What is Supply Chain Management and How it Works?

Every product or service we use goes through a wide range of operations before it gets into our hands. This is a complete process of Supply Chain Management that allows the complete flow of goods failing to which might affect the groundwork involved in this chain of events may result in an unsatisfactory customer/end-user experience.

Being said that there goes a lot of effort and task management from gathering the raw materials to delivering the end product for business sustainability. Supply Chain Management deals with control and coordination of such chain of events to improve efficiency and meet end-user demands.

In this article, we are going to look at What is Supply Chain Management, the various models of SCM, and much more

What is Supply Chain Management (SCM)?

Supply Chain Management or SCM is the systematic analysis, implementation, and maintenance of the flow of the good in a supply chain, i.e. series of events from induction of raw materials or delivery of end products.

This involves collecting raw materials, manufacturing products, and many more. SCM helps in creating effective products within a given range of time and money. There is no such additional inclusion of SCM in business or enterprise as it is always interlinked with business management. As businesses are involved in custom satisfaction, SCM helps in planning and execution for better outcomes.

Why is Supply Chain Management Important?

The overall success of any company that is involved in manufacturing start from efficient management of the supply chain. Planning, execution, and monitoring the supply chain are vital in fulfilling customer demands and achieving business targets. Here are some key points that show the importance of SCM:

1. Budget Management

Cost of materials, manufacturing, and logistics are the key elements in defining goods/service prices. To supply goods to end users at a reasonable price, it is important to have a cost-effective supply chain, which includes, reducing material waste, managing inventory, and improving production values and quality raw materials.

2. Amplify Customer Experience

Apart from reduced costs, SCM also helps in better logistics and return management. Thus, a customer will experience delivery at the right time and right place. Also, SCM help in producing invoices and handling post-delivery services (collecting defective products, refund, and product replacement). All these can make a better customer experience and improve marketing.

3. Control Over Infrastructure

As SCM deals with every part of the supply chain, every little detail in infrastructure, machinery, and raw materials can be visualized. This can help in planning for better outcomes and dealing with depreciation. SCM also helps in fault detection, elimination, and mitigation and thus helps in continuous production.

Core Elements of SCM

SCM consists of a wide range of activities that are needed to be taken care of. Understanding the supply chain and making necessary changes in each of them are equally important in meeting customer demands at an efficient cost.

In general, SCM takes care of the production, shipping, and delivery of products or services. Each step in this supply chain goes in series, i.e. the outcome of one stage is the input of the next stage. The core elements that are involved in SCM are as follows –

1. Planning

With the number of events, materials, time, and effort involved in business, it is very important to have clear planning in the supply chain. A well-designed plan should be made by customer needs, company values, and the image of the enterprise which is likely to be projected.

Planning involves estimating the workforce, cost of materials and equipment within a specified time. It is necessary to have a robust plan and eliminate the bullwhip effect. Nowadays, most business entities use ERP systems for supply chain analytics and material management.

2. Sourcing

The term ‘Sourcing’ in SCM refers to gathering and making agreements with vendors who can supply the required materials on demand. It is important to choose the vendors based on quality, quantity, cost, and availability.

Effective sourcing will result in quality control, effective resource utilization, and on-demand supply. Sourcing includes ordering, gathering, managing inventory, and authorizing invoices. Collaboration in the supply chain system begins from here.

3. Manufacturing

After planning the structure and collecting the raw materials, the next step is to coordinate manufacturing. This process is the core of any production business. It involves converting raw materials into finished goods with the help of labor, machinery, and technological tools.

For effective manufacturing, various factors should be considered such as scheduling, assembly, production, testing, and packaging. This helps in the reduction of waste and recycling/ reuse of by-products. Management in manufacturing will uphold standards and provide the required profits.

4. Logistics Management

After creating the product, the next part is to place the product in the hands of the customer/end-user and this is known as logistics management and inventory control. As customer interaction with a company begins with secure and on-time delivery, a company must build a robust delivery system.

Delivery planning will consist of various parts, such as taking the order, managing delivery focal points, scheduling delivery, collecting payment, and handling invoices. As e-commerce is largely associated with these activities, it is in the hands of the company to decide whether to take their help or plan for their delivery.

5. Return Management

Customer satisfaction revolves around the company’s efficiency in responsive customer care and well-defined return policy. Also, there exists a relationship between brand image, promotions, and inventory management with return management.

Return Management consists of three major components, i.e. Reverse Logistics, Customer Experience, and Asset Recovery. These activities can result in defect detection, understanding customer behavior and thereby improving business performance.

Various Models in SCM

There will always be greater differences in understanding any concept and implementing the concept in daily life. SCM may vary from business to business based on size, type of product, season of product, etc. Being said various SCM models are in practice for business sustainability. Few SCM models are –

1. Continuous Flow Model 

Companies that produce a limited variety of goods regularly are likely to opt for this model. Such a model can be possible for products or brands that have constant supply and high-demand chains. This can help in streamlining production and ensure a steady outcome.

2. Fast Chain Model

This model is beneficial for companies that emphasize quick turnover. The Fast chain model is specifically used for products with short lifecycles and follow the latest trends. Companies should understand the trend, think & design, and manufacture the product within a specified time ( or say before the trend loses its significance).

3. Efficient Chain Model

An efficient Chain is mostly useful in domains that have high competition. This model mainly focuses on extracting maximum output from machines, labor, and other assets to improve productivity and reduce costs. However, considering the rigidity of this plan, a long delay may cause even when there is a slight interruption. 

4. Flexible Model

Business Analysts say that the Flexible Model can be best for SCM. This model involves managing production in both high-demand and low-demand circumstances. This can be achieved by coordination between supply chains, keeping a low inventory level, adapting to changes, and keeping a good connection with customers.

5. Agile Model

On the basic level, Agile Model allows the business to be responsive and adapt to changes while maintaining momentum. This involves inventory management, prioritizing resources, and streamlining the manufacturing & distribution networks. With increased transparency of data, the Agile model help in detecting vulnerability and reducing risk.

Conclusion

Supply Chain Management(SCM) is always interlinked with business management. Also, Companies should focus on improving their SCM with the latest technologies such as AI, data analytics, and cloud computing. Understanding every step involved in a production business and making effective decisions will always result in prosperity.

With improved coordination between different segments of the supply chain, which can be heavily possibly by SCM, a company can always aim for high standard production, persistent customer satisfaction, and business sustainability.