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What is Supply Chain Management: Meaning, Process, Importance, Objectives, Components, Functions, Examples

By Annapoorna

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Updated on: Jun 12th, 2024

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5 min read

The best way for any business to serve their consumers is to make their supply chain management a strategic priority. Now, you might be wondering what is supply chain management? In this article we will provide you with the supply chain management meaning and provide insights on its objectives, components, functions, and drivers. We will also share some best practices to help you manage your supply chain efficiently.

What is Supply Chain Management

Supply chain management is referred to as the coordination of all the steps involved in the making and delivering of products and services. It involves the planning, sourcing the raw materials, manufacturing the products and then shipping it to the customer. Supply chain management is also about making sure that all the operations run smoothly, the costs are low and customer satisfaction is achieved. 

Objectives of Supply Chain Management

Apart from the supply chain management meaning, let’s explore it’s objective and what makes it important for businesses: 

  • The primary objective of supply chain management is profitability. It aims to maximise the difference between what a customer pays and how much it costs to produce and deliver the product. 
  • Another objective is to find the right balance between quality and the cost of producing the goods. Here, the main aim is to satisfy the customers with the price they pay for the products and the quality they receive. 
  • It also aims to identify the source of revenue that is involved in moving the information, products and money throughout the supply chain. 
  • Supply chain management also tries to reduce the time to fulfill the orders by making the ordering and delivering process faster. 
  • Another important objective is to maintain the balance between the supply and the demand. It aims to achieve this by creating a flexible planning and control system that adapts quickly to changes. 

Benefits of Supply Chain Management

Supply chain management helps businesses to boost their profits and competitiveness. Apart from this, here are the key benefits: 

  • Improved operational efficiency: Streamlined supply chain processes optimise machine performance and workflow. It reduces bottlenecks and enhances productivity.
  • Anticipating Customer Demand: Supply chain management helps businesses to better understand the customer requirements, such as what they want and when they want it. This allows them to plan accordingly. 
  • Improved Visibility: It provides a clear view of the entire  supply chain, which helps businesses to spot any potential risk or any opportunity. This helps in proactive decision-making. 
  • Accurate Forecasting: Data analysis and forecasting are an important part of supply chain management. This enables businesses to predict the future demand more precisely, avoid bottlenecks and therefore allocate the resources in an effective manner. 
  • Enhanced Product Quality: Customer satisfaction and loyalty comes with improving product quality. This is what supply chain management helps to achieve by monitoring and optimising the processes at every stage. 
  • Sustainability: With supply chain management comes responsible sourcing, initiatives for waste reduction and transportation which is efficient. This helps to reduce the overall environmental impact and the associated cost. 
  • Cash Flow Management: Supply chain management also helps to manage the cash flow and avoid costly disruptions by allocating the resources efficiently.
  • Efficient Logistics: It also assists in optimising the transportation and the distribution process. This helps the businesses to deliver the products to the customers quickly.
  • Better customer service: Good supply chain management means happier customers. It helps companies quickly meet customer needs, improve delivery times, and offer personalized products. This makes it easier for companies to stay competitive.

Supply Chain Management Process 

Supply chain management process comprises of different components to manage the seamless flow of goods and services. Here is the break-down of these supply chain management components and their functions: 

  • Planning: This is the first component in the supply chain management. It starts with carefully planning the supply in accordance with the customer demand. Planning involves forecasting the demand, managing the raw materials and determining the production capacity and staffing. 
  • Sourcing: The next component in the supply chain process is sourcing. It includes working closely with the suppliers to get the required materials for production. The focus is on meeting the standards, ensuring the prices are fair and deliveries are reliable. 
  • Manufacturing: Once the raw materials are sourced, then comes the manufacturing. Here the raw material is turned into the finished product. The steps involved are assembling, testing and packaging. 
  • Delivering: This component in the supply chain management process deals with delivering the final product to the customer. It includes organising the transportation and delivery channels to make sure that the products arrive on time and in good condition. 
  • Returning: If there are any issues in the product, a return may be required. This component is important since it helps to improve customer satisfaction. This step starts with handling the returns and ends with issuing the refunds promptly.  

Drivers of Supply Chain Management

Drivers of supply chain management directly impact its efficiency and effectiveness. The key drivers include:  

  • Production: The first driver of supply chain management is the production. How quickly a supply chain responds to changes and how efficiently it keeps the operations running depends on how and where the products are made. For example, if there are factories close to the customers, it makes the supply chain more responsive. 
  • Inventory: The second driver is inventory. When there is a lot of inventory at multiple locations, responding to the customers becomes easier, however it can be costly too. While keeping inventory levels low can say costs but on the other hand it may become difficult to meet sudden demands. 
  • Transportation: The third driver is transportation. Deciding how products are moved impacts both the speed and the cost. For example,  using trucks, planes may increase the delivery speed but can be expensive. Transporting in larger batches using slower options such as ships can reduce the cost but may increase the delivery time. 
  • Information: Lastly, Information is the key driver. Where there is information about customer demand and production schedules, responding to market needs becomes easy and it improves the overall performance. 

