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What is Supply Chain Management? Why is it Important?

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18th Aug, 2023
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What is Supply Chain Management? Why is it Important?

Any product passes through several stages before it is ready to be made available to customers. 

Supply chain management, also known as SCM, is the process of planning, executing, and properly coordinating all the steps, like the flow of raw materials, goods, information, and all other essentials required to produce a finished product. 

This blog discusses ‘what is supply chain management and why it is important’. If you are new to the subject and keen to learn more about it, this is the best place to start. 

The Future of Supply Chain Management 

The supply chain management structure is not linear but a network in which all the components work in coordination for the smooth execution of the process. 

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The use of advanced technology can help in increasing transparency throughout the process. It will also help to improve connectivity. With advanced technology, it will be easier for the players in the supply chain management journey to address and adapt to the alterations in customer demands. 

The alignment between the planning phase and the execution phase needs to be stronger in the future than it is now. With the introduction of the most appropriate technology, there will also be an increase in speed and accuracy in the processes involved in managing the supply chain. 

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How Supply Chain Management Works  

The working of a supply chain management system mainly involves five steps, which are discussed below:

Planning: The planning phase involves planning and managing all the resources needed to satisfy a customer’s requirements regarding a brand’s service or product. The planning process determines the efficiency of the supply chain and assesses whether the plan can help meet the customers’ requirements. 

Sourcing: Once the planning has been done, it needs to be executed. If you are wondering what is procurement in supply chain, here is the answer. The sourcing phase involves choosing suppliers who can provide the essentials, including the services and goods that might be needed to facilitate the production of the finished goods. 

Establishing a smooth relationship among the players is also important to properly monitor and manage the supply. Some key processes in this stage include placing orders, receiving the items, managing the inventories, and authorising the suppliers’ payments. 

Manufacturing: The manufacturing phase includes managing the activities that revolve around accepting the raw materials and manufacturing the product. This phase also ensures that the quality of the product is tested thoroughly, the product is packaged properly and is scheduled to be delivered on time. 

Logistics: If you are wondering what is logistics and supply chain management, this fragment deals with the tasks related to customer coordination, scheduling the deliveries so that customers get them on time, dispatching the loads accordingly, sending invoices to customers, and receiving payments from them. 

Returns: Supply chain management also looks after the network that returns defective or unwanted items. 

Importance of Supply Chain Management

Due to the numerous benefits it offers, SCM is an integral part of project management. Supply chain management helps eliminate unnecessary costs and reduce the waste of resources and time, thereby increasing the efficiency of the production cycle. Technological advancement has also made it easy to intimate any instance of replenished order so they can be restocked in time. 

There are several reasons why supply chain management is important. They are as follows:

  • Identify potential problems: If a customer orders products beyond the manufacturer’s production capacity, there might be issues with the quality of the service or goods provided. SCM can incorporate the proper use of data analysis techniques, through which manufacturers can identify and rectify the loopholes on time. 
  • Forecast inventory stocks: SCM has many tools that help analyse the availability of resources and schedule tasks according to the availability of raw materials, customer orders, and finished goods in the warehouse. This helps the manufacturers confirm delivery dates to the customers. 
  • Optimise the prices: Some products and services that are seasonal in nature have a limited shelf life. In such cases, adjusting the prices of the products or services to meet the demand is important. SCM can help with adjusting the prices according to the demands too. 

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What are the Features of Supply Chain Management?

Supply chain management is important for manufacturers, suppliers, and consumers. Successful companies incorporate effective supply chain management techniques to protect the reputation of their business and ensure its sustainability. 

  • The analytical and forecasting abilities of a supply chain management system are noteworthy. 
  • SCM uses advanced analytical software to balance the disparities that might arise between the demand and the supply sides. 
  • It also helps to understand how a business is performing, identify the strengths and devise ways to strengthen them, identify the weaknesses and eliminate them. 
  • SCM helps to anticipate the customers’ demand and plan production in advance. 
  • Using such advanced technologies helps organisations use existing data and devise future plans accordingly to work better.

Supply chain management deals with several other concepts, what is logistics management, what is distribution management, and many more. 

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How has the Concept of Supply Chain Management Evolved 

The advancement of technology has brought about new levels of sophistication in the field of supply chain management. Managing the supply chain stresses factors such as the availability of materials, logistics, cost of physical assets, etc. 

