SCM Terminology

SCM (Supply Chain Management)


"Supply Chain Management (SCM)" is to share information and management resources to eliminate the waste of business processes as much as possible, as one business process beyond the walls of companies, organizations, and divisions aiming for total optimization.

The goal of Supply Chain Management (SCM) is to make money, i.e. to increase cash flow. To keep a company in business the most important thing is to increase the flow of cash, which is the blood of the company as a living entity. Accounting principle profit is now not enough for a company and posting profit that does not increase cash flow will jeopardize the management of the company in the deflation era of today.

Supply chain management synchronizes demand with a business unit as a whole by using materials/parts and resource capacity such as machines and workers and considering constraints (bottlenecks) to increase the flow from materials/parts supply to product selling, i.e. the cash flow speed called "throughput".

The three major elements of supply chain management are demand, materials, and resource capacity and the goal of supply chain management is to increase the cash flow speed by synchronizing business processes based on constraints. Indexes of the management are neither cost nor efficiency, which are traditional accounting concepts, but throughput (item flow), inventory, and expense aiming for total optimization.

In short, supply chain management is cash flow management. In the age of mega-competition where markets and competitors expand globally, supply chain management is an indispensable measure for a company to survive. Supply chain management is a concept that challenges the conventional management index in which net profit may be posted by legally capitalizing expenses even if market values of products decrease (the same activity as "stock shuffling" by securities companies). Supply chain management is also a management tool that provides a theoretical base to build a strategic relationship such as a virtual corporation in global supply chain management.

Taken with kind permission from the book:
"Understand Supply Chain Management through 100 words" by Zenjiro Imaoka.