Supply Chain Management for beginners (1)

Filed in archive Basics on April 8, 2006

(Note: I got the honour to know this wonderful guy, Rajiv Renganathan from Manhattan Associates, and he provided me with some easy to understand basic articles about SCM which he had written. I thought it's good to publish them in SupplyChainer to address needs of general audience. Here you can read the first part).

What is the first thing you do every morning? Brush your teeth, read the newspaper, enjoy a coffee? Have you thought how do the tooth paste you use, the paper you read or the coffee you drink reach you? If you think about it, you will realize the complex world that exists around you. Toothpaste, newspaper, coffee - They all are different things, but they all go through similar processes to reach you. They all originate in some form at a source, go through a series of steps, each step adds value which gradually transforms them into a product. It is this product which reaches a consumer like you and you pay for the product.

Since I love coffee, let's pick the coffee example. It all starts from the coffee estate. The estate owner sells his beans to a bean processing unit and in turn gets money. The bean processing units roast and crush the beans into coffee powder. They purchase chicory from another source (ED: Only in India) and blend them in different proportions. These are packed and shipped by a transport company to the company's distribution centers. The distribution center will then ship them to the wholesaler. The wholesaler. through his distribution network ensures the coffee reaches the shelves of shopping malls which are now available for consumers to purchase the product. Similarly, the newspaper and toothpaste go through their own sequence of steps to reach you. Generalising the concept, it is a series of activities by various parties which move the goods from source to consumption.

Is it only movement of goods?

You pay for the product, the retailer pays the wholesaler, and the wholesaler pays the manufacturing company. Hence it is also transfer of money. That's not all. There is also a flow of information. The retailer informs the wholesaler that he is out of stock. The manufacturer informs his raw material supplier to delay delivery if the manufacturing unit does not want the raw materials.

Hence, it is goods, money & information- 3 key factors which drive a "supply chain".

A supply chain is a network of facilities which represents the flow of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Materials flow in the direction of the supply chain while fund transfer flow the opposite direction. Information flows in both directions.

The management of the goods, information, money and the co-ordination of the activities of the various entities involved is what is Supply Chain Management or SCM.

When you watch Kareena Kapoor and Priyanka Chopra advertise Pepsi Chino, what you do not see is the supply chain which ensures it reaches all the stores in the country on time. When you drop a empty bottle back into the crate, what you do not see is the supply chain which ensures the delivery back to the bottling plant. When India assures everybody that the health ministry has stockpiled 8 lakh tablets of Tamiflu (anti-bird flu drug), what they don't disclose is that they have also designed a supply chain which will ensure timely delivery at the right place at the right time without which the effort is of least benefit. Some of the quickest emergency assistance to victims of Hurricane Katrina did not come from the American Red Cross or FEMA. It came from Wal-Mart. It was Wal-Mart's SCM strategy and efficiency which played one of the key roles.

Enjoy your SCM-powered coffee, newspaper, toothpaste.

(Rajiv has published this article in Desicritics.orgon March 2006)