Understanding the Basics of Supply Chain Management (SCM)

Simply put, supply chain management is the flow of raw materials, finished products, and the associated information among the producers, resellers, and customers. It achieves the coordination of different processes and functions of a business. Read on to know how SCM works and what are its advantages.
BusinessZeal Staff
Last Updated: Sep 14, 2018
Before understanding supply chain management, we must know what a supply chain is. It is a set of network facilities and distribution options that perform functions like procurement of raw material and their transformation into finished products.
Supply chain management is the management of interconnected business activities that are involved in the provision of product and service packages. It is defined as the management and coordination of a product's supply chain in order to increase efficiency and portability. It consists of all the stages involved in fulfilling customer requests.
According to an American professional association, supply chain management comprises the planning and management of all the activities involved in sourcing, procurement, conversion, and logistics.
The customer and customer service are an integral part of the process of supply chain management. The primary purpose of this process is to satisfy customer needs. The main objective of supply chain management is to maximize product value.
Product value is the numerical difference between the worth of the efforts taken for production and the actual price of the product. The process of coordinating with the parties involved in the supply chain also forms a part of supply chain management. It includes coordination with retailers, wholesalers, manufacturers, and customers.
It aims at integrating relevant activities between the trading partners and customers in order to reduce system-wide costs of moving the product from a pre to post-production stage.
Functions
The process of supply chain management can be divided into three distinct flows; product flow, information flow, and finances flow.
  • Product flow includes the movement of goods from a supplier to the customer.
  • The flow of information related to the status of product delivery is referred to as information flow.
  • The finances flow involves the payment schedule, credit terms, and title ownership arrangements.
Strategic activities that are a part of the supply chain management involve strategic network optimization, the establishment of partnerships with suppliers, distributors and customers, planning for the integration of existing products into the supply chain, and the design of a business strategy.
Taking inventory and production decisions, devising transportation strategies, benchmarking of operations and focusing on customer demand are some of the other activities involved in the supply chain management.
Planning of daily production and distribution, planning and scheduling of inbound and outbound operations are some of the important operational activities involved in supply chain management.
Advantages
  • One of the most significant advantages of supply chain management is that it offers sophisticated analytical capabilities. The process of SCM enables streamlining of the supply chain, thus making it easy for the marketers to analyze the demand and supply of their products or services.
  • Customers benefit from supply chain management as they always get merchandise of their choice and the merchandise is ready before customer entry.
  • Supply chain solutions allow the sharing of sales-related information between all the parties involved in the supply chain.
  • By means of supply chain solutions, business organizations can achieve collaboration with their partners and respond to their customers in real time.
  • Another important advantage of supply chain management is that it results in business organizations gaining a competitive advantage by earning the loyalty of customers, shareholders and employees
Supply Chain Solutions
Software systems with web interfaces or web-based application service providers (ASPs) are used to provide supply chain solutions. What are the functions of application service providers?
ASPs do not develop software but only host them. They are responsible for running the software applications in exchange of monthly fees paid by their customers. They do not require much upfront investment and are easily upgradeable.
SCM software are available in two forms, namely planning applications and execution applications. Planning applications are designed to devise an optimal solution for filling an order, while the execution applications are designed to track the physical status of goods, manage materials, and track financial information associated with the supply chain.
Certain SCM applications are based on open data models and support the sharing of data within and outside an organization. Through the sharing of data, SCM applications can improve the time-to-market of products, reduce product costs, and allow better management of resources. Many companies have adopted web-based supply chain solutions today.
Supply chain management has brought in a positive change in perspective of both business entrepreneurs and consumers. It has streamlined the major business process management and hugely contributed to a rise in the satisfaction level of the customers.