What is supply chain management?

Pushpendra Malik December 17, 2022 Blog Leave a comment 363 Views

Supply chain management (SCM) entails the planning, sourcing, production & final delivery of the products & services to the end user.

Further, no product or service can be delivered to the customer without an effective supply chain management system.

Before producing the product, the foremost is planning, which ensures how companies manufacture the product, raw materials, & logistics involved for supplying to the end user.

Supply Chain Management has existed for years, but its true worth came to the fore ever since ecommerce companies entered the market.

During the festive season, these companies make high demand products through efficient planning & sourcing & deliver them through efficient logistics.

A glaring example of how important SCM is the long waiting for passenger cars because manufacturers failed to predict the chip shortage. This inefficiency on part of manufacturers resulted in increased cost for the customer because of dependency on few suppliers.

Further, an effective Supply Chain Management ensures reduced costs, timely delivery, optimum utilization of production & satisfied customers.

The different components of the SCM are:

Planning:

It involves how companies will manufacture, the raw materials required, peak time & the logistics for delivering the product.

Further, it’s an important part of SCM because without planning, the whole supply chain process will get marred.

It involves predicting demand, availability of raw materials & own manufacturing capabilities that match the demand during the peak season.

Sourcing:

Without the raw materials, firms cannot manufacture the final product because they are the starting material for the product.

A glaring example of a flawed sourcing was unavailability of chips for passenger cars, resulting in a long waiting for cars.

Companies should employ big data techniques to find multiple suppliers so that their supply chains are smooth.

Table of Contents

Components of Supply Chain Management

Firms should check the supplier’s track record before giving orders because they are an important component of the manufacturing process.

Manufacturing:

This is the product development stage because it employs machinery, man & processes to churn out the finished product. This is not the final stage of the SCM because the delivery of the product completes the supply chain.

The manufacturing should be in sync with planning because over production will lead to higher inventory, leading to increased cost for the manufacturer.

Further manufacturing should be flexible so that through increased production, firms can meet heightened demand as entailed in an efficient SCM.

Delivering:

This process ensures we make the finished product available to the customer because it increases the brand value for the company. Companies should diversify logistics so that they deliver the products to their buyers on time.

A perfect example of an efficient SCM is the delivery mechanism employed by ecommerce Giants Like eBay during the festive season. They ensure they hand the product over to the buyer within the stipulated time, as this leads to customer satisfaction.

Return:

The supply Chain management process ends with the customer returning the merchandise owing to product errors or size mismatch, etc.

Companies should employ good return policies like timely refunds or replacement because it is vital for developing brand loyalty.

Further, E-Commerce giants have a wonderful return policy wherein the customer either claims a refund or replacement within the stipulated time. This return policy develops a goodwill for the company & prompts the customer for repeat purchase because the corporation values him.

Example of Supply Chain Management

Companies delivering their products within 30 minutes or no charges in the event of late delivery are examples of good SCM because they improve their systems for timely delivery.

Many food joints like Pizza Hut & MacDonald’s win their customer’s trust by delivery products on time.

E-commerce companies deliver the goods within the stipulated time because they have streamlined their supply chain for quicker delivery.

Recently, automobile manufacturers refurbished their SCM by taking a non-refundable booking amount from customers & respectively, planning the production. This helped to lower costs by correspondingly ordering raw materials, leading to less inventory & reduced costs.

Further, E-commerce companies also provide express delivery wherein they charge extra compared to normal delivery which is free.

Benefits of Supply Chain Management:

SCM reduces cost, improves processes, & leads to satisfied customers who become your brand ambassadors.

Companies have realized how important SCM is in the overall success of the business because it covers the entire product delivery cycle from planning to return.

Firms always look to reduce wastage, lower costs & win brand loyalty because the business world is constantly evolving. No company would like to pay extra rent for unsold inventory because it hits their profit margin.

Similarly, companies that deliver their products on time wins customer’s trust because a satisfied customer is a loyal customer.

Types of SCM

The various SCM types are:

Continuous Flow Model: The firm keeps on producing goods believing that the demand will be constant without fluctuations.

Agile Model: This model believes that firms can ramp up production as per the demand because this is ideal for lowering costs.

Fast Model: This model stipulates quickly producing the product during the peak season & lowering the production during lean season.

An example is firms producing winter wear during winter & than lowering production in off season.

Flexible Model: As the name suggests, this model considers the market demand & correspondingly, ramps up or reduces the production.

Efficient Model: It entails using the equipment & machinery efficiently to minimize costs, reduce inventory & processing orders in the best possible way. This is ideal for companies with tighter margins because this model helps to reduce costs.

Custom Model: The companies customize their production facility to churn out orders because they work in highly technical industries.

Objectives of Supply Chain Management

The main purpose of SCM is to reduce costs by minimizing wastage, lower inventory & achieve brand loyalty by timely delivering the product to the customer.

SCM improves the production process by making the raw material available in the requisite time & quantity, further reducing the cost.