Supply Chain Management · SCM
Supply Chain Management
What is supply chain management?
- How optimizing individual functions can make the whole worse
- Balancing service, asset efficiency, and cost
- Evaluated on resilience as well as efficiency
Adopting supply chain management is not about reorganizing the warehouse. It is changing who owns the decision. Previously, Purchasing set order quantities, Production Planning set lot sizes, and Sales set promotional volumes, each on its own. Now the three departments agree on a single demand figure before anyone acts. Metrics shift too. If Purchasing was judged only on unit-cost savings, adding total inventory days and order fill rate to the evaluation noticeably reduces the habit of buying three months of stock up front to save 3% on price.
In practice, the difference comes down to where you place the decoupling point: the line between what you build ahead of time and what you build only after an order arrives. Fast-turning A-class items are held as finished goods, while C-class items with varying specs are built only up to the semi-finished stage and assembled after the order. Safety stock, too, should not be a flat number of days for every item. It should vary by item according to demand variability and procurement lead time. If you apply the same standard with no ABC classification, you get stockouts on A items and dead stock on C items at the same time. Logistics cost savings are only one lever, and without a monthly S&OP meeting, the design stays on paper.
The longer the chain, the later information arrives, and the more inflated it is. When sales results are reported only weekly, a small rise in store demand tends to get exaggerated once at the distributor's order and again at the factory's production plan. So the first fix is not a more sophisticated forecasting model but sending point-of-sale data straight upstream. Resilience adds another dimension. A single supplier and long lead times are cheaper in normal times, but once the chain breaks, the time and cost of recovery can swallow all the savings made until then.
The most common point of failure in practice is the moment SCM gets treated as an inventory-reduction campaign. Once the order comes down to cut company-wide inventory by 20%, each department starts with the items that are easiest to cut. Those are usually the fast-turning core products, and two months later the cost comes back as stockouts and emergency freight. The expectation that installing a system will fix the problem is similar. ERP and WMS only display numbers, so if sales still habitually forecasts low to protect its attainment rate, the inputs are wrong from the start. Securing multiple suppliers only on paper is also risky. When you actually place an order, that supplier has never mass-produced to your specifications, and approval alone takes months.
John KimAuthor of B2B Marketing Design and CEO of Nanum Consulting
Okgum LeeExpert in corporate analysis, fundraising, and business planningThe term supply chain management became widely known after consultant Keith Oliver used it in 1982, and it later grew into a management field that integrates logistics, purchasing, and production. Research on the bullwhip effect, which explains demand distortion, is also a landmark concept in this field.
This is the story of Company A, which makes industrial valve parts (320 employees, about KRW 90 billion (≈ US$67,335,000) in annual revenue, 1,200+ managed items). Inventory exceeded 20% of revenue, yet the company averaged 40+ stockouts a month. Sales said it could not tell what was in the warehouse, while Purchasing countered that sales forecasts were wrong every time. At the CEO’s direction, a six-month supply chain diagnostic project began. (Hypothetical example)
- The head of the supply chain team broke the past 12 months of inventory down by item and found that, of the 78 days of inventory, the top 50 items accounted for 22 days and the remaining 1,150 items for 56 days.
- The purchasing manager admitted they had taken three months of stock at once to qualify for a 5% unit-price discount. Management cut the weight of unit price in purchasing evaluations from 70% to 40% and added inventory days as a new measure.
- A production planning manager sorted items by ABC class. The 82 A-class items stay in stock as finished goods, while the 600-plus C-class items are built only up to semi-finished stage and assembled when an order comes in.
- The head of sales dropped the weekly report and made distributor sales data visible every morning on the same screen as purchasing and production data. The monthly S&OP meeting then locked in volumes for the next three months.
- Six months later, inventory days had fallen from 78 to 54, monthly stockouts from 41 to 12, and KRW 70 million (≈ US$52,400) of the KRW 120 million (≈ US$89,800) spent each year on emergency air freight had disappeared.