What is supply chain management?

Supply chain management (SCM) is the coordination of a business’ entire production flow, from
sourcing raw materials to delivering a finished item.

The global supply chain is a complex network of suppliers, manufacturers, distributors, retailers,
wholesalers and customers. Effective SCM is about optimizing this network to ensure that
everything gets where it needs to be, when it needs to be there—and as smoothly as possible. It
includes obtaining the necessary components, manufacturing the product, storing it, transporting
it and getting it to customers.

SCM also involves the coordination of external partners and both internal resources and
operations management. According to the Council of Supply Chain Management Professionals
(CSCMP), “in essence, supply chain management integrates supply and demand management
within and across companies.”1

Supply chain management consists of several main components, including:

Planning
Planning involves forecasting demand, arranging production and managing inventory levels to
ensure that the right products are ready to meet customer demand. It also involves setting an
overall SCM strategy by determining metrics to measure whether the supply chain is efficient,
effective and meets company goals. And it includes adapting to new product needs.
Sourcing
Sourcing involves identifying which providers to work with, negotiating contracts and managing
supplier relationships to ensure a reliable supply of raw materials and components. The work
includes ordering, receiving, managing inventory and authorizing supplier payments.
Manufacturing
Manufacturing involves organizing the supply chain operations required to accept raw
materials, design and produce the product, and handle quality control.
Delivery
Delivery involves the transportation and distribution of finished products to meet customer
needs. It includes managing distribution centers, warehousing, order fulfillment and logistics.
Returns
Handling returns involves creating a network or process to take back defective, excess or end-of-
lifecycle products. It includes managing reverse logistics and customer satisfaction, in addition to
final product disposal.

What is the Scope of Supply Chain Management?

The Scope of SCM is vast and encompasses a wide array of activities, each contributing
significantly to a company's operations. Five key components are integral to understanding it, all
of which are expanded as follows:
Procurement
This is essentially the process of selecting and purchasing goods or services that a company
needs to fulfil its business model. In the wider context of Supply Chain Management,
procurement plays a vital role in maintaining profitable operations. This involves the following:

a) Sourcing reliable suppliers

b) Negotiating terms of purchase

c) Ensuring a steady supply of necessary goods

d) Maintaining a healthy relationship with vendors

It's not merely about getting the cheapest deal but ensuring the goods or services procured are of
the right quality and delivered at the right time.

Production planning
This component focuses on coordinating all the activities needed to create a product or service.
Production planning is all about efficiency as it involves the following:

a) Product design

b) Production engineering

c) Production planning

d) Material sourcing

It requires a thorough, real-time understanding and management of all factors involved in

production, including manpower, raw materials, production capacity, and time considerations.

Inventory management
Inventory management involves overseeing the quantities of goods that are held in an
organisation's stock. It is a balancing act of predicting demand, planning for reordering points,
and maintaining just the right amount of stock to meet the customers’ needs without incurring
unnecessary holding costs. Inventory management is critical in Supply Chain operations as it
directly impacts customer satisfaction as well as the overall costs of business operations.

Logistics and distribution

This involves the management of how the resources are acquired, stored, and then transported to
their final destination. It includes processes such as the following:
 a) Warehousing

b) Transportation

c) Material handling

d) Packaging

e) Order fulfilment

In Supply Chain Management, effective logistics and distribution systems ensure that the
products reach their intended destinations in the most cost-effective and efficient manner
possible. Thereby satisfying customer needs and enhancing profitability.

Returns management
Often overlooked, returns management is a crucial part of SCM. It involves handling customers'
returned products effectively and efficiently, thereby minimising the associated costs and
enhancing customer satisfaction. Returns management includes practices such as the following:

a) Examining the reasons for returns

b) Inspecting the condition of returned items

c) Deciding whether to dispose of, resell, or refurbish the products

d) Processing refunds or exchanges for customers

Importance of Supply Chain Management

 Reduced Costs - Supply chain managers are often focused on reducing the costs incurred at all
steps within the supply chain. Improving production processes, relationships with suppliers, and
inventory management are some of the ways that supply chain managers can attempt to further
reduce costs. The overall benefit of reducing costs throughout the supply chain is an increase in
firm profits. Even reducing the cost of items by a few cents can result in millions of dollars saved
if you
 Interconnected Supply Chain - Supply chains can appear like independent strings of a few
companies working together to reach a common goal of delivering products to consumers.
However, it is much more complex than that as the world can easily be viewed as one large
supply chain. Consumers, distributors, producers, and suppliers are consistently communicating
with each other as materials and components are transformed into finished goods that ultimately
end up in the hands of consumers. It is therefore crucial for supply chain managers to focus on
visibility and communication between all components as well as on the growth of their
organization, partnerships, and outsourcing.
 Information Transfer and Communication - Supply chain management (SCM) is a necessity
for the foundation of all societies. Effective communication and information transfer in real-time
is a necessity for the foundation of a robust supply chain. This starts by building strong
relationships between all components of the supply chain and ensuring that communication is
easy and that all parties are aligned towards a common goal. As information flows backwards
from the end-consumer to the supplier, supply chain managers must reduce any delays or errors
in the information that is transferred from one chain link to another. Many modern manufacturers
are relying on advanced technology that can increase the visibility of order statuses to both
consumers and suppliers in real-time to meet everyone’s needs.
 Better Customer Service - Effective supply chain management can provide direct improvement
to your customer service. This is because SCM processes will ensure that the correct quantity of
the correct items will be delivered in a timely manner. Having an interconnected network of
suppliers and distributors will reduce delays and improve customer satisfaction. In addition,
supply chain management will usually increase visibility and allow both customers and customer
service personnel to know of the status of each order at all times.
 Agility - Supply chain management is important to allow organizations to remain agile and be
able to handle any unexpected issue or variability that may occur. By streamlining supply chain
processes and increasing visibility, businesses will be able to diagnose problems and find
appropriate solutions more quickly. In addition, having contingency plans and what-if scenario
analyses of your production schedule will allow you to quickly evaluate your options and find
the best solution for your company,

