Supply chain management is the organization of activities which bring goods and services to people. After waking up this morning, you ate breakfast… milk, bread, fresh fruits, eggs and the like. Don’t undervalue the fact that you can enjoy these products.
The process of making that bread and eventually delivering it to your table is not short of miracle. There are numerous activities, functions, people and transactions involved in manufacturing and delivering it. All these activities, functions, people and transactions are connected together as a chain (the supply chain); through which physical products like bread and virtual elements such as information flow constantly back and forth.
To create maximum value for that bread, all participants within the supply chain have to carry out their functions and coordinate well with each other. The process of coordinating different elements is known as supply chain management (SCM). It complements the operation of markets, by which suppliers and buyers coordinate activities through price signals.
What is Supply Chain Management?
Supply chain management is the oversight of products, information and finances as they flow in a process from suppliers to manufacturers to wholesalers to retailers to consumers. Administrators manage the movement and storage of raw material, work-in-process inventory as well as finished products from the point of origin to the point of consumption.
SCM drives coordination of activities and processes within and across finance, marketing, sales, product design and information technology facets. Typically, SCM attempts to centrally link or control the production, transportation and distribution of products.
Supply chain management is a cumulative effort
SCM is an integrating function whose primary responsibility is linking major business processes and functions within and across organizations into a cohesive and high performing business model. The controlling process represents a conscious and cumulative effort by different organizations to run the supply chain efficiently and effectively so as to achieve competitive advantage and maximize customer value.
SCM is made of five basic components:
- Planning—the organization must have a strategy for managing the resources required to meet customer demand for their products.
- Sourcing—next, the organization has to choose suppliers of the raw materials needed to create their products. This also involves setting delivery, pricing and payment processes with suppliers and creating metrics to be used to monitor and improve the relationships.
- Making—this is the manufacturing stage. It involves scheduling the activities required for production, packaging, testing and preparation for delivery. Here, companies must be able to measure quality levels, worker productivity and production output.
- Delivering—in this stage, organizations coordinate the receipt of customer orders, develop a warehouse network, pick carriers to transport products to the customer and set up invoicing systems to receive payments.
- Returning—Lastly, Supply chain managers must create a flexible and responsive network for receiving excessive and defective products back from the customer as well as supporting customer complains.
Essentials of effective SCM
The fundamental focus of supply chain management is understanding customers as well as their values and requirements. Organizations must seek to understand exactly what customers expect from their product and then focus their efforts to meet these expectations.
Companies have to make investments in technology that will enable them to access lots of timely information. Proper information flow is vital to the visibility of products as they move through the supply chain. It can be achieved by developing partnering relationships with all members of the supply chain.
Finally, organizations must adequately consider various techniques to measure how successful they have been at delivering value to the customer.
Value of Good SCM
Effective supply chain management generates efficiency gains, allowing for improved revenue, lower costs and reduced risks. For this reason, the field is a popular concentration in MBA programs.
- Boosts customer service. Supply chain management affects customer service by ensuring the right product quantity and assortment is delivered in timely fashion. Through effective SCM, products will be availed to the exact customer location. The customers will also get quality after-sale support.
- Improves bottom line. SCM lowers the usage of various large fixed assets such as transportation vehicles, plants and warehouses in the chain of supply. Also, it increases cash flow because once product delivery can be expedited, then profits will be received quickly.
- Reduces inventory costs.
- Provides a medium for sharing of information between supply chain partners.
- Maintains greater trust between supply chain partners.
- Provides efficient manufacturing strategies.
- Improves process integration.
- Allows for ethical and sustainable investment (Investing Responsibly Resources Center).
- Exchange of real-time data increases the speed of transactions.
- Increases business revenue by satisfying the demands of customer more efficiently.
Bigger than Business
Interestingly, SCM is an important aspect of civilization. Most of the world’s largest supply chains are marvels of teamwork and coordination. Brilliant SCM enables companies to achieve international growth; sure, not all business organizations have good motives, but SCM is an important tool for those trying to impact good globally. SCM within a well functioning society creates employment opportunities, decreases pollution, lowers energy use and improves the living standards.
It’s nice when gas prices stay low, and this is most definitely a result of excellent Supply Chain Management. But it’s natural calamities that need SCM the most. When hurricanes arrive unexpectedly, when tsunamis appear relentlessly, when tornados hit land, when droughts persist, such are the times when all resources and thought poured into SCM pay off greatly. Supplies can be taken to where they’re needed at surprising speeds, and that’s a beautiful thing.
Clearly, SCM has a significant impact on business and society as a whole. Looking to the future, it must be understood that supply chain management is always evolving. Emerging technologies and successful SCM techniques being used by businesses today form the foundation for future improvements in efficiency, cost savings and customer value addition.
Further reading: Supply Chain Digest