17 Nov 2022

A Comprehensive Overview of Supply Chain Management (SCM)

Supply chain management is a business-focused approach to managing many moving parts of the supply chain while ensuring lower costs, maximum customer satisfaction, and competitive advantages.

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With the globalization of businesses, organizations have been forced to devise effective ways to manage the seamless flow of products and services into and out of the company. Reliably and quickly delivering defect-free products to consumers is no longer a competitive advantage but a requirement to sustain in the market. Both companies and distribution channels strive for time and quality, and supply chain management becomes a necessity for businesses in such a scenario. Increased performance-based competition, along with rapidly changing economic conditions and technology, are leading to uncertainty in the market that requires great flexibility from companies and distribution channels. All these factors necessitate the significance of supply chain management.

Table of Contents

What is Supply Chain Management (SCM)?

Supply chain management is managing the goods and services flow, including all processes that convert raw materials into end products. It comprises controlling and reducing costs and avoiding supply shortages to optimize customer value and gain a competitive advantage in the market. The process contains integrated planning and implementation of the processes required to optimize the flow of material and resources into functions that include demand planning, sourcing, production, inventory management, and logistics. Companies can use specialized supply chain management software and business strategy to develop a competitive advantage.

How Does Supply Chain Management Work?

Supply chain management is a supplier's effort to develop and implement efficient and economical supply chains. It includes everything from production to product development and the information system needed to handle these processes. Its essential task is to centrally control the supply chain and establish a link between all the processes, from production to shipment and the distribution of the products. SCM works on the idea that every product released in the market is the effort of all the organizations that make up the supply chain. However, the workflow of SCM can be categorized as product management, information management, and financial management. Any business which is a part of the supply chain works in any of these categories. The different varieties of SCM workflow are described below:

Product - This workflow comprises storage, product delivery, and timely formation of products along the supply chain, and it also conducts quality assurance at each product location.

Information - This workflow includes sending and receiving sales and purchase orders and updating the delivery status. This workflow needs to run smoothly because all other workflows rely on accurate information transmitted through the supply chain.

Finances - This workflow is related to billing, inventory management, payments, credit terms, and other finance-related workflows.

What are the components of Supply Chain Management?

It centrally controls a product's production, shipment, and distribution. Supply chain management allows companies to reduce costs and quickly deliver products to the consumer by having reasonable control over company vendors' inventories, production, distribution, sales, and inventories.

The components of SCM include:

Planning Planning implies managing all resources the company requires to manufacture a product or service to meet customer demand. After establishing the supply, chain company needs to determine metrics to know whether its supply chain is effective and delivers value to customers, or not and meets its goals.

SourcingSourcing is a component of the supply chain in which a company selects a supplier to deliver the goods and services required to manufacture the product. After this, key processes are established, like ordering, receiving, inventory managing, and authorizing supplier payments to manage and monitor supplier relationships.

ManufacturingThe activities are organized that are essential for sourcing raw materials, product manufacturing, quality testing, packaging, and for delivery schedule. Manufacturing is the heart of the supply chain management process in which the company transforms raw materials using machinery, labor, or additional forces. The final product is the result of the manufacturing process that is further divided into sub-tasks like assembly, testing, inspection, or packaging.

Delivery and LogisticsThis includes managing customer orders, scheduling deliveries, dispatching loads, receiving payment, and invoicing customers. After products are manufactured, and sales are finalized, the company needs to deliver the products to the customers. The distribution process is linked with the brand image; until now, customers have not yet used the product. A company has robust logistic capabilities and delivery channels in a strong supply chain management process to ensure product safety and timely and inexpensive delivery.

ReturningCompany creates a process to take back excess, unwanted, or defective products. The SCM planner’s responsibility does not end after the delivery of the product, as they require creating a network supporting returning of products. Returning is either scraping or re-producing a defective product or simply returning a product to the warehouse. A flexible network should be created that should support customer needs.

Why is Supply Chain Management Important?

