SCM is defined as combination of art and science that goes into improving the way your

company find the raw components that needs to make a product or services and deliver it to
customer. In Business word this art and science become functions that an organization
undertake.
If you are IT guys you can understood SCM as:
Systems that support manufacturing managers in making decisions that optimize the trade off
between capital tied up in stocks and inventories, versus the ability to deliver goods at prices
and delivery dates agreed with customers.
In principle and reality, both inwards logistics operations to acquire materials to make
products and outwards logistics operations shipping finished goods to final customers are
monitored.
WHAT EXACTLY IS SUPPLY CHAIN MANAGEMENT OR WHAT IS BASIC
COMPONENT OF SCM?
As per Supply-Chain Operations Reference-model (SCOR) which has been
developed by Supply-Chain Council. This model organized and focused on the five primary
management
1. PLAN
2. SOURCE
3. MAKE
4. DELIVER
5. RETURN
1. Plan: This is vital part of SCM philosophy, where the companies normally need to make
strategy for managing all the resource that go towards fulfilling the customer demand for the
product and services that they offers. A big piece of planning is developing a set of matrices
to monitor the Supply chain so that it would be efficient, cost effective and deliver high
quality and value to the customer.
2. Source: It means processes that procure goods and services to meet planned or actual
demand. This part of SCM consists of selecting right suppliers that will deliver the good and
services that need to create your product. Developing a set of pricing, delivery and payment
process with supplier is important. Also this will also take care of managing the inventory of
goods, and services you receive from your suppliers, including receiving shipping, verifying
them, transferring them into various facilities and authorizing supplier payment.
3. Make: This is basically a step where your company starts fulfilling the request or BUILT
for products into finished state to meet planned or actual demand. Schedule activity necessary
for production, testing, packaging and preparation for delivery.

4. Deliver: This is also called Logistic Process. This is the processes that provide finished
goods and services to meet planned or actual demand, typically including order management,
transportation management, and distribution management.
5. Return - This is real pain of SCM model, which defined as processes associated with
returning or receiving returned products for any reason.
Typical model can be best described as:

WHO IS THE STAKEHOLDER OF SUPPLY CHAIN

These are considered as stake holder of SCM:

Customers

Your Company

Design Partners

Material Suppliers

Contract Manufacturers

Logistic Providers

WHAT ARE DRIVERS OF THE SUPPLY CHAIN?

These are the main drivers :

Production

Inventory

Location

Transportation

Information

1. Production
This driver addressing these questions: what products does the market want? How much of
which products should be produced and by when?
This activity includes the creation of master production schedules that take into account plant
capacities, workload balancing, quality control, and equipment maintenance.
2. Inventory
This driver addressing these questions: What inventory should be stocked at each stage in a
supply chain? How much inventory should be held as raw materials, semi finished, or
finished goods?
The primary purpose of inventory is to act as a buffer against uncertainty in the supply chain.
3. Location
This driver addressing these questions: Where should facilities for production and inventory
storage be located? Where are the most cost efficient locations for production and for storage
of inventory? Should existing facilities be used or new ones built?
Once these decisions are made they determine the possible paths available for product to flow
through for delivery to the final consumer.
4. Transportation
This driver addressing these questions: How should inventory be moved from one supply
chain location to another? Air freight and truck delivery are generally fast and reliable but
they are expensive. Shipping by sea or rail is much less expensive but usually involves longer
transit times and more uncertainty.
5. Information
This driver addressing these questions: How much data should be collected and how much
information should be shared?
Timely and accurate information holds the promise of better coordination and better decision
making. With good information, people can make effective decisions about what to produce
and how much, about where to locate inventory and how best to transport it.
GET FAMILIAR WITH TOP 10 TERMS, DEFINITIONS AND TERMINOLOGY IN
SCM
Master Demand Schedule - MDS
The MDS is a consolidation of demand by product and time bucket
Master Production Schedule- MPS

