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SUPPLY CHAIN MANAGEMENT DEFINED
Overseeing the movement of goods, information and funds from the design of
a product to a customer's order through to production, storage, and distribution
to the end consumer. All of these factors influence a product's time to market,
price, quality, information exchange or delivery.
"Firms are under tremendous pressure to cut costs," says Jack Nevin,
executive director of the Grainger Center for Supply Chain Management at the
University of Wisconsin-Madison School of Business. "And most of those
costs are just sitting there in the supply chain." FORTUNE, 12/10/01
WHY CFOS AND CEOS CARE ABOUT SUPPLY CHAIN MANAGEMENT
A streamlined supply chain means that raw materials can be transformed into
finished products quicker, leading to faster cash receipts and higher profitability.
Improvements in efficiency can lower inventory requirements, economize transportation
and other distribution costs, accelerate cash flow and strengthen receivables.
Outsourced supply chain management means third-party logistics companies own
the fixed assets like warehouses, vehicle fleets and related equipment - so
that their clients can realize a greater return on invested capital. Companies
can use the 3PL's assets to adapt to fluctuating business conditions and to
expand in new marketplaces around the world.
An efficient supply chain also can help companies adapt to changing market
conditions, allowing them to shift production to fast-selling items and deploy
product more quickly to high-demand markets. Minimal inventory levels protect
against having product on hand that is no longer in demand or could become obsolete.
When products are at the right place at the right time, customer satisfaction
often increases, potentially lowering account churn and leading to repeat business
and new revenue.
GLOSSARY OF TERMS
Logistics: The practice of managing the movement of goods from
origin to destination.
Supply Chain Management: UPS's definition includes the movement
of goods, funds and information on behalf of clients around the world. This
includes re-engineering and designing clients' supply chains to optimize business
performance.
Multi-modal: A term used to describe the use of many modes of
transportation for a single shipment (i.e., ocean, air, ground).
Third-Party Logistics (3PL)/Fourth-Party Logistics: An outsource
strategy that involves hiring another company to manage your supply chain. A
3PL utilizes its own assets (warehouses, vehicle fleets, etc) to manage your
supply chain. A fourth-party logistics provider also subcontracts others and
manages those contractors on behalf of its client.
Freight forwarding: The management of goods as they move across
borders, including oversight of transportation providers and the paperwork required
to keep those goods in compliance with local and international regulatory requirements.
Customs brokerage: Intermediary firm between customs officials
and shippers to manage the flow of required documentation and inspections.
Inventory management: Oversight of raw materials, finished goods
and/or parts, in transit or in storage. Function also include order fulfillment,
product configuration, kitting and tagging (see definitions below) or even subassembly
and re-manufacturing.
Returns management, also called "reverse logistics:" Return
of a shipment or order from recipient back to shipper. Reasons can include order
inaccuracy, customer dissatisfaction, diagnostics and repair, damage or return
of goods into inventory. Other returns management functions can include technical
diagnostics and repair, repackaging for re-sale, disposal (such as for hazardous
goods or recycling), review by product development personnel and cataloguing
for product integrity and supplier quality.
Load optimization: Transportation term. The design of a plan
to make sure that transportation assets (vehicles, air containers, cargo space,
etc.) contain as many shipments and orders as possible to minimize costs.
Order fulfillment: The processing of taking orders, collecting
products from inventory and then creating shipments based on customer requirements.
This includes information systems to collect and trace order status, integrating
with financial systems to ensure payment for the order and working with transportation
providers to track the shipment to confirm on-time delivery.
Kitting and tagging: Order fulfillment that involves specialized
services including putting several different items together (kitting) and providing
customer-specific tags and labels (tagging).
Product configuration: Adding features to a product to meet customer
requirements. Typical examples include adding software, programming technical
equipment, adding components such as motherboards or casings or adapting it
to meet market requirements (i.e. language-specific keyboards, power cord fittings).
Cross-docking: Moving goods through a distribution center with
little or no storage. A typical "cross-dock" situation would include breaking
down ocean shipments into small packages for multiple destinations. The goal
is to keep the goods moving quickly to their final destinations with minimal
handling.
Service parts logistics: Service parts logistics (SPL) supports
the repair and maintenance of high-tech equipment after it's in the hands of
the customer. This includes the management of parts, repairs and refurbishment.
A service parts network includes order and inventory management, distribution
and technical support.
Backhaul: The return trip of a transportation asset. The goal
to improve backhaul expenses is to fill the truck on return trips as full as
the original trip.
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