It is essential because it minimizes cost and reduces waste and time in the production cycle. Today just-in-time supply chain has become an industry norm, where retail sales automatically signal replacement orders, and retail shelves can be restocked immediately after the product is sold. Effective supply chain management increases the value of the supply chain cycle in the following ways:

  • It minimizes the overall costs and increases the efficiency of carried-out processes by ensuring that manufacturing facilities receive a timely shipment of raw materials. This further avoids delays in production and material shortage.
  • An effective SCM strategy eliminates the need for an expensive warehouse because it ensures faster delivery of goods from the manufacturers to the customers.
  • It allows businesses to predict stock shortage before it happens by using data like the number of stocked orders and reorder frequency.
  • It also ensures that customers are provided with the right amount of products at suitable locations at the right time.

What are some examples of Supply Chain Management?

Some examples of SCM across different sectors:

Retail storeRetail businesses develop well-planned supply chains to remain competitive in an industry. Retailers in their supply chain usually link with generic manufacturers producing and selling unbranded products. They use vendor-managed inventory systems to manage warehouse products and associate with suppliers capable of meeting the quantity and frequency of orders at the lowest price. They control delivery to diverse locations through internal transportation networks or external providers. At last, they put the label on the final product and sell those products in their retail store.

E-commerce companyAn E-commerce Company operates a website to sell various products. When a customer places a product order, it gets processed through a checkout cart, an order system, or a third-party product like Shopify. Payment processors then deal with the payment transactions for the order, opening up a new supply chain. When a customer orders a product is placed, the warehouse receives the order and ensures that the product is ready for delivery. The e-commerce company can have its warehouse or a third-party logistics provider. The order is then transferred from the warehouse to the shipping company, and after shipping, the product is shipped to the customer's address.

What role does Supply Chain Management Software play?

Supply-chain-management software is a tool that is used to execute supply-chain transactions, manage supplier relationships, and control associated business processes. It also automates and optimizes the range of activities that plan, control, and execute product flows in manufacturing industries. The software coordinates the entire or part of the flow of products and improves the accuracy of supply chain activities. The role of supply chain management software is to coordinate the flow of products efficiently and cost-effectively. Some significant role of the software includes:

  • This business tool helps in managing the supply chain with better efficiency.
  • It streamlines supply chain operations from start to finish.
  • It tracks and manages the availability of raw materials, stocked goods, or spare parts.
  • It automates purchase order processes like generating and tracking purchase orders, scheduling supplier deliveries and creating pricing.
  • It coordinates transportation channels, improves delivery performance, and boosts customer satisfaction.

Frequently Asked Questions

Q: What is green supply chain management?

A: Green supply chain management refers to incorporating sustainable environmental processes into the traditional supply chain. It includes product design, manufacturing, supplier selection, purchasing material, distribution, and end-of-life management. The process involves value addition or value creation through the operations of the whole chain. The primary objective of green supply chain management is to reduce air, water, and waste pollution. It enhances firms' performances in terms of less waste, reuse, and recycling of products, reduction in manufacturing costs, and greater customer satisfaction.

Q: What is the supply chain cycle?

A: A supply chain cycle is a sequence of stages to get a finished product or service to the customer. The steps include sourcing raw materials, moving raw materials to production, and then transporting the finished goods to a distribution center or retail store where they will be delivered to the consumer.

Q: What are the types of supply chain management?

A: The different types of supply chain management include:

  • Continuous flow
  • Fast chain
  • Efficient chain
  • Agile
  • Custom-configured
  • Flexible
Q: What is the main role of supply chain management?

A: The primary role of SCM is to ensure that customer demand is met with the product's supply. Its primary role is to ensure that the companies never produce insufficient or extra products. Some of the critical functions of supply chain management include:

  • Reduce production cost
  • Increase customer service
  • Improve product quality
  • Improve financial position
  • Develop best marketing strategies
Q: What are the benefits of a supply chain?

A: A supply chain is a system of producing and delivering a product or service that includes sourcing raw materials from the right source to the final delivery of products to the end consumers. An adequate supply chain is vital for business performance and has many benefits. The supply chain is the business lifeline and keeps all the workflow processes organized and efficient. Some of the key benefits include:

  • Better flow of products, materials, and information
  • Better data visibility
  • Reduced cost
  • Increased customer satisfaction
  • Effective inventory management
  • Improved quality control
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