Supply chain management requires a business to coordinate the efforts of its suppliers, manufacturing operations, wholesalers, distributors, and retailers in a way that keeps the optimum volume of products on shelves to meet consumer demand. The business’s back office operations might be an afterthought in this process, even though they provide the administrative, financial, and accounting support that keep the business running. As an entrepreneur especially those in retailing, it is important to understand supply chain management (even to the extent of taking an MS in supply chain management course!).
The inability of Toys“R”Us to fulfill orders during the 1999 holiday season is a prime example of what can happen when a company focuses on supply chain management without connecting back office operations into that management. The company was unable to process and fulfill the extra thousands of orders it received during that season, leading to a horde of angry consumers who did not receive the products that got stuck in the company’s supply chain. In a large, multi-location business like Toys “R” Us, keeping a supply chain stocked with products in a warehouse is not the same thing as being able to deliver those products to end users.
Coca-Cola Enterprises (CCE), which is the bottler of Coca Cola products in western Europe, worked to avoid the Toys”R”Us problem when it transitioned to a supply chain ERP system that integrates supply chain management and back office operations. CCE purchases syrup from the U.S.-based Coca-Cola Company, combines it with other ingredients in its seventeen western European manufacturing facilities and ships finished products throughout the continent.
CCE needs to coordinate manufacturing and logistics at all seventeen of those facilities to keep store shelves stocked with products. The company implemented a supply chain ERP system that not only addressed supply chain issues but also generated “order to cash”, “requisition to payment”, and other reports that give finance and accounting managers the wherewithal to maximize cash flow and profits.
Supply chain management and ERP systems can have similar functionality, but the underlying purpose of each system is different and dedicated supply chain management systems do not mesh readily with a back office. Some of the key differences are:
External vs. Internal Focus
Managing a supply chain is all about identifying and monetizing the flow of materials among suppliers, shippers, manufacturing, warehouses, and distributors. Back office systems look instead on internal operations, including product planning and production.
Relationship vs. Task-Based Planning
Participants in a supply chain are often perceived as partners in delivering products to a consumer, and managing a supply chain is all about maintaining healthy relationships among those partners. Back office operations are more focused on discrete tasks that keep cash flowing through the company’s operations and that generate the company’s profit.
Special Focus vs. Big Picture
Dedicated supply chain software specific to the supply tasks that keep products moving through the company’s operations. Supply chain ERP systems incorporate the specificity of dedicated software and expand it to feed business intelligence gathered from the supply chain through all other aspects of the business’s operations.
Next generation supply chain ERP systems connect all participants in a supply chain with a company’s internal operations. Purchasing agents then get the information they need to locate raw materials at an optimum cost. Shipping and manufacturing managers receive available data to keep products moving through a company’s operations. Finance managers also get near-simultaneous reports on shipments, payables, and receivables to manage cash flow and inventory. A good ERP system gathers and disseminates this information seamlessly while supporting the supply chain relationships and back office operations and allowing a company to thrive and expand.
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