In modern supply chain management systems, humongous amounts of data generated by the process are carefully extracted by data analysts and processed to minimise latency and increase the efficiency of the production process.

Modern-day supply chain management systems manage the data related to the delivery of services and goods to customers. It deals with everything from product quality, delivery costs, customer experience to the company’s profitability. Therefore, it is no longer a linear structure but a network of different factors.

The use of data in the field of supply chain management has increased tremendously in recent times. However, during the data analysis, it is important to ensure that valuable information such as weather uncertainties, political unrest, labour shortages, and other unprecedented situations are considered for the most accurate results.

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Types of Supply Chain Models

The supply chain models are not uniform for all companies. They are curated based on the organisation’s requirements, goals, strengths, and constraints. 

However, organisations can resort to six primary kinds of supply chain models. They are as follows:

  • Agile model: As the name suggests, this model allows companies to embrace flexibility. It is based on the fact that companies may have unpredictable demands that may arise at any time. The agile supply chain management model ensures that the company can incorporate the changes at any time. 
  • Continuous flow model: This supply chain management model is ideally suited for mature industries. It is great for industries that produce the same goods without the customers demanding much alteration. 
  • Fast model: Some products become trendy in a blink and then die out of fashion in no time. A fast supply chain model is suited for products with a short life cycle. It allows companies to plan how to produce goods quickly and sell them completely before it goes out of trend. 
  • Efficient model: Some companies deal in goods that face stiff competition in the market and have tight profit margins. Companies can use machinery and equipment to overcome this challenge to enhance production efficiency and inventory management.
  • Custom-configured model: In this model, emphasis is laid on providing custom steps at the time of assembly and production. This allows for releasing products in small batches and quicker turnaround times. This is an amalgamation of agile and continuous flow models.
  • Flexible model: This is the most effective model to help with high-volume demands during peak seasons. Similarly, a flexible model can prove effective during low or no demand. 

Understanding Supply Chain Management With Examples

Supply chain management is just as important for e-commerce platforms as physical businesses. 

  • Amazon

Amazon has no retail store; it directly ships the goods to the customers’ destined addresses. Therefore, Amazon’s supply chain management system addresses the fact that it is not a conventional shop. 

The supply chain of Amazon includes the production of goods, and then the goods are sent to the suppliers. The warehouse incorporates automation technologies that can record the availability of the goods and intimates any shortage in advance.

Automation also makes the storage and transportation of goods easy. Amazon’s supply chain management system also makes it a point to invest in efficient delivery executives to enable quick or even same-day delivery possible. 

  • Automobiles

Crude iron in iron ore is first extracted from the earth. It is then shifted to a plant, where it is processed and made into steel, used to make the vehicle’s chassis. 

Other components of the car, like the tires, batteries, engines, paint, etc, are manufactured separately. All these components are assembled together, and the vehicle is finally ready to be sold to the customers. 

This entire process requires the involvement of different players such as the producers who extract the goods from their crude form, vendors who purchase and sell the materials, manufacturers who change the raw materials into goods, transporters who move the goods here and there, retailers who sell the goods either in physical stores or online platforms, and finally the customers who buy the goods. 

All of this process is looked upon and managed by a supply chain manager who ensures that all the operations are taking place properly and the final finished item’s product takes place error-free. 

Conclusion

Supply chain management helps integrate and manage the activities in the entire journey of producing finished products so that the efficiency of the production cycle and customer satisfaction can be enhanced and the cost reduced. A supply chain manager must be efficient enough to manage the entire cycle, plan in advance, and have foresight while maintaining product quality. If you are seeking a career in supply chain management, consider enrolling in a relevant course to learn the ropes of the trade.

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Frequently Asked Questions (FAQs)

1What is logistics and supply chain management?

Logistics and supply chain management refers to delivering products on time to meet customers' expectations. This enables speedy delivery, reduced cost, and better customer satisfaction.

2What is distribution management?

Distribution management refers to monitoring the movement of goods so that they can move smoothly from the supplier and the manufacturer to the extent that they are ready to be made available to the customers.

3What is procurement in supply chain?

In the supply chain, procurement refers to the procedure of acquiring raw materials and goods as well as services from external sources so that the requirements of a company can be met.

4What does a supply chain manager do?

A supply chain manager oversees the different aspects of the supply chain, from the planning phase to procuring, manufacturing, and delivering the products or services to the customers.