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Practitioner Journals National Institute for Transport and Logistics
2002-02-01
Recommended Citation
Sweeney, E.:The Four Fundamentals of Supply Chain Management.Logistics Solutions, the Journal of the National Institute for
Transport and Logistics, Vol. 5, No. 1, February 2002.
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LOGISTICS SOLUTIONS
ISSUE 1 2002 / 14
the four
fundamentals of
supply chain management
Logistics Solutions (Issue 2, 2001), I made
reference to NITLs Four Fundamentals of
MANY COMPANIES DO Very often the company is let down not
by their own actions, but by the actions of
SCM. In response to many enquiries about NOT EVEN REALISE THE other parties involved. Many companies
this, this article explains these do not even realise the importance of
fundamentals in some more detail. It is IMPORTANCE OF
supply chain management to their future
essentially an attempt to elucidate the SUPPLY CHAIN survival. It applies to small or large
essence of SCM in a way which goes companies, whether they are in
beyond the trite one-liners but retains a MANAGEMENT TO THEIR manufacturing, process or service
compactness and clarity which is an FUTURE SURVIVAL. IT industries. Improving ones own business
essential ingredient of any worthwhile is no guarantee of success in todays
definition. APPLIES TO SMALL OR competitive markets. The individual
LARGE COMPANIES
success of a company depends not alone
on their in-house skills and expertise.
Without the right companies up and
down the supply chain to work with a
Figure 1 company will never achieve true
competitive advantage.
Final Customer Every Link Matters At the end of the day supply chain
The Source of real money management is the management of all
the activities in any of the companies
Retailer involved in a supply chain to achieve two
P R O F I T
LOGISTICS SOLUTIONS
ISSUE 1 2002 / 15
scm
LOGISTICS SOLUTIONS
ISSUE 1 2002 / 16
Figure 2
Supply Chain Management
FUNDAMENTAL INDICATIVE DESCRIPTOR
1 Objectives Customer Service/Supply
Chain Investment and Costs
2 Philosophy Supply Chain vs. Supply Chain
(ie not Company vs. Company)
LOGISTICS SOLUTIONS
ISSUE 1 2002 / 17
Figure 3
Micro (Internal) Supply Chain
BUY MAKE STORE MOVE SELL
management. Companies in Ireland will
have to do the same if they are be
competitive in world markets. This is
Financial and information flows particularly true as a result of Irelands very
open economy - over 80 per cent of what is
produced in Ireland is exported off the
management (store), transport adversarial relationships throughout the island. Given Irelands peripheral location,
management (move) and customer supply chain towards relationships which companies based here must be better at
relationship management (sell). are based on mutual trust and benefits, supply chain management than
openness and shared goals and objectives. companies in more favourable locations.
FUNDAMENTAL 3 Supply chain management shows that
For a supply chain to achieve its transport is only one, and not even the
maximum level of effectiveness and
WHY IS SUPPLY CHAIN most important, cost in the total supply
efficiency, material flows, money flows and MANAGEMENT chain. Distance from raw material sources
and markets need not be a disadvantage if
information flows throughout the entire
chain must be managed in an integrated IMPORTANT? companies in Ireland can be world class in
and holistic manner, driven by the overall Supply chain management is quickly the other supply chain management
service and cost objectives. This view of a becoming regarded as one of the key elements. These supply chain
macro chain indicates the way in which value-adding business processes in management elements include, for
material, money (funds) and information companies. Value is added both through example:
flow between the companies which enhanced levels of customer service (and, Agile and lean manufacturing;
participate in the chain. Flows in the micro as a result, revenues) and through development of supplier partnerships;
chain can be thought of in a similar way. optimisation of the supply chain cost base. just in time inventory management;
A recent MIT survey indicates that the effective use of 3rd and 4th party
implementation of supply chain distribution and logistics service
management by US companies resulted in providers.
"World Class Best Practice" companies development which Ireland is well placed
have endorsed the concept of supply chain to exploit. LS
FUNDAMENTAL 4
Finally, this holistic approach requires a
reappraisal of the way in which both
internal and external customer/supplier
relationships are created and managed. Figure 4
SCM is not a "zero-sum" game based on Why is Supply Chain
adversarial relationships, rather, it needs to Management Important?
be a "win-win" game based on partnership
Effective supply chain management can cut costs,
approaches. This point is relevant to the
improve service and enhance revenues and thats just
interactions between the key "internal"
the beginning Prof. P. Metz, MIT
supply chain functions of buy, make, store,
move and sell, as well as to relationships MIT Survey: Implementation of supply chain management in US
between an organisation and its external resulted in:
customers and suppliers. One of the 50% reduction in inventory
biggest manifestations of the application 40% improvement in on-time deliveries
of supply chain philosophy in recent years 27% reduction in order cycle time
has involved the move away from Nine-fold reduction in out of stocks