed SCM within a functional unit (such as purchasing, operations, or logistics) usually have limited success.

Third, SCM requires firms to put in place information systems and metrics that focus on performance across the entire supply chain. This is because individual units that seek to maximize their performance without regard to the broader impact on the supply chain can cause problems. For example, a manufacturing unit’s decision to minimize its inventory levels may reduce delivery performance to the end user. Likewise, a distributor’s decision to chase highly seasonal demand may “bullwhip” its upstream partners, causing significant cost overruns. Putting in place the information systems and metrics needed to make intelligent decisions in the face of such trade-offs presents a significant challenge to supply chain partners.

Finally, SCM adds another layer of complexity to a firm’s strategy development efforts. Years ago, firms could succeed by being particularly good in one functional area, such as marketing, finance, or operations. Then firms recognized that they had to have sufficient capabilities across multiple functional areas in order to survive. Nowadays, much competition occurs between multi-firm supply chains, not just between individual firms. In addition to their debates about functional- and business-level strategies, then, managers must now address how they will partner with other firms in order to compete.