The MPS is a statement of supply required to meet the demand for the items contained in the
MDS. The master production schedule defines the anticipated build schedule for all products.
The master production schedule also provides the basis for order promising (ATP) function
Material Requirements Plan-MRP
The Material requirements planning (MRP) calculates net requirements from gross
requirements by evaluating:

The master schedule

Bills of material

Scheduled receipts

On-hand inventory balances

Lead times

Order modifiers

Advanced Supply Chain Plan- ASCP

Constrained Based and optimized version of MRP
Planned Order
Automatically suggested action from planning engine
Consumption
The process of "relieving" the forecast to prevent double counting of demand
Drop Ship
Having an order ship directly from the vendor to the customer without physically being in
your inventory.
Vendor Managed Inventory- VMI
The process of giving the vendor the authority and visibility to determine what your
inventory should be
Customer Owned Inventory- COI
Where you are managing the customers inventory on your premises and supply as required
Work Order/Sales Order

The request that you received from the customer for fulfilling there demand.
SIMPLE PLANNING CYCLE WITHIN AN ORGANIZATION
A typical planning cycle would start by loading the sales orders, forecast and other demand
such internal orders into the master demand schedule (MDS). That demand statement would
then be used as the schedule that drives the Master Production Schedule (MPS) . Take a note
in regular MRP implementations the MPS is used as the schedule for ATP. Once the MPS is
reviewed and updated is used as the schedule to drive the MRP process. The result of the
MRP process is planned orders and exception messages. When released from MRP the
planned orders for "buy" items become requisitions or purchase orders in the purchasing
module and the "make" items become discrete jobs in the Work In Process Module. Once the
finished goods are received into inventory it is shipped to satisfy customer orders.

Scenario I :Sales Order - Forecast Planning Cycle

This is the scenario where normally we are building to stock and satisfying sales order
demand from stock. Here you will see the difference as planned orders are released to
become purchase requisitions for components and work orders for sub assemblies and
finished goods. The finished goods are then
shipped to satisfy the sales orders.

Scenario II : Planning - Procurement Cycle

In the Planning-Procurement cycle we normally start where the first part of the planning
cycle is complete and we have a planned order for a buy item from MRP. The planned order

is released and becomes a requisition or purchase order in the purchasing module. A purchase
order is then created from the requisition and sent to the vendor. The vendor would supply the
materials. The materials would be received into inventory and the purchase order would be
closed.

Scenario
III :Planning - Drop
Ship Cycle
In the Drop Ship cycle
the process is as
follows:

A sales order is received from the customer.

After the sales order is entered a process is run that creates a purchase order that
matches the sales orders

The item, quantity and required date information on purchase order matches that
information on the sales order.

The ship to address on the purchase order is the ship to address of the customer.

The vendor ships the product directly to your customer. Once the vendor ships the
product you receive" the purchase order and that creates the shipping transaction to
satisfy the sales order.

Matching accounting transactions complete the process

You can also see technical details for drop ship cycle in my earlier post.
Scenario IV :Planning - WIP Cycle
In the Work In Process cycle after the planning cycle is complete a planned order is released
to create a discrete job. Material/components is issued the job or back flushed from inventory.
The job is completed from Work In Process to Inventory.

Scenario V : Planning - Outside Processing Cycle

With Outside Processing you could be buying a service, an item or capacity from an outside
vendor. The setup for each of these scenarios will be described in the training sessions to
follow, however they all follow a similar process. A routing with an outside processing
operation is setup.
After the planning cycle is complete a planned order is released to create a discrete job. Once
the Discrete job is moved to a outside processing operation, a purchase requisition is
triggered. The requisition is imported to Purchasing and a purchase order is created. The
details of the discrete job such as job number, assembly number and quantity is tied to the
purchase order. The purchase order is sent to the vendor. When the purchase order is received
its destination will be shop floor and the assembly will be returned to the next operation on
the work order.

This make an end of this discussion. In Next post we will see what are the different
subsystem SCM will have and what are the modules which comes under SCM
Implementation.