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What is supply chain management?

Supply chain management is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service, manufactures that product or service and delivers it to customers..

The following are five basic components for supply chain management: -

Plan - This is the strategic portion of supply chain management. You need a strategy for managing all the resources that go toward meeting customer demand for your product or service. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers.

Source - Choose the suppliers that will deliver the goods and services you need to create your product or service. Develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And put together processes for managing the inventory of goods and services you receive from suppliers, including receiving shipments, verifying them, transferring them to your manufacturing facilities and authorizing supplier payments.

Make - This is the manufacturing step. Schedule the activities necessary for production, testing, packaging and preparation for delivery. As the most metric-intensive portion of the supply chain, measure quality levels, production output and worker productivity.

Deliver - This is the part that many insiders refer to as "logistics." Coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.

Return - The problem part of the supply chain. Create a network for receiving defective and excess products back from customers and supporting customers who have problems with delivered products.

What does supply chain management software do?

Supply chain management software is possibly the most fractured group of software applications on the planet. Each of the five major supply chain steps previously outlined composes dozens of specific tasks, many of which have their own specific software. There are some large vendors that have attempted to assemble many of these different chunks of software together under a single roof, but no one has a complete package. Integrating the different software pieces together can be a nightmare. Perhaps the best way to think about supply chain software is to separate it into software that helps you plan the supply chain and software that helps you execute the supply chain steps themselves.

Supply chain planning (SCP) software uses fancy math algorithms to help you improve the flow and efficiency of the supply chain and reduce inventory. SCP is entirely dependent upon information for its accuracy. If you're a manufacturer of consumer packaged goods for example, don't expect your planning applications to be very accurate if you can't feed them accurate, up-to-date information about customer orders from your retail customers, sales data from your retailer customers' stores, manufacturing capacity and delivery capability. There are planning applications available for all five of the major supply chain steps previously listed. Arguably the most valuable (and complex and prone to error) is demand planning, which determines how much product you will make to satisfy your different customers' demands.

Supply chain execution (SCE) software is intended to automate the different steps of the supply chain. This could be as simple as electronically routing orders from your manufacturing plants to your suppliers for the stuff you need to make your products.

Do I need to have ERP software before I install supply chain software?

This is a very controversial subject. You may need ERP if you plan to install SCP applications because they are reliant upon the kind of information that is stored in the most quantity inside ERP software. Theoretically you could assemble the information you need to feed the SCP applications from legacy systems (for most companies this means Excel spreadsheets spread out all over the place), but it can be nightmarish to try to get that information flowing on a fast, reliable basis from all the areas of the company.

ERP is the battering ram that integrates all that information together in a single application, and SCP applications benefit from having a single major source to go to for up-to-date information. Most CIOs who have tried to install SCP applications say they are glad they did ERP first. They call the ERP projects "putting your information house in order." Of course, ERP is expensive and difficult, so you may want to explore ways to feed your SCP applications the information they need without doing ERP first.

SCE applications are less dependent upon gathering information from around the company, so they tend to be independent of the ERP decision. But chances are, you'll need to have the SCE applications communicate with ERP in some fashion. It's important to pay attention to SCE software's ability to integrate with the Internet and with ERP or SCP applications because the Internet will drive demand for integrated information. For example, if you want to build a private website for communicating with your customers and suppliers, you will want to pull information from SCE, SCP and ERP applications together to present updated information about orders, payments, manufacturing status and delivery.

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