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December 2, 2021
5 min

What is Supply Chain Management?

What is Supply Chain Management?
To understand supply chain management, it is essential first to know what a supply chain is.  The supply chain includes all the activities involved, from product creation until the product reaches the customer. For example, the supply chain involves sourcing raw materials, production, packaging, shipping, distribution, transportation, etc. The main goal of supply chain activities is to deliver the final product to the customers with maximum efficiency.
Now that we've explained what is supply chain, let's look at the definition of supply chain management.

So what is supply chain management?

Supply chain management is the management of the flow of products or services, including all production processes, to streamline the business's supply activities to maximize customer satisfaction.

Effective supply chain management integrates supply and demand management and helps the company cut excess costs from manufacturing to product delivery, and enhance service to end customers with rapid lead time and agility.

“Supply chain is the network between a company and its suppliers to produce and distribute products or services”

How does it work?

Supply chain management (or SCM) streamlines all the efforts to develop and implement supply chains that are efficient and most economical. In other words, supply chain management controls production, shipment, and product distribution.

That helps the company speed up the production cycle, deliver a high-quality product, make onetime deliveries (on time in full at quality) and navigate returns with ease. That enables the company to keep a lasting and trusting relationship with customers.

Overall, a company must have an organized supply chain. And to keep those chains in control, an efficient supply chain management system must be there to monitor supply and demand activities.

The Key component in supply chain management

Plan, source, make, deliver and return.

► Planning- to meet customer demand, planning is essential. Supply chain managers must plan to control inventory levels and manufacturing processes to reach the demand of the clients. Therefore, managers must forecast the demand, design a supply chain and determine how the organization will measure the supply chain operations to ensure it performs as expected.

► Sourcing- to produce what is planned. The supply manager must select suppliers who will provide the raw material (goods procurement) or services that create the product (services procurement). Therefore they oversee, order, receive, and take care of inventory management and invoice payment for the supplier.

► Making- this component involves the coordination of the production of the planned goods and services. That includes reviewing the accepted raw materials, manufacturing the product, quality testing, and packaging.

► Delivering- involves distribution and retailing the final products. That involves coordinating the orders, scheduling delivery, dispatching or transporting the goods, invoicing, and receiving payment.

► Return- comes after delivering the goods, also known as reverse logistics. In some cases, the supply chain can develop a network that supports returning of products for reproducing if they are of low quality, expired, or contain some defaults. This supply chain network is also essential in a circular economy for the return of packaging material, for example.

Supply Chain Operations Reference Model - V11.0

Why is supply chain management critical?

Having an efficient supply chain model is an essential requirement since it helps companies achieve their objectives, improve profit margins and brand building.

That is through: controlling the production processes, optimizing the product quality, controlling the delivery process, improving customer services, thus reducing the risk of recalls, inventory oversupply, and expenditure.

Therefore Supply Chain Management:

       ► Lowers operating costs through production management (prevent overproduction, resulting in increased cost of raw material and labor).

       ► Increases revenue by making the product remain available in the market.

       ► Fosters effective resource utilization.

Examples of supply chain management in supply chain

Supply chain management involves activity coordination from production to delivery of products or services. Therefore examples of Supply Chain Management (SCM) strategy include coordinating the product's design, supply and demand planning (inc. S&OP), overseeing the manufacturing, managing the distribution and product delivery processes, including goods handling during transportation and logistics, etc.

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