What is supply chain management?
Each and every product in our daily life has gone through a long process of manufacturing, storage, shipment, and more shipment, before reaching our hands.
This collective process is known as “the supply chain”. Here are some basics of supply chain management.
Supply chain management (SCM) is the management of the flows of goods or services. Supply chain management streamlines the movement and storage of goods from raw materials, to production, and final delivery to the customers. Through the collaboration between different firms, SCM connects suppliers and end customers to increase customer value.
An efficient supply chain allows companies to save money and time, achieving a competitive advantage in the marketplace.
Supply Chain Management And Logistics
As the global supply chain is rapidly growing, there is little surprise that these two terms are often confused with one another. Supply chain management and logistics share certain similarities but there are also some important distinctions.
| Supply chain management | Logistics |
| Covers a broader scope as it manages the flow from the manufacturer to the end customer | Logistics is a part of the supply chain |
| Integrate various business processes into an efficient business model | Moves goods from one place to another, stores them, and provides the necessary and correct information |
| Main focus: gain competitive advantage | Main focus: meet the customers’ requirements |
| Relatively new term | Older term |
The Components of Supply Chain Management
Each SCM is made up of these five critical components:
#1 Planning
Careful planning allows any company to operate efficiently. From this very early stage, companies need to carefully consider the customer and production requirements, manufacturing capacity, limitations, the needed human resources, and so on. Proper planning may even provide businesses with data to make some forecasts for the future.
#2 Sourcing
There are a variety of requirements suppliers need to meet. This may include raw material specifications. Specifically, price differences may raise or lower the costs for businesses. The companies also need to consider the supplier’s flexibility and credible record, etc. Therefore, a strong relationship with suppliers is essential for SCM managers. A poor vendor may slow down the entire supply chain, so SCM managers need to be mindful in this step.
#3 Manufacturing/ Production
This part constantly requires improvements, as manufacturers need to minimize any deviation from the plan and established standards. During the process of transforming raw materials into the final product, businesses must monitor the controllable aspects to minimize any waste or unwanted incidents. This is necessary to avoid any costly change or even the reversal to earlier stages.
#4 Delivering/ Transportation
A strong delivery channel in supply chain management is extremely important, even though it is often outweighed by sales. Customers have not interacted with the product until this very point, so it is crucial that the business offers a prompt and safe transportation service at a competitive price.
#5 Returning
This unwanted process is sometimes referred to as “reversed logistics” – the company needs to ensure that the refund is properly issued and that they receive the returned goods. Whatever the reason behind the return – whether the firm decides to recall the product or the customers are unsatisfied due to deficiencies – a clear return policy needs to be defined. Last but not least, the company needs to identify the reasons for return to minimize such unwanted situations.
Supply Chain Management Example
Let’s say you wish to buy a new phone case. You visit the Z website, which sells many different products, including phone cases. After searching and pondering, you decide to choose a pretty cat phone case, add it to your cart, check out, then proceed with the payment. The payment process may involve third parties, like banks or other providers.
Once you finish placing your order, the warehouse receives it and gets the product ready for delivery.
From the warehouse, your phone case is shipped straight to your doorstep or may go through another shipping company before reaching you, the end customer.
Supply Chain Management Software
Supply chain management software is a tool to manage all the data links in the supply chain, from the planning to the delivery stage. This software offers functions such as supplier management, customer management, and end-to-end visibility, all integrated into the entire supply chain operations.
You can learn more about our SCM software here.
Final Note
This is the basics of supply chain management. Knowing how the components fit together would help you make faster and better decisions for your SCM needs.
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