Each major phase of a product's movement through the supply chain -- from materials to production and distribution -- has its own distinct business processes and disciplines. Most of them began decades ago as paper-based methods but now are usually handled in specialized software.
The SCM process starts with figuring out what products customers want -- the early stages of supply chain planning, traditionally considered one of the two overarching categories of SCM, along with supply chain execution.
Supply chain planning starts with demand planning, a process for gathering historical data, such as past sales, and applying analytics and statistical modeling to create a forecast or demand plan that the sales department and operational departments -- such as manufacturing and marketing -- can agree on. The forecast determines the types and quantities of products to be manufactured.
Some companies perform demand planning as part of a formalized process called sales and operations planning (S&OP), which prescribes an iterative process of data gathering, discussion, reconciling of demand plans with production plans, and management approval.
Some companies include S&OP in a broader process called integrated business planning (IBP) that incorporates other departments' plans in a single, companywide plan.
In the next major step, production planning, the company nails down the specifics of where and how the products called for in the demand plan will be manufactured. (Production planning is also used in other industries, such as agriculture and oil and gas.)
A more fine-tuned variation -- typically automated in specialized software -- called advanced planning and scheduling seeks to optimize the resources that go into production and make them more responsive to changes in demand.
Material requirements planning (MRP) is a process dating back to the '60s that most manufacturers use to ensure sufficient materials and components (such as subassemblies) are available for use in the manufacturing process by taking inventory of what's on hand, identifying gaps, and buying or making the remaining items.
The central document in both MRP and production planning is the bill of materials (BOM), a complete list of the items needed to make a product.
MRP is sometimes done as part of manufacturing resource planning (MRP II) which broadens the MRP concept to other departments such as HR and finance. MRP and MRP II were the predecessors of enterprise resource planning (ERP) software, which is designed to integrate the major business processes of companies in any industry.
Two complex processes play important roles in most of the major steps of SCM: inventory management and logistics. Inventory management consists of various techniques and formulas for ensuring adequate supply -- from raw materials in a manufacturing plant, perhaps managed in an MRP system, to packaged goods in a retail store -- for the least expenditure of time and resources.
Manufacturers are faced with a variety of inventory management issues, many of which involve coordinating demand planning with the inventory at both ends of the production process.
For example, sometimes material requirements planning leads to more inventory, especially when the system is first implemented and the manufacturer must work to synchronize MRP parameters with the inventory already on hand.
Logistics is everything having to do with transporting and storing goods from the start of the supply chain, with the delivery of parts and materials to manufacturers, to delivery of finished products to stores or direct to consumers and even beyond for product servicing, return, and recycling -- a process called reverse logistics. Inventory management is threaded throughout the logistics process.
Procurement, sometimes called sourcing, is the process of finding suppliers for goods, managing those relationships, and acquiring the goods economically -- along with all the communication, such as sending out requests for bids, and paperwork, including purchase orders, invoices, etc.
It is a major component of supply chain management, given how much is bought and sold at all points along the chain. Most players in the supply chain -- suppliers, manufacturers, distributors and retailers -- have dedicated procurement staff.
Strategic sourcing is an elevated and more sophisticated type of procurement that aims to optimize a company's sourcing process by taking advantage of its consolidated purchasing power and align it with overall business goals.
Supplier relationship management (SRM), in contrast, addresses sourcing issues by focusing on the suppliers the company deems most critical to success and systematically strengthening relationships with them while fostering optimal performance.
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