Supply Chain Definition

1. Definition

What difference between Logistics and "Supply Chain"?

Logistics was traditionally the activity of supplying products from the manufacturing plant or supplier to the final customer. It is now included in the "Supply Chain Management" or SCM concept which objective is to optimize the physical, administrative and information flows management along the logistic chain from the supplier’s supplier up to the customer’s customer.

It is present at all company’s levels; at operational level –for the products physical flows management– at the tactics level– organizations definitions and medium-term flows management– and at a strategic level – long-term orientations definition-.

To plan all company’s activity; products purchasing, manufacturing and distribution, by respecting the customers requirements, such could be a synthetic definition of the “Supply chain” optimization.

“Supply Chain” is neither a company’s function, nor a 3PL contracted logistics service or an IT application, it is simply a process which purpose is to assure a management and a synchronization of all processes which allows a company and its suppliers (tiers 1, … , n) to take into account and to answer final customers expectations.

“Supply Chain” contains all the activities associated products flows and transformations, from raw materials up to the finished product delivered to the final customer, as well as the associated administrative and information flows.

The SCM or "Supply Chain Management" is then the integration of these activities. It represents a competitive advantage for the company by placing the customer’s satisfaction into the system’s core.

Warning:

The word " Supply Chain » is very often employed in an abusive way. For example, to name a company’s logistics even if the function is neither global, nor transverse.

The word " Supply Chain » is used by 3PL which realize warehousing services: stocking, orders preparation. They pretend to have a “Supply Chain” activity. It is only true if these services are fully integrated into a global system and if the used information system is interfaced with the customer’s order system (upstream) and system used by the carriers (downstream)

1. Objective and Stakes

1. Objectives

Adjust stocks at all levels possible, improve products availability’s flexibility and reactivity and use in an optimal way logistics and manufacturing means. As the optimization is global, small gained percents on enormous volumes lead to very significant financial earnings.

1. Stakes

    

• Fulfill customers expectations: the organization flexibility and the lead-time reliability are the key to customer’s satisfaction,
• Costs reduction: physical and information flows integration, from the sourcing point up to the customer, reduces the global logistics chain cost,
• Optimize the assets use: by creating a real link between the company’s processes, assets are better used (human resources, equipments, raw materials, outstanding flows, finished products).

1. Structure

1. Strategic

Products and services offer definition

Industrial and logistics tool dimensioning

Contracts negotiation, partnership with suppliers and customers.

1. Tactics

Sales forecasts

Planning, programming and needs calculation

Supply and inventory control rules

1. Operational

Customer orders management

Operations organization and aleas management

Orders execution: manufacturing, distribution and invoicing

The key to the success lies in the coherence of tools, processes and daily practices within the “Supply Chain” strategy defined by the company.

1. Information Systems

Among the Supply Chain tools, we find three big types:

• Planning (SCP = Supply Chain Planning)
• Execution (SCE = Supply Chain Execution)
• Measurement (SCEM = Supply Chain Event Management)

These types of applications have very different functions:

• SCP applications aim at planning the logistics chain processes.

• SCE applications or tools allow managing the logistic operations execution (Purchasing, supply, manufacturing management, materials stock management, outstanding flows, finished products, transport operations management). In SCEs we can find:

• MES for manufacturing (Manufacturing Execution System)
• WMS for warehouses management (Warehouse Management System)
• TMS for transport management (Transport Management System)
• OMS for orders and sales management (Order Management System)
  

• SCEM’s applications will help to manage and control the logistics chain

Actors on this market are numerous: there are big editors of ERP (enterprise resource planning) for SAP, PEOPLE SOFT, Manhattan associates, IBS, ORACLE …

Those integrate more or less sophisticated logistic functions and globally cover basic needs.

We also find other very specialized actors, very strong on a specific SCE tool and who have integrated by internal development, purchase or alliance other Supply Chain modules. SAP for example which was originally designed for strategy and planning also turns now to the execution.

Many of these specialized tools have developed interfaces with major ERPs.

1. Implementation steps

We can distinguish 5 steps of implementation:

Step 1-Independent logistic functions: in your company the manufacturing, the transport & storage function work in an almost independent way each one of them with different objectives

Step 2-A transverse logistic function: an industrial logistics and a distribution logistics with a logistic manager creating synergies between both entities

Step 3- Integrated Supply Chain in the company: the company has developed processes and tools to integrate into a coherent process all internal ramifications of its logistics.

Step 4- Extended Supply Chain management: the SCM is widened to the customers and to the suppliers with whom you share real time information for your logistics various functions.

Step 5- Common Supply Chain: the company uses means in common with customers and suppliers, even with competitors in the same interests’ community

Establishing an effective Supply Chain management is to integrate and optimize the following activities:

• Orders forecasts,
• Requirement Planning ( MRPII),
• Management of the logistic chain,
• Distribution management,
• Optimization of stock levels,
• Warehouses and locations management,
• Supplier relationship management,
• Purchasing and GPA management,
• Flows traceability.