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Modern Supply Chain Management

By Edited Nov 13, 2013 0 1

There was a time when both small and large businesses made big orders for even the most unimportant of products. This was because a company may have need of that item only infrequently, but it may not always be available for order. It could only be ordered when the salesman came around to make a sales call. Otherwise getting many products and raw materials would be very expensive if they ordered when they wanted and for small amounts. The salesman pushed companies to buy in bulk for cost savings even though the company may not need very much of any product or raw material.

However, not having those infrequent products and materials may not be an option. Say a factory machine on the floor needed a belt to be replaced ever so often. In the past the company could not simply keep one or two belts stored for replacements. Instead, the company would have to order and keep an entire case, because ordering just one was expensive. It would be expensive to order just one and the shipping could be very slow too. So, what developed was a stockpiling or hoarding mentality. Goods for a business where over ordered and held until needed. There is a lot of downside to holding products not immediately needed. People could eventually steal or lose them, they could become outdated while waiting to use them, or they could get damaged in accidents. Many bad things could happen while holding too much of something. But the biggest downside to holding products and raw materials is that it tied up money in inventory.

The supply chain management definition has been redefined and modernized. Companies began to realize that it was better to order what was needed, when it was needed. This meant better cash-flow for companies. It started with retail companies who did not want to warehouse products for a great period of time. Eventually, stores started keeping products in the front of the store and less in the back (or in off-site warehouses). That meant the store's entire inventory was on the floor of the store. Then with the advent of computers they could keep real-time inventories and order products when they were getting low. Next, manufacturing saw what retail was doing and realized they too could order raw materials when it was needed. They used computers to monitor raw material stockpiles and ordered when low. They calculated shipping times and any quantity discounts to get more material just before they needed it. This has caused a whole change to how businesses look at corporate procurement.

Where we stand today is that everything is open to supply chain management. Things like office supplies and promotional products are all subject to being ordered at a moment's notice with the expectation of them arriving quickly. It has even prompted a new supply chain management term called Just-In-Time (JIT) inventory. However, a few other key components have made this Just-In-Time (JIT) inventory possible.

The infrastructure of our daily lives has changed. With the Internet companies can order products and materials at any time and very inexpensively. No more waiting for the sales guy to come in with a catalog and order form. That factory we spoke of earlier can order one belt cheaply and get it overnight. Overnight night shipping has been made possible because of shipping companies like UPS, FedEx, and DHL. They also made it inexpensive to ship even small amounts of products. There is even an option for businesses that need an item the same day. They can use the cargo services of the airlines to get products to locations the same day if needed. This modern JIT supply chain could not exist without these shipping and ordering changes.


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Comments

Dec 24, 2011 6:44am
casdrubo
Great article,

I am in the SCM industry myself and I just finished an article on intro to SCM. I think you've done a great job at explaining some of the concepts without getting to deep into the material...and I struggled with that.

All the best

Casdrubo
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