Illuminations

Supply Chain Management (SCM)

The Inter-Organizational Network
Prepared by: Hania Zeidan, LACPA

Supply Chain Management (SCM) is the management of an entire network of interconnected

businesses that work together to design, produce, deliver, and service products. SCM is the
oversight of materials, information, and finances as they move in a process from supplier to
manufacturer to wholesaler to retailer to consumer. It involves coordinating and integrating
flows within and among companies.

I n the past, companies focused primarily on manufacturing

and quality improvements within their four walls; now their
efforts extend beyond those walls to encompass the entire
formation technology have enabled many organizations, to
successfully operate solid collaborative supply networks in
which each specialized business partner focuses on only a
supply chain. Since its inception in the early 1990s, the field few key strategic activities. This inter-organizational supply
of supply chain management has become tremendously im- network can be acknowledged as a new form of organiza-
portant to companies in an increasingly competitive global tion. However, with the complicated interactions among the
marketplace.  players, the network structure fits neither “market” nor “hier-
Involved in the ultimate provision of product and service archy” categories. It is not clear what kind of performance
packages required by end customers, Supply Chain Man- impacts different supply network structures could have on
agement spans all movement and storage of raw materials, firms, and little is known about the coordination conditions
work-in-process inventory, and finished goods from point of and trade-offs that may exist among the players.
origin to point of consumption.
The definition an American professional association put for-
ward is that Supply Chain Management encompasses the
planning and management of all activities involved in sourc-
ing, procurement, conversion, and logistics management
activities. Importantly, it also includes coordination and col-
laboration with channel partners, which can be suppliers, in-
termediaries, third-party service providers, and customers. In
essence, SCM integrates supply and demand management
within and across companies.
Organizations increasingly find that they must rely on effec-
tive supply chains, or networks, to successfully compete in
the global market and networked economy. In Peter Druck-
er’s (1998) new management paradigms, this concept of
business relationships extends beyond traditional enterprise
boundaries and seeks to organize entire business processes
throughout a value chain of multiple companies.
During the past decades, globalization, outsourcing and in-

103 THE CERTIFIED ACCOUNTANT 2nd Quarter 2009 ‫ ــــ‬Issuse #38

 Illuminations

From a systems perspective, a complex network structure

can be decomposed into individual component firms. Tradi-
tionally, companies in a supply network concentrate on the Cutting Costs the Smart Way
inputs and outputs of the processes, with little concern for
the internal management working of other individual play-
Your boss has just asked you to cut 10% from your
ers. Therefore, the choice of an internal management control
department’s budget, starting immediately.
structure is known to impact local firm performance.
In the 21st century, changes in the business environment
Easier said than done, right?
have contributed to the development of supply chain net-
As you carefully study your expenditures, you’re
works. First, as an outcome of globalization and the prolif-
faced with a seemingly impossible task. How do
eration of multinational companies, joint ventures, strategic
you decide what to cut? Where can you save the
alliances and business partnerships, there were found to
most money without hurting team morale, or low-
be significant success factors, following the earlier “Just-
ering people’s productivity? Should you eliminate
In-Time”, “Lean Manufacturing” and “Agile Manufacturing”
coffee and morning donuts, or cut back on office
practices. Second, technological changes, particularly the
supplies?
dramatic fall in information communication costs, which are
a significant component of transaction costs, have led to
Most organizations have to cut costs at some point.
changes in coordination among the members of the supply
In today’s economic climate, it’s more important
chain network.
than ever for businesses to watch their budgets
Many researchers have recognized these kinds of supply
and to make sure they eliminate any unnecessary
network structures as a new organization form, using terms
spending.
such as “Keiretsu”, “Extended Enterprise”, “Virtual Corpora-
tion”, “Global Production Network”, and “Next Generation
When cost-cutting is down to you, however, it can
Manufacturing System”. In general, such a structure can
be difficult to know where to start. Cutting the
be defined as “a group of semi-independent organizations,
right things at the right time is a delicate balanc-
each with their capabilities, which collaborate in ever-chang-
ing act.
ing constellations to serve one or more markets in order to
achieve some business goal specific to that collaboration”.
We offer you some suggestions to get started:
Supply Chain Management must address the following prob-
• Establish the essentials - It’s important to iden-
lems:
tify the things your department absolutely cannot
• Distribution Network Configuration
live without.
• Distribution Strategy
• Identify the 'luxuries' – Once you create the
• Trade-Offs in Logistical Activities
list of things you can’t live without, look at what’s
• Information
left. Some of these are probably luxury items; ex-
• Inventory Management
penses that aren’t absolutely necessary, and could
• Cash-Flow
easily be cut.
Several models have been proposed for understanding the
• Review your 'maybe' items - These are the
activities required to manage material movements across or-
things you’re not so sure about. When you look at
ganizational and functional boundaries. Such as SCOR, a
these less obvious expenditures, assess the costs
supply chain management model promoted by the Supply
against the tangible and intangible benefits of
http://www.mindtools.com

Chain Council and another model proposed by the Global

these items.
Supply Chain Forum (GSCF), the SCM Model.
Supply chain management enables companies to improve
If you’re forced to start making cutbacks, tell your
their overall competencies. It allows them to focus on their
team what’s going on.
core competencies and thus, increasing their overall perfor-
It’s also important to realize that your team mem-
mance and efficiency.
bers are a valuable resource. They could have
www.wikipedia.org
some really creative ideas for ways to cut costs.
www.sap.com

38 ‫ ــــ العدد‬2009 ‫الف�صل الثاين‬ 102