What Is Supply Chain Management?

Supply chain management (SCM) is the discipline that manages the flow of supplies through all of the stages of a production cycle. SCM applies to any organization that executes projects, produces goods or provides services, as those activities require a supply chain to maintain a steady flow of resources.  That’s where supply chain management comes in.

Supply chain management is very important in the business administration field because it affects other key business areas such as operations management, inventory control and quality management. But what really makes SCM so important is that it can also become an important competitive advantage for businesses.

The main goal of supply chain management is to make the most of the resources involved in a supply chain and be as productive as possible. People are managed and supplies require management as well. Whether those supplies are goods or services, they must be accounted for and carried through from start to finish with deliberate control. To better understand SCM, let’s define what a supply chain is.

What Is a Supply Chain?

A supply chain is a network that connects a company to suppliers of raw materials. It is also used to deliver a product to customers. The better the supply chain management, the more of a competitive advantage the company has.

Supply chains are steps that are required to get raw materials, products or services from the original state to the customer and improve customer relations. Large companies and projects usually have more than one supply chain, which is known as a supply network. Having supply chain managers and supply chain management is key to delivering customer value and maximizing the efficiency of your supply network.

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Supply Chain Management Process

The supply chain process is fundamental to good supply chain management. It is used by companies to make their supply chain as efficient and cost-effective as possible and deliver customer value and give them a competitive advantage. There are five steps to the supply chain process. They are as follows.

1. Planning

In order to control inventory and the manufacturing process companies must plan to match demand with supply, which is known as supply chain planning. This prevents overspending on warehouse space or not having raw materials needed for your manufacturing and slowing down delivery of product.

2. Sourcing

This step involves finding those vendors who can get the goods and services you need when you need them. Sourcing is how you get supplies when you need them and meet the demand of your customers.

3. Making

Here is where those raw materials you procured are made into the products that meet your customers’ demand. This is where assembling, testing and packing occurs. Getting customer feedback is key to delivering customer value.

4. Delivering

Getting your finished product to the customer is the next crucial step in the SCM process. If you’re not able to get what you make to your customers all the previous steps are for naught. This makes delivering key to supply chain performance.

5. Returning

Returning or reverse logistics is part of what’s called post-delivery customer support process. It is important to have a clear channel for returns or risk tarnishing your brand. The company can then take these low quality, defective or expired materials and return them to their suppliers.

Related: 10 Free Manufacturing Excel Templates

Parts of a Supply Chain Model

To get the most out of SCM requires looking at the big picture in terms of an organization’s management. No longer is managing an individual company function enough. The integration of all activities involved in the supply chain is necessary: that means integration between different departments, such as purchasing and marketing.

Supply chain management also needs integration and collaboration between buyers and suppliers, joint product development, common systems and shared information. Here are the most important parts of any SCM system or model.

• Customer-Relations Management: There must be a managed approach to interacting with the company’s current and potential customers in order to understand what they want and expect.
• Customer-Service Management: This differs from customer-relations management in that it focuses on the interactions between the customer and the company instead of a more strategic management process. It helps facilitate a mutually satisfying goal for both customer and the company, as well as eliciting customer feedback and maintaining communications between the two parties, so there are positive feelings from both parties.
• Demand-Management Style: A methodology to forecast, plan for and manage the demand for products and services. This can address both macro-levels, as in global economics, but also micro-levels within the company.
• Order Fulfillment: The order fulfillment process that encompasses everything from point-of-sale interest to delivery of that product or service to the customer. It is the way a company responds to customer orders.
• Manufacturing-Flow Management: Manufacturing is a process, and supplies feed that process based on historic data surrounding how it has been done and what was needed historically. But that process needs flexibility as quantities change. Therefore, one must manage all activities related to planning, scheduling and managing the manufacturing process.
• Supplier Relationship Management (SRM): Supplies likely are coming from a third party, and those interactions must be strategically planned for. SRM is key to a healthy supply chain.
• Product Development and Commercialization: To reduce time to market, customers and suppliers are integrated into product vision and the product development process. Shortening the product life cycle keeps the company competitive. This process includes coordinating with customer relationship management to know customer needs, selecting materials and suppliers with procurement and developing a production technology in the flow of manufacturing to integrate the best supply chain flow for the product and market. When successful, this has a positive impact on cost, quality, delivery and market share.
• Returns Management: There will always be returns and the better they’re managed, the more productive and competitive the SCM process. Management of this aspect of the SCM means fast and easy returns management, automation and deciding how to process returned materials. Make sure information is visible to capture early in the process. Then control the flow of product, including receipts and reconciliation, noting if there are any quality issues.

Benefits of Supply Chain Management

Supply chain management is a hefty task with hefty rewards. Here are a few ways that well-executed SCM can benefit your business or project.

Keeps Businesses Competitive & Paces with Technology

The simple answer to why SCM is important to any business is that it helps them remain competitive. Markets change, and as the marketplace becomes increasingly global, the need for better efficiency is crucial. As management goals change, too, there is a move away from the past traditional relationships to incorporate and organize all business processes throughout a value chain of multiple companies.

Advances in information technology and the increasing use of outsourcing has also added to the expansion of the supply chain. This has created a need for a more collaborative network, so different enterprises can work harmoniously together.

Creates Productive Environments

These changes in how businesses are managed have led to the development of supply chain environments. Multinational companies, joint ventures, strategic alliances and other partnerships, as well as technological advancements, have contributed to more cooperation among those in the supply chain network. As supply chains become more holistic and cooperative, companies must adapt.

Proactive Strategy

But supply chain management is not merely reactive, it also helps to stimulate innovation and productivity by assisting companies with organizational learning. The more extended a company is in terms of its supply chain, the more adaptive it has to be. That leads to creative thinking, which results in innovation and increased productivity.

Satisfies Customers While Reducing Operating Costs

Customer service also benefits. Customers demand quality and they expect products to be available where and when they want them or delivered when on time. Supply chain management will also help with sale support after they’ve made the purchase.

But it’s not just the customer who benefits. As noted, SCM is instrumental in cutting operation costs. When smartly applied it can decrease purchasing, production and total supply change costs. This improves a company’s financial position by adding to profit leverage, reducing fixed assets and increasing cash flow.

Supply Chain Management FAQ

SCM is a complex topic and you might have even more questions about it. Here are some quick answers about supply chain management topics.

What are the Components of Supply Chain Management (SCM)?

The 5 components of the supply chain management process are planning, sourcing, making, delivering and returning.

What Is Supply Chain Analysis?

Supply chain analysis is the process of auditing all the different steps of the supply chain to identify any possible areas of improvement.

What Is a Supply Chain Strategy?

A supply chain strategy is a roadmap that a company uses to source information, materials and equipment from its suppliers to create products and deliver them to its customers.

Supply chain management is just one more screw that can be tightened on the ship of business to help it sail better through the turbulent waters of industry. But it’s a complicated process, one that benefits from having robust project management tools to plan, monitor and report on the many aspects of the supply chain that need control. ProjectManager is a cloud-based software that has the tools to make you manage more efficiently and effectively. See what it can do by taking this free 30-day trial.