Supply chain is a network in which different organizations lead and develop together material and service flows and associated with them money and information flows. In the supply chain, each organization has its own role. Supply chain structure depends on the company’s products, industry and customers. Supply chain connects company and its suppliers with customers and distribution organizations. Supply chain is therefore entirety, in which focus is on cost efficiency, customer orientation and the production of added value. The picture illustrates supply chain. (Original picture by Porter, edited by LM).
Supply Chain Management – SCM
Supply chain management (SCM) means corporate network’s comprehensive planning, leading and management of material flow and associated with information and money flows targeting at maximizing customer added value.
The key in supply chain management is also formation of the chain structure and its development. The focus in SCM thinking are on time, reliability and transparency and essential elements are cooperation between chain parties and the creation of value for customers.
Logistics and supply chain management concepts are often used as synonyms, and in this case they can be regarded as the same thing, which is seen slightly from the different point of view. Logistics usually spoken as one company or industry material flow management, where supply chain management aims to use whole co-operation network for optimal functioning.
Parties and Operators in the Supply Chain
In all organizations, supply chain has many parties: suppliers’ suppliers, suppliers, manufacturers, wholesalers, retailers, customers and customers’ customers.
Usually each supplier delivers different raw materials and supplies to customer company. Sometimes, however, customer companies order same or similar products from different suppliers. However, the rationality of such activities should be considered carefully, as it may unnecessarily tie up resources. Depending on the size of the company, suppliers and customers can be only a few or tens of thousands. Each company is involved in many supply chains.
Supply chain is naturally more direct the less there are intermediaries. In long supply chains, for example, intermediate storage, logistics companies and wholesalers are common. Naturally, each phase in supply chain adds logistical costs and in the process binds time in the different stages.
Supply chain is therefore should be also examined by function and to consider, for example, the importance and necessity of procurement, warehousing and transportation in the chain. For example, in the field of trade, logistics costs arise from industry, distribution and from the stores, and their share of the total price of products is high. However, costs are reduced by electronic order systems and centralization of transport and integration of distribution.
Demand Chain Management, DCM
Instead of and alongside with SCM there is also talk about demand chain management (DCM) when you want to emphasize the importance of demand and demand information. This concept is intended to emphasize the fact that demand is coming from customers (downstream) and supply from suppliers (upstream). If customer demand can not be predicted and managed, it will result in poor performance throughout the supply chain.