Supply Chain Management (aka Logistics)

One of the major sub-systems of an ERPS manages supply chains.

A Supply Chain Management System may be an integration of inventory management, warehouse control, and shipping sub-sub-systems.

The following diagram depicts a simple supply chain:

 

Factories 4 and 5 produce components (or they could be farms, mines, refineries, or other suppliers of raw material). Factories 1, 2, and 3 produce different types of assembled products made from these components (e.g., cars, computers, clothes, cakes).

Wholesalers purchase bulk quantities of these products and store them in warehouses. For example, wholesaler 1 sells computers and clothes, while wholesaler 2 sells clothes and cakes.

The retailer purchases smaller quantities of these products and stores them on the shelves of a store where the customer may purchase them.

Products flow from left to right through the supply chain.

Two goals of SCM are avoid over-supply and avoid under-supply. These problems happen when the fill-rate of a store doesn't match its depletion-rate.

There are costs associated with over-supply and under-supply. Check out the Beer Game for a good demonstration of these problems and how they naturally arise even in simple supply chains with rational managers at each node.