Operations Management: An Integrated Approach, 5th Edition

SUPPLY CHAIN MANAGEMENT WITHIN OM: HOW IT ALL FITS TOGETHER

Supply chain management (SCM) is directly linked to many OM activities. The degree of supply chain management is a strategic decision for the organization (Chapter 2) and determines the level of vertical integration in the organization. SCM is concerned with external suppliers, internal operations, and external distributors.

Effective SCM requires supplier partnerships. Using the ISM Principles and Standards of Ethical Supply Management Conduct, purchasing develops partnerships with suppliers to assure a continuous supply of materials at a reasonable cost. Purchasing also works with suppliers to improve communications, to develop flexibility in meeting changes of demand, to improve quality of materials, and to assure on-time delivery. This assured, continuous supply of materials allows the production planners to effectively schedule jobs (Chapter 14) and to use equipment and personnel efficiently.

SCM also provides for streamlined communications between suppliers and the company, thus reducing purchasing lead time. As we will learn when studying inventory management in Chapter 12, reduced lead time results in lower inventory levels. The improved communications within the supply chain improve demand forecasting accuracy. This reduces demand uncertainty, allowing lower safety stock investment while still maintaining customer service levels. Improved demand forecast accuracy also contributes to the development of better staffing ...