Challenges of Supply Chain Management

Managing supply chains involves several significant challenges:

  • Rising Risks: There are several issues such as changing consumer demand, shortage of raw materials, and economic uncertainties, which contribute to the increasing risks in the supply chain management. 
  • Unexpected Delays: When there are long distances and a number of steps involved, it makes the supply chain prone to delays, particularly with long lead times. 
  • Cost Control: Another challenge is the increasing cost of the raw materials, labour, energy and freight, which makes businesses to tighten the cost control to keep the operations running in a smooth manner. 
  • Data Synchronisation: To manage the supply chain efficiently, it requires accurate and timely data, which becomes challenging for businesses.
  • Digital Transformation: Although adopting the latest technologies such as IoT, AI, robotics and drones is necessary for improved supply chain management, integrating them into the existing systems is not easy at all. .

Types of Supply Chain Management

Apart from the challenges, here are the types of supply chain management: 

  • Continuous Flow: This type of supply chain management prioritises stability. It is suitable for businesses with year-round demand. The focus in the model is on fine-tuning the processes and managing the costs rather than reacting to the changes in the market. 
  • Fast Supply Chain: Brands such as fashion labels rely on this type of supply chain management. It is perfect for situations where the products go in and out of style quickly. Here the focus lies in predicting the demand accurately, producing and moving goods quickly and managing the inventory to prevent to prevent excess stock 
  • Flexible and Agile: When there are unpredictable demand swings, this type of supply chain management comes in. It focuses on staying in touch with the suppliers to make sure the stock is enough during the peak periods. It also reviews inventory for avoiding overstocking when the demand is low. 

Best Practices in Supply Chain Management

To improve the management of the supply chain, it is important to implement the following best practices: 

  • Use technology for gaining comprehensive visibility into the whole supply chain including all the stakeholders such as the suppliers and shipping partners. This helps in making informed decisions based on real-time data. 
  • The focus must be on direct suppliers and their suppliers (Tier II). This will help businesses in efficient capacity planning, acquisition of raw materials and minimising disruptions down the line. 
  • To ensure consistency and avoid errors, implementing quality assurance measures is important. It helps in exceeding the minimal quality standards and ensuring regulatory compliance at every stage of the supply chain process. 
  • Backup plans should always be there to address unforeseen disruptions. It helps in ensuring the continuity of operations even when the situations are challenging. 

Role of A Supply Chain Management Software

It’s crucial for businesses to use supply chain management software today. Here’s how it helps:

  • A supply chain management software ensures that the day-to-day operations such as manufacturing, distribution and fulfilment are running smoothly
  • It assists in anticipating the customer demand and managing the inventory levels by focussing on inventory planning and demand forecasting. 
  • This software provides real-time insights into the entire supply chain and allows businesses to identify potential risks and manage them proactively to avoid disruptions. 
  • Businesses can optimise inventory levels to ensure the right amount of stock in accordance with the customer demand and avoid excess inventory costs. 
  • When it comes to international supply chains, cost-effectiveness is key. A supply chain management software helps to achieve this by managing the transportation and ensuring timely deliveries of goods. 
  • It also assists in tracking and order fulfilment by improving the accuracy and the efficiency in warehouse management. 

Clear Supply Chain is No.1 global supply chain automation solution to help you unlock strategic value in your supply chain. You can achieve significant cost savings, streamline workflows, while ensuring compliance.

How To Improve Supply Chain Management With Clear Supply Chain Cloud

Integrating cloud technology in supply chain management brings several benefits such as adaptability and flexibility and these are crucial in today’s fast-paced business environment. With the help of cloud based solutions, businesses can tackle unexpected sourcing issues and integrate with the latest technologies seamlessly. This also simplifies managing the supply chain and reduces the cost associated with upgrading the legacy systems. Not only this, businesses can use scalable cloud solutions like Clear Supply Chain Cloud to optimise current assets and prepare for future growth. 

To sum up, it is essential for business’s today to have  effective supply chain management for seamlessly managing their operations from procurement to final delivery. The only way to achieve this is by optimising the processes, and adapting to changing market demands.

Related Articles
What is Supply Chain?
Difference Between Supply Chain Management and Logistics

Frequently Asked Questions

What is the role of supply chain management?

The role of supply chain management is to make sure that the flow from the procurement to the product delivery is efficient and cost-effective along with balancing the demand and improving customer satisfaction. 

How to improve supply chain management?

Adapting quickly to market changes is key when it comes to improving the supply chain management. Also, enforcing quality control, maintaining relationships with the supplier and reducing the unnecessary inventory also helps.

What is green supply chain management?

Green supply chain management uses sustainable pactices in all the stages of the production and distribution. The objective is to reduce the environmental impact and improve sustainability. 

What is supply chain management in logistics?

Supply chain management in logistics means coordination of the transportation, warehousing and delivery of finished products with the aim of minimising the cost and improving efficiency. 

What is the bullwhip effect in supply chain?

The bullwhip effect in supply chain occurs when there is a small change in demand at the retail level and it causes major variations resulting in inefficiencies and excess inventory.

How to solve supply chain problems?

There are various steps to solve the supply chain problems. Some of them include developing the risk management plan, diversifying the suppliers and improving communications with them. 

What is cross docking in supply chain management?

Cross docking is a logistics procedure where goods from incoming shipments are transferred directly to outgoing trucks or transportation modes with little or no storage in between. The objective of cross docking is to speed up the delivery of the goods and increase the efficiency of the supply chain. 

What is inbound logistics in supply chain management?

Inbound logistics in supply chain management is defined as the process of receiving and storing the raw materials or components required for the production process. 

What are examples of supply chain management in manufacturing?

Tables or any other wooden item created and delivered by a furniture manufacturer are examples of supply chain management in manufacturing. 

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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