What is Supply Chain Management?

What is Supply Chain Management?

Supply chain management (SCM) is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective & efficient ways possible. Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. We can also define Supply chain management (SCM) as all the activities required to turn raw materials into finished goods or services and the work required to distribute and deliver those products or services to partners and, ultimately, customers.

A supply chain is a coordinated network of people, businesses, resources and technologies that play roles in producing, transporting, selling or delivering a good or service. Every company has a supply chain, and that includes services-based businesses.

What are the Components of Supply Chain Management?

Planning

Supply chain planning (SCP) is the process of anticipating the demand for products and planning their materials and components, production, marketing, distribution and sale. Its overall goal is to balance supply and demand so sales revenue opportunities are fully exploited in a timely manner and at the lowest possible cost. Supply chain planning is the process of planning a product from raw material to the consumer. It includes supply planning, production planning, demand planning, and sales and operations planning.

Supply planning determines how best to fulfill the requirements created from the demand plan. The objective is to balance supply and demand in a manner that achieves the financial and service objectives of the enterprise.

Production planning addresses the production and manufacturing modules within a company. It considers the resource allocation of employees, materials, and of production capacity.

Demand planning is the process of forecasting demand to make sure products can be reliably delivered. Effective demand planning can improve the accuracy of revenue forecasts, align inventory levels with peaks and troughs in demand, and enhance profitability for a particular channel or product.

Sales and operations planning (S&OP) is a monthly integrated business management process that empowers leadership to focus on key supply chain drivers, including sales, marketing, demand management, production, inventory management, and new product introduction.

Sourcing

The process of sourcing products or services is one of the important component in Supply Chain Management. It’s about finding the balance between the quality of products and raw materials you need and the affordability. Sourcing means finding the right suppliers that provide the quality you need at a price point that gives you the margin you need. Strategic planning in the sourcing process is central to cost structure, profit margins, and competitiveness for businesses of all sizes.

Sourcing involves the following:

Finding quality sources of goods and services

Negotiating contracts

Establishing payment terms

Market research

Testing for quality

Considering outsourcing for goods

Establishing standards.

Production

Production is one among the most important aspects of Supply Chain Management. It is only possible when all the other components of the supply chain are in tandem with each other. For the process of production to start it is essential that proper planning and supply of goods, as well as the inventory, are well maintained. The production of goods is followed by testing, packaging and the final preparation for delivery of the finished product.

Transportation

Transportation in a supply chain refers to the movement of products from one location to another, which begins at the start of the supply chain as materials make their way to the warehouse and continues all the way to the end user with the customer’s order delivered at the doorstep. Supply chain’s success depends on a strategic use of appropriate transportation. An example would be to adopt a responsive transportation system, which uses cross docking—exchanging a product between trucks so that each truck delivers products from different suppliers to the designated destinations. In the end, cross docking helps lower overall costs. The transportation in a supply chain can be used to control costs in a business operation. Freight and fuel costs take up most of the logistics budget. Moving products from one location to another using one or a combination of the various modes of transportation is a cost-intensive affair.

Warehousing

Warehousing is an integral part of Supply Chain Management System. As part of the overall supply chain, warehousing and distribution plays a pivotal role to ensure that the goods reach the end consumer at the right time and in the right condition. A warehouse serves as a place where companies organize their goods and create a systematic supply chain, whether dispatching large-scale raw material or small-scale doorstep deliveries. At the warehouse, each dispatch must be in perfect shape so that the delivery is executed correctly. No matter how lean you make your supply chain, warehousing always remains an integral part of it.

Reverse Logistics

Reverse logistics is defined as the process of moving goods beyond their typical final destination for things like re-use, capturing value, or proper disposal. There are many reasons customers return products, including:

The customer bought the wrong product

The product was damaged upon arrival

The product did not match its description

The customer no longer wants the product

Reverse logistics is not without challenges. One of the most common is tracking the profitability of the reverse logistics process. Depending on the items, it’s not always profitable to ship products back to a distribution center because the value of a product may be less than the cost of shipping. Another common challenge is having the necessary infrastructure to track an item’s warranty status. It’s also important to ensure any repair process is cost-effective.