How Supply Chain Management (SCM) Works
Suppliers make an attempt to design and operate supply chains that are as effective and cost-effective as feasible through supply chain management (SCM). Production, product development, and the information systems required to manage these activities are all covered by supply chains.
SCM often aims to centrally coordinate or link a product’s manufacturing, shipment, and distribution. Companies can save unnecessary expenses and expedite the delivery of goods to customers by optimizing the supply chain. Internal inventories, internal production, internal distribution, internal sales, and the inventories of firm vendors are all closely monitored to achieve this.
The foundation of SCM is the notion that almost all products that are sold are the result of the efforts of numerous companies that are connected by a supply chain. Despite the fact that supply chains have been around for a very long time, most businesses have only recently recognized the value they can contribute to their operations.
5 Parts of SCM
The supply chain manager makes an effort to reduce shortages and control expenses. The position involves more than just ordering products and managing logistics. Supply chain managers “oversee and manage entire supply chain and logistic operations to maximize productivity and decrease the cost of an organization’s supply chain,” according to Salary.com.
Increases in productivity and efficiency can directly affect a company’s bottom line. Effective supply chain management keeps businesses out of the news and away from costly recalls and legal actions. The logistics of all aspects of the supply chain, which is made up of the following five components, are coordinated by the supply chain management (SCM).
Planning
SCM often starts with planning to align supply with customer and manufacturing demands in order to achieve the best results. Businesses must anticipate their future demands and take appropriate action. This has to do with the raw materials required at each stage of manufacturing, the capability and constraints of the equipment, and the personnel requirements throughout the SCM process. ERP system components are frequently used by large organizations to gather data and create plans.
Sourcing
Effective SCM procedures heavily rely on good supplier relations. Working with vendors to procure the raw materials required for the manufacturing process is referred to as sourcing. To obtain products in advance, a business may be able to plan and collaborate with a supplier. But the sourcing needs may vary depending on the industry. In general, SCM sourcing entails making certain that the raw materials satisfy the requirements for manufacturing necessary for the creation of commodities.
The prices paid are consistent with what the market would anticipate.
In the event of unforeseeable catastrophes, the vendor has the flexibility to send emergency supplies.
The supplier has a track record of providing goods that are both timely and of high quality.
When producers are dealing with perishable items, supply chain management is very important. Businesses should consider lead times and a supplier’s ability to meet requirements when sourcing items.
Manufacturing
The corporation converts raw materials by using equipment, labor, or other external factors to create something new, which is at the core of the supply chain management process. Despite not being the last step in the supply chain management process, this end result is what the manufacturing process ultimately aims to produce.
Sub-processes within the manufacturing process, such as assembly, testing, inspection, or packaging, may be further broken down. A company must be aware of waste and other manageable issues during the manufacturing process that could lead to changes from the original intentions. For instance, a corporation must address the problem or go back to the early stages of SCM if it finds that it is utilizing more raw materials than it had anticipated and sourced.
Delivering
A business must put its goods in the hands of its customers after manufacturing and closing sales. As the customer has not yet interacted with the goods, the distribution process is frequently viewed as a contributor to the brand’s image. A corporation with effective SCM procedures has strong logistical skills and delivery channels to guarantee the timely, secure, and affordable delivery of products.
In the event that one mode of transportation becomes temporarily inoperable, this includes having a backup plan or varied distribution channels. For instance, how can record snowfall in areas around distribution centers affect a company’s delivery procedure?
Returning
The support for the product and customer returns marks the end of the supply chain management procedure. Even worse is when a customer has return a product because of a mistake on the part of the business. The company must make sure it has the capacity to collect returned goods and properly assign refunds for returns received. This return procedure is frequently referred to as reverse logistics. The business transaction with the client needs to be resolved, whether a company is carrying out a product recall or a customer is just dissatisfied with the goods.
Many people view customer returns as a communication between the client and the business. The intercompany communication to identify faulty products, expired products, or non-conforming goods, however, is a crucial component of client returns. The supply chain management process will have failed if the root reason of a customer return is not addressed, and subsequent returns are likely to continue.
