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Supply Chain Management Training Article

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Supply Chain Management / ERP System

One of the potential causes of confusion in reading about business systems to help manage manufacturing planning and control is that there might appear to be distinct, even alternative, approaches being sold under the banners of Supply Chain Management and Enterprise Resource Planning.

This web page sets out to address the question 'what is the difference between these systems'?

We will explore exactly what these systems are, and how they have evolved, but first we need to recognise a key point. ERP systems are planning and control solutions for manufacturing businesses and are therefore tools to assist in the supply chain management of these businesses. Of course, other types of business - retail, distribution and construction, for example - have supply chain s where a manufacturing package would be of little use. (Though many of the big names in the ERP field now have modules addressing other aspects of management and would claim to be equally qualified to address the supply chain management processes of businesses outside the manufacturing sector.)

1. The Evolution of ERP Systems

2. The Origins of Supply Chain Management

Supply Chain Management had, of course, been around for some time before it started to be used as a description of any computer systems. In the automotive world one of the lessons brought home by the Japanese-inspired JIT revolution had been the key point that purchasing involves far more than simply negotiating deals with and managing supply from direct suppliers. Ford, GM and other western car manufacturers saw many differences in the approach adopted by their counterparts in Japan. Many of these were cultural - the idea of 'partnership sourcing' for example where the car manufacturers and suppliers worked together to attack quality and cost issues, and then shared the benefits. This was in marked contrast to the established western approach where cost reductions were negotiated (or, more accurately, imposed) and the suppliers then worked on alone to try to retain some measure of profit from the deal. Inevitably this meant corners being cut and resultant supply problems. What the Japanese taught us here was that if our suppliers have problems then it is not only they who suffer.

The other key point that purchasing professionals learnt from Japan was that their success was dependent not only on dealings with their direct suppliers, but with the companies further down the procurement cycle who supplied the suppliers! They saw that the companies supplying them with components did not have the same purchasing power in the raw materials market as they themselves. This led to them assisting their suppliers in dealings with providers of, for example, metals, plastics and electronic components.

They also understood that the people supplying them with assemblies were dependent in turn upon their component suppliers. Most importantly, they understood that the processes by which these components were made had a direct bearing on the car plants' own costs, quality and delivery reliability. They could only improve these critical elements if they worked with the businesses supplying their own suppliers. We thus began to hear talk of Tier 1, Tier 2, Tier 3 suppliers. Where we had thought of our suppliers as being only those companies with whom we dealt directly, the automotive world taught us differently. Many business who did not deal directly with the car manufacturers found themselves being visited by manufacturing engineers from the car plants who initiated and supported programmes to address cost and quality. Where we had only previously managed our supplier base, they taught us to think of every link in a chain.

At the other end of the spectrum we all learned that we must ensure that our business provides good service to the end customer. Understanding exactly what our market demanded of us meant that we could not limit ourselves simply to simply serving the people who bought from us - if they lost market then so would we. The additional complications of the Forrester Effect (time lags and distorted reaction to demand changes at each step in the distribution channel) all led to the understanding that the supply chain from end customer back through to our own business, and then back to the point where raw materials came out of the earth had to be managed.

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~ Ian Henderson ~

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