5 Key Components of Supply Chain Management

Supply chain management is critical for operational efficiency and absorbing shocks resiliently. But companies sometimes doubt whether a supply chain management solution can be flexible enough to meet their specific needs. This article explains the key components of supply chain management and how cloud-based SCM solutions offer the highest level of adaptability and flexibility. 

Importance of Supply Chain Management

Supply chain management is important for any entity working with multiple core processes to meet a set of well-defined objectives. Here’s why supply chain management is important: 

1. Operational optimisation - Effective supply chain management helps remove bottlenecks in core business processes. It can involve minimising wastage, making timely price decisions, controlling inventory accumulation or maximising value for end-users. Without supply chain management, it can be extremely difficult to create a convergence between core business processes.
2. End-user satisfaction - The aim of supply chain management is to reduce inventory accumulation without disturbing product availability for customers. Modern supply chain management tools can also interact with customer relationship management (CRM) tools for seamless customer servicing.
3. Cost control and reduction - Reduction in material wastage, inventory accumulation and on-time delivery reduce procurement, manufacturing and distribution cost for the company.
4. Quality management - Every core business process impacts the quality of products and services of a company. When we can manage these processes seamlessly, ensuring quality becomes a lot easier.
5. Risk management - Exigencies and disruptions are natural in business operations. A well-implemented supply chain management system helps respond to such risks on time resiliently and resolve them efficiently.
6. Strategic decision-making - For long-term sustainability and growth, companies always need to have clear visibility. Supply chain management offers that pilot’s seat view on core processes.

Five Key Components of Supply Chain Management

The five basic components of supply chain management are:

1. Planning 

Planning is the foundation or base for supply chain management, as every subsequent process in any business emerges from this stage. It involves analysing market data, understanding what customers expect, and finding resources to meet the market demand. The absence of proper planning can lead to cost escalations, mispricing of end products and other related problems. Managers also come back to the planning table if an exigency or disruption occurs in the supply chain.  

2. Procurement 

Procurement or sourcing is the component which takes care of identifying sources of necessary factors of production and ensuring their timely availability. Managers need to express their interests and solicit quotations, samples from potential suppliers. Negotiation plays a vital role in the process of reaching mutually beneficial rates and ordered quantities. Choosing incapable suppliers may disrupt manufacturing capacity and cause further cost inflation.  

3. Production 

The production or manufacturing component is one of the most visible aspects of supply chain management as it transforms factors of production into marketable finished products. Some of the subcategories of manufacturing can be testing of materials, assembling, quality control, and packaging. Common challenges at this stage are meeting quality standards and maintaining high capacity utilisation. 

4. Distribution 

Distribution is the stage where the delivery of end products to their end-users or customers is managed without causing unwarranted delays or inventory accumulation. It begins at the factory gate and continues till the delivery reaches retailers' or end-users doorsteps. The objectives of supply chain management at this stage are timely delivery, zero damages in transit, and minimisation of transportation costs.   

5. Return 

Return is the process of providing overall customer support and reverse logistic service in case a customer returns a purchased product. It can also involve replacing faulty products with the delivery of new items. Efficacy of this component of SCM helps deliver the highest level of customer satisfaction.