SCM vs. Supply Chains
The network of people, businesses, resources, tasks, and technological advancements utilized to create and market a good or service is known as a supply chain. When raw materials are delivered from a supplier to a manufacturer and the final good or service is delivered to the customer, a supply chain has begun.
SCM manages every stage of a company’s product or service, from the beginning of development to the last sale. With so many points throughout the supply chain where efficiency can add value or lose value due to higher costs, effective SCM can boost revenues, cut costs, and have an impact on a company’s bottom line.
Types of Supply Chain Models
For every company, supply chain management looks different. Each company’s SCM process is shaped by its own objectives, limitations, and advantages. In general, a business can use one of six major models to direct its supply chain management operations.
Continuous Flow Model: One of the more established supply chain strategies, this model frequently works best for established sectors. The continuous flow approach relies on a company manufacturing the same product again and anticipating little volatility in customer demand.
Agile Business Model: This business model is ideal for businesses that sell things that customers order. As a company may have a specific requirement at any time and must be ready to pivot accordingly, this model places a high priority on flexibility.
The quick turnover of a product with a short life cycle is highlighted by the fast model. Using a fast-chain model, a business aims to take advantage of a trend, make goods quickly, and guarantee that the product is completely sold before the trend ends.
Flexible Model: Businesses impacted by seasonality benefit the most from the flexible model. During the busiest times of the year, certain businesses may have much higher demand demands and lower volume demands. Production can simply be ramped up or slowed down thanks to a flexible supply chain management strategy.
A corporation may try to gain an advantage by making its supply chain management process as efficient as possible if it competes in an industry with extremely small profit margins. This includes managing inventories and processing orders effectively, as well as making the most use of gear and equipment.
Custom Model: If none of the aforementioned models are suitable for a company’s requirements, it may always resort to a custom model. This is frequently true for highly specialized sectors with demanding technical standards, like an automobile manufacturer.
Example of SCM
Walgreens Boots Alliance Inc. made the decision to restructure its supply chain by investing in technology to simplify the entire process after seeing the value of SCM to its business. The business has been making investments and improving its supply chain management system for a while now. Big data was used by Walgreens to enhance its forecasting abilities and more effectively handle its sales and inventory management procedures.
This includes Colin Nelson, its first-ever Chief Supply Chain Officer, who was added in 2019. As the business expands its online presence, his responsibility is to promote customer happiness. Further, it declared that it would provide free two-hour, same-day delivery for 24,000 products in its stores starting in 2021.
What Is a Supply Chain Management Example?
Coordination of the many tasks required to create and deliver goods and services to clients is known as supply chain management. Designing, farming, manufacturing, packaging, and shipping are a few examples of supply chain activities.
Why Is Supply Chain Management Important?
Because it can aid in achieving a number of company goals, supply chain management is crucial. Controlling production procedures, for instance, can enhance product quality, lower the likelihood of recalls and lawsuits, and support the development of a strong consumer brand. Controls over shipping processes can also boost customer satisfaction by averting pricey shortages or periods of inventory surplus. Overall, supply chain management offers numerous chances for businesses to increase their profit margins and is especially crucial for those with significant global operations.
How Are Ethics and Supply Chain Management Related?
A set of guidelines known as supply chain ethics was created as a result of the growing importance of ethics in supply chain management. Investors and customers care about how businesses operate, respect their employees, and preserve the environment. As a result, businesses implement initiatives to save waste, enhance working conditions, and limit their negative effects on the environment.
What Are the 5 Elements of Supply Chain Management?
The five main components of supply chain management are planning, locating raw supplies, manufacturing, delivery, and returns. The planning phase entails creating a comprehensive supply chain strategy, whereas the other four components focus on the essential conditions for putting that strategy into action. To establish an effective supply chain and prevent costly bottlenecks, businesses must build expertise in all five areas.
What Element of the Marketing Mix Deals With Supply Chain Management?
The marketing mix component of place deals with supply chain management since it includes the procedures that move products and services from their unprocessed origins to their final, consumer-facing destination.
