What is Supply Chain Management?
Supply chain management, commonly referred to as SCM, is the process of managing the flow of goods and services. It broadly covers all activities that are carried out in converting raw material into finished products. It includes a range of activities starting from the sourcing of raw materials till the distribution to its end users. The core objective of the process is to keep the cost at the bare minimum, while continually adding value to the end users and gaining competitive advantage.
Read more about Supply Chain Management Techniques, Ratio & Formulas.
What are the main elements of Supply Chain Management?
The major elements of SCM are:
Integration: This is the core concept of SCM. It involves coordinating the supply chain activities to ensure an economic and efficient flow. This requires enhancing communication between various departments through exploring better technologies and software to facilitate communication to minimise effort and cost in a process flow without compromising on quality.
Operations: This element is concerned with coordinating daily activities and operations. It involves preparation of budgets, forecasting results and comparing actual performance with standards and forecasts to ensure the flow is smooth. The production is overseen by this function.
Purchasing: This function is responsible for sourcing material and products used for production. This element focuses on the link with the suppliers and determining the quantity of required material to be acquired. The function must focus on acquiring budget-friendly material without compromising on quality.
Distribution: The final element of SCN is distribution. This element places emphasis on the final products and how they are transported to the ultimate user. It focuses on the logistics and communication with wholesalers, retailers and other clients to get information about the market on one hand, and transferring the products to the end user optimally on the other.
It is important to note that these four elements can not work in isolation. They work in unison to produce favourable results in terms of efficiency and economy.
Who are the main players in Supply Chain Management?
Owing to the complexity of this process, the working of SCM relies on the various players that work in unity to deliver cost-effective solutions. These mainly include:
- People handling the changes, collaborations, communications, and the management of risk in the chain.
What are the responsibilities in Supply Chain Management?
SCM covers everything in the domain pertaining to social, legal, and environmental concerns. The procurement has to meet sustainable standards keeping in mind the code of corporate social responsibility, ensuring that the company’s activities do not hinder social and environmental well-being.
Why is Supply Chain Management required?
SCM helps raise efficiency and in turn, increases profits by lowering costs. It boosts collaboration by aligning communication and contact between the various players of the supply chain.
SCM ensures that the organisation is better managed with regards to having an appropriate amount of inventory, meeting customer demands, keeping costs to a minimum, and delivering in the most effective manner.
Some of the major benefits of incorporating SCM in your business include:
- SCM helps improve the profit earning capacity by controlling and reducing the supply chain costs.
- Management of supply chain boosts the Cash Flow as the flow of the products to the customer is accelerated.
- The use of large-scale fixed assets is reduced with the help of supply chain management through the redesigning of the network and ensuring cost cutting where possible.
- The cost of holding inventory is cut down. This further decreases the purchasing cost and thus helps in significant savings.
- The design of supply chain enables companies to network with customers and serve them better and leverage opportunities.
- With the implementation of supply chain management, many companies have registered decreased production costs along with the timely and efficient delivery of raw material to assembly plants, hence avoiding material shortages.
Opinion on Supply Chain Management
Besides the many business advantages it offers, supply chain management plays a vital role in society. The knowledge, expertise, and capabilities it brings to an organisation are used in cases such as disaster relief missions, medical rescues, and related and non-related emergencies. SCM is used beyond the workings of the everyday product flow to diagnose issues and identify disruptions and inefficiencies in diverse areas.