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Chapter 11 • Supply Chain Management 311

SCM Processes
Supply chain management involves many processes and procedures for efficient chain management.
These will now be examined.

PROCUREMENT Procurement is the business-to-business purchase and sale of supplies and
services. Companies usually develop strategic plans with suppliers to support the manufacturing
flow management process and development of new products. The desired outcome is a win–win
relationship, where both parties benefit, and reduction times in the design cycle and product
development are achieved. It is more common to see this process being done over the Internet.
An important part of many B2B initiatives, e-procurement Web sites allow qualified and
registered users to look for buyers or sellers of goods and services. Depending on the approach,
buyers or sellers may specify prices or invite bids. Transactions can be initiated and completed.
Ongoing purchases may qualify customers for volume discounts or special offers.

OUTSOURCING AND PARTNERSHIPS Outsourcing is an arrangement in which one company
provides services for another company that could also be done or have usually been provided
in-house. Outsourcing is common in IT and other industries for services that have usually been
regarded as intrinsic to managing a business. This is true both for outsourcing the procurement of
materials and components and for the outsourcing of services that traditionally have been provided
in-house. The benefit is that the company will increasingly focus on those activities in the value
chain where it has a distinctive advantage, and let everything else be outsourced. This is particularly
evident in logistics where the provision of transport, warehousing, and inventory control is increas-
ingly subcontracted to specialists or logistics partners (3PL). In addition, managing and controlling
this network of partners and suppliers requires a blend of both central and local involvement. Hence,
strategic decisions need to be taken centrally with the monitoring and control of supplier perfor-
mance and day-to-day liaison with logistics partners being best managed at a local level.

MANUFACTURING FLOW MANAGEMENT The manufacturing process is to produce and supply
products to the distribution channels based on past forecasts or point of sales (POS) data.
Manufacturing processes must be flexible to respond to market changes, and they must accommo-
date mass customization. Orders are processes on a just-in-time (JIT) basis in minimum lot sizes.
Changes in the manufacturing flow process also lead to shorter cycle times, which means
improved responsiveness and efficiency of demand to customers and activities related to planning,
scheduling, and supporting manufacturing operations, such as work-in-process storage, handling,
transportation, and time phasing of components.

ORDER FULFILLMENT This is the process that responds to customer demand by merging
several important functions: order management, storage, and delivery of finished goods. It also
involves the warehouse and inventory management and physical distribution. Warehouse execu-
tion may involve final assembly and packaging of products. In addition to better customer
response, the benefits of this practice include more efficient inventory management, order entry,
warehousing and transportation management, and an optimizing end-to-end order fulfillment
process. Physical distribution concerns the movement of finished products, services, or both, to
customers. In physical distribution, the customer is the final destination of a marketing channel,
and the availability of the product or service is a vital part of each channel participant’s marketing