Finding a common definition of SCM (supply chain management) can be as nebulous as describing color to a blind person or sound to a deaf person. Because "supply chain" has aspects unique to each company, its definition is easily taken for granted in its everyday use. The supply chain constitutes a different reality for the SME (small to medium enterprise) compared to the Fortune 500 company, for example. For the former it may represent a few suppliers, a couple delivery people, and a handful of customers. For the latter, however, it may also include distributors, outsourced contact centers, and even customers. To add to the difficult task of defining SCM, some niche vendors have positioned their WMSs (warehouse management systems) or TMSs (transportation management systems) as supply chain management solutions. For the most part, it's not that their definitions contradict SCM, but rather their solutions represent one aspect of SCM. By understanding what SCM is and understanding how it has evolved, companies can better determine what this technology can do for them.
The Internet, Industry Standards Extend SCM's Reach
By the end of the 1990s dot-coms were everywhere, offering a myriad of promotions to get potential clients to come to their sites. After the stock market tanked in mid-2000, many e-tailers went away. "Many of today's e-businesses owe a debt of gratitude to the dot-com pioneers because they paved the way for the Internet as a business tool," says Rod Winger, director of sales and marketing for enterprise software solution provider Epicor Software Corp. (Irvine, CA). "One example of this is with supply chain visibility. Three years ago you couldn't visit an online portal and get a freight quote. Today, it's common practice."
Supply chain organizations like APICS and RosettaNet have also played a role in the widespread adoption of the Internet as a business tool. Besides enabling functions such as real-time access to order status, the Internet has made concepts such as collaboration a reality. For example, manufacturers can provide their suppliers with access to their ERP (enterprise resource planning) systems via the Internet, enabling suppliers to take responsibility for managing the manufacturers' inventory. In a collaborative environment, reduce labor costs, and suppliers work more efficiently by anticipating replenishment needs.
RFID Improves SCM's Visibility
In addition to the widespread adoption of the Internet as a business tool, technologies like RFID (radio frequency identification) have the potential to exponentially boost SCM performance. For the past 30-plus years, bar code technology has been the dominant asset management medium used by manufacturers and retailers with few exceptions. More recently, however, RFID is making headlines and has shown potential for going beyond niche applications such as animal tracking, high end fashion (e.g. Prada) asset tracking, and access control. "RFID provides more information faster and easier than bar codes," says Tom Dykstra, industry manager for SCM vendor IFS (Chicago). "This technology allows companies to consolidate orders for dissimilar products on a single pallet and still know what's in the middle of the pallet."
RFID's non-line-of-sight reading capability coupled with its ability to store more than 10 times as much information as bar codes and its ability to be used in harsh environments such as painting and heat treating make it superior to bar codes in every way but one: cost. Traditionally, the high costs of RFID solutions made them a non-consideration for most companies. Until recently, that is, when Wal-Mart announced to the world that its top 100 suppliers had to be able to track merchandise at the pallet level by January 2005 in order to continue doing business with the retail giant. This announcement, made in May of this year, pushed RFID awareness into the limelight and promises to push the technology into fast forward. If Wal-Mart's top 100 suppliers implement the technology then most likely Wal-Mart's competitors are going to follow suit with their suppliers. As more manufacturers and retailers jump on the RFID bandwagon, better standards will emerge, prices will drop, and the technology will finally make its way into mainstream. But RFID, just like any technology, needs to be viewed as part of a business strategy with a predefined return on its investment.
Deploying it just to keep up with the Joneses will prove to be a costly mistake. Businesses need to see RFID, the Internet, and all other technologies and platforms as part of an SCM strategy. After that they can determine whether it makes sense to incorporate these tools as part of their strategy.
SCM Spans From Planning To Fulfillment ... To Returns
"Before jumping into a new technology or business platform, it's important to first understand what SCM is," says Steve Roop, director of marketing for SCM and CRM (customer relationship management) vendor PeopleSoft (Pleasanton, CA). "Industry experts generally break this technology into five categories:
- Planning - This includes forecasting demand and the amount of resources necessary to meet those forecasts.
- Sourcing - This category is about procuring goods from suppliers, which may involve online auctions and collaboration via the Internet."
- Manufacturing - This step is where raw materials are turned into finished goods. Tools for determining which machines, processes, and personnel should perform these tasks may be used to provide more efficiency.
- Delivery - Also known as supply chain fulfillment, this step entails getting the finished products to the dealers or end users. It takes into account how the products will be shipped, including the means of transportation and how products may be consolidated to cut down on shipping expenses.
- Returns - No one wants to think about products coming back due to defects, damage, or some other problems. However, automating the returns process and capturing data about why products are returned is essential for cutting expenses.
After seeing the components of SCM, enterprises can determine where their organizations need the most help and determine how the latest technologies can help fulfill those needs. If product delivery needs improvement, organizations can consider how a TMS (and perhaps RFID) may help get products to customers more quickly and safely, by providing visibility from the shipping dock to the customer's doorstep. No matter what new technologies and standards may arise, implementing them because everyone else is doing it is never the best approach. Doing it because it solves a specific business problem and contributes to better SCM is.