Major Decision Areas in Supply Chain Management

The decision areas in supply chain management entail making decisions regarding the entire
process of transferring items from the supplier to the customer.
The major objective is to save costs and optimise resources while maintaining timely delivery.
The primary decision areas in supply chain management include:

 Location Decision: This entails determining where to site facilities such as warehouses,
distribution centers, and manufacturing plants. The site selection should take into account
issues like as transportation expenses, labor costs, and closeness to suppliers and consumers.

 Production Decision: This entails determining how much to create, when, and where to
produce. The production choice should take into consideration elements such as demand
projections, capacity limits, and inventory levels.

 Inventory Decision: This entails determining how much inventory to store, where to hold
it, and when to restock. The inventory decision should take into account aspects such as
demand fluctuations, lead times, and inventory costs.

 Transportation Decision: This entails determining how to move items from the source to
the customer. The transportation decision should take into account aspects such as
transportation prices, transit times, and mode of transportation.
The Evolution of Supply Chain Management

Supply Chain Management is the process in which a company manages the flow of its goods and
services from the point of origin to the point of consumption. This process involves movement &
storage of raw materials, work-in-process inventory, finished goods, end to end order fulfillment,
movement of finished goods from manufacturer to warehouse, and then to the destination of final
consumption. While this process sounds easy, it takes a ton of workforce to complete this
process, especially for companies with a large number of products/services, multiple vendors,
different warehouse locations, different retail stores, etc.

With the rise in the number of every business associate, the management of the supply chain
becomes even more difficult. With more discrepancy in supply chain management, companies
began looking for solutions. These solutions are now the basis of each stage of the evolution of
supply chain management.

The Stages of evolution in Supply Chain Management

There are a total number of 5 stages in the evolution of the supply chain industry. These 5 stages
include:

Stage1-Consolidation
Starting from the early 1980s, businesses focused on products. They focused more on quality and
the key performance metrics were – inventory turns and production cost. For the purpose of
achieving inventory turns, small companies began merging into larger organizations. This also
led to organized planning of the production cost which further resulted in becoming a good
solution for most businesses.

Stage2–Integration
In the late 1980s, businesses shifted their focus from products to the volume of output. Keeping a
close eye on the cost, the key performance metrics for Stage 2 of the supply chain evolution
turned out to be production capacity and throughput. Companies that started making profits in
the earlier stage now analyzed that just production cost will not help them in making more
profits. And for this reason, the rate of production and the volume of production became
important. By the end of this stage, companies found their solutions.

Stage3–MarketValue
Then came the third stage of the supply chain evolution which began in the early 1990s.
Organizations in this stage started to focus more on market-driven results. The key factor of this
stage of evolution was product availability and the performance metrics were clearly – market
share and order fill rate. Now the problem was not about making more products but about
delivering them to the markets. So, by the end of this stage, businesses had the solution again and
were onto their next stages of growth for even better results.

Stage4–BrandValue
During the late 1990s, firms analyzed that customers were the game changers for revenue
generation. This is when they shifted their business strategies and made ‘lead time’ the key factor
in their goals. With this, the key performance metrics changed from market share and order fill
rate to customer satisfaction, value-added, and response time. Companies now had the time to
analyze that products that were made with a prime focus on customers were what sold out more.
That’s how companies started focusing on products that added value to their companies.

Stage5–Automation
The twenty-first century is more driven by knowledge and that is why having more information
is preferred to be ideal for a company’s supply chain management. The key performance metrics
for the 5th stage of supply chain management is real-time communication and business
intelligence. Over the years, with a growth in each segment of the supply chain, employment has
also increased. With more people in the circle, communicating every little detail to each person
has become a task. The process of storing information also began to get hectic and for all these
reasons, automation started out to be the focus for companies to grow.

Today, all the companies using automation throughout their supply chain are the companies that
have a bigger scope to grow. With each stage of the evolution, companies found their solutions,
and likely, this stage will also be smooth in transition for those who live up to the changing
strategies for their business growth – focus on automation. Keeping automation as a solution for
real-time communication and business intelligence, your organization will get the chance to rise
above and move on to the next big solution of the next stage of the evolution.