Definition: Supply chain management governs the business operations and logistics required for the most effective product creation and delivery to the final consumer.
What is Supply Chain Management?
Supply chain management (SCM) encompasses the networks required to manufacture a product as well as distribute it to the final consumer.
It organizes the supply chain activities and logistics required to source supplies, manufacture, transport, and deliver the product to the consumer or a retail store where the customer may purchase it.
The primary purpose of supply chain management is to meet consumer demand by delivering the correct product at the right time and at the lowest possible cost.
The complexity of supply chains vary based on the company’s aims, the types of goods it produces, and the market demand for them. Online shop supply chains may prioritize delivery speed, whereas luxury goods supply chains may prioritize reliability and risk management.
Assume a huge luxury accessories firm in the United States creates handbags and purses. The supply chain includes every stage of product production: where does the firm get its resources – leather, precious stones, luxury fabrics? And can these suppliers satisfy the company’s requirements on time? This company’s supply chain management will improve if it moves to a leather supplier that permits it to speed up production and save prices. An improvement in supply chain management can increase a company’s profitability, benefit consumers, or both.
Why is Supply Chain Management important?
The ultimate purpose of supply chain management is to satisfy the demands of the client in the most efficient way. An effective supply chain enables you to deliver the finished product in the required quantity, quality, and on schedule while spending the least amount of money.
Failures in the supply chain not only result in a loss of money in overall production costs, but also prevent the firm from meeting customer demand, which has a direct impact on the company’s profit.
How does supply chain management work?
The complexity of supply chain processes varies. They can be worldwide, including several supply chains, or in-house, with little or no outsourcing.
Along the supply chain, tangible commodities go to the consumer. The cash flow is shifting in the opposite way, from the corporation to its suppliers. And the flow of information is bidirectional. Supply chain management also handles the return of undesired or faulty items from customers to the enterprise.
In different market categories, supply chains have varied demand management. The qualities of the product and market needs influence how products are selected, manufactured, delivered, and orders are fulfilled. Markets that have consistent customer demand and need regular inventory management, such as grocery, necessitate strong partnerships with suppliers that are always reacting to consumer demand.
Luxury products with variable demand from mass customers, such as luxury watches, may have supply chains that are more concerned with risk management and the quality of individual orders than with inventory and delivery timeliness.
Efficient supply chain management entails balancing cost, quality, speed, and flexibility in response to market demand characteristics.
Supply Chain Steps
Although the intricacy of supply chain management varies, the overall order of the processes it handles is consistent. A plan for supply chain management has been established. The supplier purchases raw materials or components for goods and delivers them to the maker. The manufacturer creates goods. The items are subsequently kept and shipped to a wholesaler or retailer, where the buyer finally purchases them.
The components of supply chain management may be classified into five broad groups.
- Planning operations: Creating a supply chain management strategy
- Procurement and supplier search: Acquiring raw materials and components required for product manufacturing
- Conversion: The procedure for turning raw materials and pieces into a completed product.
- Logistics:The coordination of all physical materials, goods, and information from beginning to end of the supply chain.
- Reverse logistics: The process of managing the transfer and disposal of returned products.
The field of supply chain management is large and complex. Depending on the firm, goods, and market, supply chain management may also involve (but is not limited to) the management of some or all of the following functions:
- Creation of a placement plan near the source of resources and components required for manufacturing
- Product Design: Research & Development
- Material inventory: receiving and processing of raw materials based on cost and availability
- Robotics: Used in both manufacturing and warehousing.
- Transportation management: Supervision of both internal and external transportation and delivery
- Inventory management: Management of supply and demand
- Alliances strategic: between suppliers and/or other service providers
- Invoicing: Vendors, service providers, and consumers.
- Information technology: Information system management
- ERP (Enterprise Resource Planning): Management of business activities in real time using supply chain management software
- Risk management: Entails dealing with potential supply chain disruptions such as outdated technologies and changing government policies.
- Recycling: The reuse and/or disposal of returned goods.
- After-sales Service: Customer Support
- Global issues: Include taxes and tariffs, as well as politics and commerce.
Logistics VS. supply chain management
Logistics and supply chain management are different but interconnected concepts.
Logistics is a crucial component of supply chain management. This involves overseeing operations and coordinating the movement of goods and information along the supply chain.
Supply chain management includes logistics as well as the actual conversion of raw materials into goods through production planning, material procurement, and product manufacture.