OPINION

Supply Chain Management for Beginners

March 13, 2006
Rajiv Renganathan

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.

Related Article:
Supply Chain Management for Beginners - Part II

Rajiv Renganathan is the founder of DealMaadi.com that helps shoppers find and share the best shopping deals across India. He blogs at rajspace.net.
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Supply Chain Management for Beginners

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Author: Rajiv Renganathan

 

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#1
Ashwini
March 13, 2006
11:47 PM

hey...thats an awesome way to describe SCM for beginners like me .... now i will defn do more thinking during my coffee/newspaper reads!

#2
Wasabi
March 14, 2006
12:00 AM

This is too simplistic a definition of Supply chain management and not representative of current global supply chains or JIT practices - hopefully the author will expand in future articles

#3
Rajiv Renganathan
URL
March 14, 2006
12:03 AM

Wasabi,

Yes. That was the intention to keep it simple. I will expand that in future to emphasis the challeneges, importance and complexities of supply chains.

#4
Sajay
URL
March 14, 2006
12:04 AM

I see something in the making.
SCM has facinated me and yes your picture is quite similar to what I had in mind too

#5
vishnu
March 14, 2006
07:20 AM

good article...its "SCM retold in language of common man"

#6
Phaneesh
March 15, 2006
06:35 AM

Too simple and good article for people to know what SC means! and great idea for them to think initially that how fascinating the SC process is..just by taking simple example of what they see daily in their life.

#7
Sundarrajan Govindraghavan
URL
March 16, 2006
11:05 PM

An excellent intro for starters like me. Also would like to have a glossary of terms frequently
used in the industry.

#8
Upendra N Shanbhag
URL
March 16, 2006
11:17 PM

Its a good one, but you could add more info on this. Expecially if it is added with pictures and process flow diagrams, that would help the reader grasp faster and better.

#9
Rajiv Renganathan
URL
March 19, 2006
03:03 PM

Sundarrajan, Upendra,

Thanks. Though I plan to write a part II to take this to next level of detail I dont think I will go the extent of glossary or flow diagrams. Focus is on "awareness" (and the education which may come with it) and not directly "education".

Am sure you can find a lot of other resources on the net. My favourite is http://logistics.about.com/

#10
Rajesh Patil
March 21, 2006
01:30 AM

Rajiv,
This is very good article that make the concept of SCM very simple to beginners. Since you are planning to continue this article i feel that you should take each SCM entity and explain there roles in detail in the entire supply chain. Probably you can start with SCM activities at the retailers and then go back to wholesaler/distributor uptill supplier.

Anyways this is good initiative and keep up the good work.

Rajesh

#11
Rajiv Renganathan
URL
March 21, 2006
12:06 PM

Thanks for comments and suggestions.

The part 2 is now up now @ http://desicritics.org/2006/03/21/114625.php

#12
bharath
URL
March 21, 2006
04:45 PM

A very simple description. However, SCM are called so because there is a chain-like linkage; a heirarchical transfer of information/goods. It helps keep the terminology fixed in mind.

you haven't introduced retailer in the chain, but use it in the description of transfers. it can be confusing.

also SCM is mainly supply of information, and around how the planning between levels is organised. Money does not enter SCM, except through contracts and negotiations between linkages, which really does not affect how flow of information is managed. and neither does SCM dictate how production or planning at each linkage has to be done, but that how given planning or production are done at the linkages, the flow of information and planning between linkages can be managed in the best way.

So the main problem of SCM is not the chain which in the description above looks unidimensional:

A warehouse has many retailers to supply and the stocks at retailers all lost for varying periods of time and need to replenished with various frequencies. Hence, when to ship? How much to ship? becomes harder to decide. *This* is what makes information hard to manage and makes planning between linkages harder.

Now there is a lot more to it. But then it is easier to draw out the essence of the problem, than to make it appear complex, when it really is not. :)

Its not really about coffee in your hands, its about how every time you go to a shop and ask for coffee, it is *there*. almost always.

#13
Saranjit
URL
March 21, 2006
11:12 PM

A lucid and interesting description of Supply Chain. Quite apt for beginners. Hope to read Part II soon.

#14
Niran
March 22, 2006
08:18 AM

Nice one Rajiv !

#15
Sam
March 22, 2006
11:01 PM

A very good n simple article for an non SCM non IT person to SIT UP and try to visualize understand,assimilate and appreciate the effort that goes into delivering a Product to the customer.
One should not discount the fact that information coming from SCM is ONE of the important channels where one gets to understand the buying pattern of the customer thus evolving stratgies for their marketing campaigns.
Good One Maite....Keep following the KISS principle of explaining things... Looking forward for more articles from you...

#16
Manish Dalal
April 3, 2006
12:00 AM

This article is good one, this gives basic knowledge to beginner abt SCM ,from this even non tech guy also understand what is SCM.

#17
Teen
URL
May 21, 2007
05:10 PM

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#18
rita
URL
July 12, 2007
06:15 AM

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#19
S Ramakrishnan
July 12, 2007
06:51 AM

The article didn't seem to add anything beyond the obvious.. any kid would have figured out on his own if he had visited any factory.

Of late, there has been a flooding of buzzwords like "supply chain management" (a fancy term for procurement), "retailing", "business process", "branding" etc, for mundane tasks that have been carried out for decades by most Indian companies, large and small, but without any fancy terms. I think such hype has been deliberately been introduced by IT and certain other folks for various ulterior reasons. I, for one, don't buy into all this nonsense. To give an example, the family run provision store I patronise seems to have all the stuff I want at all times compared to many Food World outlets many times its size, where many items would be out of stock most of the times. Of course, the family run store loses out because they cannot afford to advertise that they are into "retailing", "cold chain" etc like RPG or Reliance.

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