Supply Chain Management Defined

Among the phrases being used in discussions of hiring management systems is the industry term “supply chain management.” The concept of the supply chain and its management has its roots in the business processes in manufacturing. Let’s take a look at the original definition of supply chain, and how it can be used correctly to apply to the recruiting process. Definition of Supply Chain Essentially, a supply chain is the process of moving goods from the customer order through the raw materials stage, supply, production, and distribution of products to the customer. All organizations have supply chains of varying degrees, depending upon the size of the organization and the type of product manufactured. These networks obtain supplies and components, change these materials into finished products and then distribute them to the customer. The supply-chain is the all-inclusive set of links into an end-to-end business process, for example:

  • from the need to the fulfillment
  • from order to delivery
  • from raw materials to shipping
  • from order to cash
  • from an inquiry to a satisfactory response

Traditionally, manufacturing, distribution, and purchasing organizations operated for the most part independently. Today, Electronic Data Interchange, and importantly, the Internet play a significant role in redefining supply chain management, especially for Global 1000 companies. Corporations are better able to focus on the needs of each business unit and relate them to the entire organization, as well as the needs of its customers. Supply chain automation and optimization brought great value to large manufacturing companies in the 1980s and early 1990s. For two companies with the same size sales and assets, the one with supply chain optimization had higher levels of profit and market value. Supply Chain Management Supply chain management is a process-oriented approach that oversees materials, finances and also information as each move in a process, such as from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. That is where IT is very critical to perform two main functions:

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  1. Synchronizing each process step and stakeholder
  2. Propagating the changes instantly to the stakeholders involved

The ultimate goal of any effective supply chain management system is to optimize the deployment of assets to maximize fulfillment of demand (or customer service). The objective is to balance the two. Theoretically the more assets are at disposal within a supply chain, the more assets are “ready” to fulfill demand. (Obviously this is not always true because of lack of coordination that causes inefficiencies and lack of balance between each asset buffer at each process step.) According to Penn State’s Department of Management Science and Information Systems, “Inventories exist at every stage of the supply chain as either raw materials, semi-finished or finished goods. They can also be in-process between locations. Their primary purpose is to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost anywhere between 20% to 40% of their value, their efficient management is critical in supply chain operations. It is strategic in the sense that top management sets goals. However, most researchers have approached the management of inventory from an operational perspective. These include deployment strategies (push versus pull), control policies – the determination of the optimal levels of order quantities and reorder points, and setting safety stock levels, at each stocking location. These levels are critical, since they are primary determinants of customer service levels.” Supply Chain Management Software Planning and execution are the focus of two main types of Supply Chain Management (SCM) software. Planning applications use advanced algorithms to determine the best way to fill an order. Execution applications track the physical status of the process. In recruiting, that would be the status of a candidate or more importantly, the status of the recruitment process itself, the management of materials, and financial information involving all parties. Some SCM applications are based on open data models that support the sharing of data both inside and outside the enterprise (this is called the extended enterprise, and includes key suppliers, manufacturers, and end customers of a specific company). This shared data may reside in diverse database systems, or a data warehouse, at several different sites and companies. This would be true in recruiting for instance, when large corporations openly share recruiting data to a large network of staffing suppliers. Within a business process, each process step has suppliers (external or internal) and customers. Data is shared “upstream” (with the suppliers for a given process step) and “downstream.” SCM applications have the potential to improve the time-to-market of products, reduce costs, and allow all parties in the supply chain to better manage current resources and plan for future needs. Supply Chain Management Automation Inventories and just-in-time inventory management play an important role in supply chain automation. In recruiting this can be related to integration of the recruiting supply chain encompassing enabling access to other “suppliers” such as posting with one click to job boards, resume scanning services, background checking, etc., and the real-time nature of candidate prescreening. The candidate too may be viewed as the “inventory,” when looking at demand and supply in the recruiting process. Specifically, with supply chain management automation, a corporation can be notified if it is out of a particular product, and if there is customer demand for it – that information can be pushed to them in real-time. This leads to lower production cost, improved quality and shorter product development cycles. Furthermore, on the demand-side, customers are able to look at more than one supplier to find the best product available at the appropriate price, and also determine whether or not it’s available in real-time. In turn, suppliers do not make too much of a product. Consequently, cost saving can be achieved. In an unfavorable economy, corporations focus on bottom line savings, or higher net income or operating income. For example, if a corporation can view in real-time that customers want 15 more units of Product A in June, then they won’t anticipate 75 (what was sold last June). Therefore, the balance sheet is in better shape (lower inventory), and perhaps they won’t contract senior consultants to implement the product (operational savings). Other operational savings include less of a paper trail and manpower for processing purchasing orders. For a customer, it can also prevent duplicating orders, i.e. Ford may have the automobile part it needs existing in another factory. Furthermore, businesses and consumers can order goods directly from the manufacturer, eliminating – or disintermediating – the distributor, or the middleman. With supply chain management, prices are more competitive. Supply Chain Management for Recruiting Traditionally, hiring managers, recruiters, candidates as well as the processes of background checking, EEO data gathering and reporting, job board posting etc., for the most part, operate independently. Today, they can be brought together. The Internet has allowed recruiting to function at a much higher level. Thus, Hiring Management System solution providers can be the preferred outsourced supply chain manager for HR recruiting departments. Recruiting managers are better able to focus on the needs of each hiring manager and relate them to the entire organization and the candidate database. Recruiters are notified when the candidate (“the inventory”) is needed, and importantly, in what stage of the hiring cycle. Furthermore, candidates can find a position that matches their skills, earning the salary they want and will be notified in real-time, if a position is available. In turn, corporations will not spend too much time interviewing the wrong candidate for the job. Hiring managers – notified about ideal candidates in real time, after a systematic prequalification process – can spend more time with candidates, thereby better identifying the right person for the job. The recruiting process can be disintermediated, enabling a direct link between the candidate and the recruiter/hiring manager-reducing or eliminating the cost of a staffing agency, reducing advertising costs, etc. The status of requisition and candidate can be tracked as well. In the end, the gap between supply (candidate) and demand (recruiter) can be closed. The correct use of the term “supply chain” in reference to software automating the recruiting process requires a true transfer from manufacturing of the clear concepts of inventory, data flow and supply and demand. Anything less is just jargon being used to mask “vaporware” hiring management solutions. Real supply chain management software for recruiting brings powerful automation that meets business goals including reduced costs, faster hiring cycles and high quality hires.

Alice Snell is vice president of Taleo Research. The specialty research practice analyzes the best practices and economics of talent management. Taleo Research focuses on critical issues and key trends in talent management that impact organizational performance. Taleo Research is the strategic research division of Taleo, which provides on demand talent management solutions for organizations of all sizes, worldwide.