What Is Supply Chain Management?
Supply chain management (SCM) is the entire flow of a particular good or service, from acquiring raw materials to delivering the end product to customers. It involves planning, sourcing, production, inventory management, storage, and transportation. To accomplish the whole process, companies employ a network of suppliers that move the product from its raw phase to an organization that deals with end-users.
Why Is Supply Chain Management Important?
How goods and services move along the supply chain has a direct effect on a company's working capital and whether it can deliver the correct products to end customers on time. It impacts both the company and its consumers.
When done right, SCM activities can increase customer satisfaction by ensuring the necessary products are in stock or up for sale at the right time. Of course, satisfied customers are more likely to remain loyal and, in turn, that can boost a company's profit margins.
All activities that are part of the SCM process can reduce the cost of production, shipping, and transportation. Lowering costs improves a business’ performance and financial position by growing cash flow. Improvements to profits for the company are seen via metrics like cash conversion performance and working capital turnover. When a business has effective SCM in place, it has a competitive advantage over its competitors.
Benefits of successful supply chain management are:
- Higher efficiency rate.
- Improved collaboration with suppliers.
- Enhanced product quality.
- Increased compliance with consumer’s expectations.
- Reduced risk of negative PR.
- Happier employees.
- Better security for creditors and investors.
- New market opportunities.
Components Of The Supply Chain
Businesses need to ensure two things for their SCM to be effective – it should be cost-effective and it should deliver the best results on time. There are many complex supply chain management processes that differ with a company's size and scope of products.
Planning is one of the essential stages of SCM. The demand for the product or service, costing, workforce, profit, and more must be taken into account.
Whether you are running a small business or a large company, it is vital to keep up with the latest news and trends. In today's data-based economy, knowledge is essential. Ignoring relevant information about any business aspect may create havoc in your company.
SCM doesn't exist without suppliers. Products and services distributed to consumers are created with the help of raw materials. For this reason, it is essential to acquire quality raw materials at cost-effective rates. The role of suppliers is to deliver on time and within the budget. If not, profits, as well as a company's reputation, can suffer.
For effective SCM, it is vital to keep inventory in order and maintain accurate records and counts of the products, raw materials, and essentials required for the production of the end product or service. Knowing the available stock of an inventory item is necessary for re-ordering it when needed.
Product production is possible when all previous components are completed. Production is followed by testing, packaging, and preparation for shipping.
A proper location, ideally one that is convenient to the source of raw materials for product production, is crucial for a business’ prosperity.
At each stage of supply chain management, timely transport of products is necessary to sustain a stable business process.
Among the components that form a reliable supply chain is the return of products. Sometimes companies must recall products. An organized process for returns not only creates an excellent customer experience, but it also improves the company's image in the long run.
What is the Difference Between Logistics and Supply Chain Management?
While there are some similarities between them, logistics and SCM shouldn’t be used interchangeably. Logistics is just one component of SCM, while supply chain management includes a range of activities. Essential differences include the following.
- Processes: Supply chain management includes planning, gathering information, supply planning, inventory management, product production, transportation, and reverse logistics. The logistical processes include inbound/outbound shipping, warehousing, product returns, packaging, and fulfillment.
- Purpose: The purpose of SCM is supply chain optimization, while the goal of logistics is to provide timely delivery.
- Job Descriptions: The responsibilities of a supply chain manager include controlling the overall supply chain process and logistics operations to increase efficiency and lower operational costs. Logistics managers plan transportation strategies, objectives, and initiatives.
Logistics can be handled in-house, or by LSPs (logistics service providers), warehouse providers, and courier shipping.
Supply Chain Management Tools
With supply chain management becoming more and more complex, many types of software solutions have been created to optimize performance. Software tools can:
- Automate the SCM process, from order processing to shipment tracking.
- Identify excess materials and possible cost-savings in manufacturing, warehousing, and logistics.
- Improve inventory management.
- Improve on-time delivery.
- Support collaboration and communication between suppliers, clients, partners, and distributors.