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What is Supply Chain Management?

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What is Supply Chain Management?

What is Supply Chain Management? 

Supply Chains deal with the flow and transformation of goods from the raw materials stage, through to the end user, as well as the associated information and funds flows.  

Supply chains include the companies and the business activities needed to design, make, deliver, and use a product or service. In business world every one is dependent on others in a way or the other. Companies rely on their vendors for efficient & accurate supply of raw materials or parts. 

Vendors may have many other customers to deal with and even a vendor may be relying on some other business entity for his own raw material supply. Similarly the companies may have to ensure that goods are at their point of sale or customer’s door step as and when needed. 

In order to endure and flourish in uncertain markets companies have to depend on each other and remain updated about each other’s needs and worries. In order to endure and flourish the uncertain markets companies ultimately depend on their supply chains to provide them what they need to survive and thrive. 

Every business, be it trading or manufacturing, is involved in multiple supply chains and has role to play in it. It’s important for companies to know how to build a strong supply chain for their needs and their roles in other supply chains in which they participate.

Let’s take an example of Dell Computers. Dell does not have distributors or distribution centers. Dell Computers does not manufacture computers even rather it simply assembles it. Microprocessors used in the computer may come from AMD and a complementary product like a monitor may come from Sony. 

Once customer places its order via internet, Dell’s ERP system triggers an addition in production plan. Once PC is ready as per customer’s order it’s shipped through UPS, a third party logistic provider.

Supply Chain Management

Supply Chain Management is a set of synchronized decisions and activities utilized to efficiently integrate suppliers, manufacturers, warehouses, transporters, retailers, and customers so that the right product or service is distributed at the right quantities, to the right locations, and at the right time, in order to minimize system-wide costs while satisfying customer service level requirements. 

The objective of Supply Chain Management (SCM) is to achieve sustainable competitive advantage. There are certain established practices which are common in almost all supply chains; moreover every supply chain has it own unique operating and market challenges but still nature of issues faced by each supply chain is similar. 

Companies in a supply chain take decisions collectively and major focus is on following areas:

1. Production Scheduling

Companies with efficient supply chain keep a major focus on preparing their production schedules that take into account plant capacities, workload balancing, quality control, and equipment maintenance.

2. Inventory

Stock is used as a buffer against uncertainties of markets. However, holding and building inventory can be expensive, so what are the optimal inventory levels and reorder points?

3. Warehousing

Where and how to store inventory? Cost of holding and storing inventory and other similar issues are related to SCM.

4. Transportation

Movement of inventory both from one location to other location and one supply line to other supply line are issues purely related to SCM. Cargo movement by air or road is more fast and reliable as compared to shipping by sea and rail.

5. Information

How much information should be gathered and how much information should be shared? Appropriate and precise information holds the guarantee of better control and better selection. 

With reliable details, individuals can take efficient decisions about what to generate and how much, about where to locate inventory and how best to transportation it.

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