Supply Chain Management | Definition and Components of SCM

Supply chain refers to the sequence of processes or you can say those activities which are involved in the path of production, distribution, and delivery of product or service from the supplier to the end customer.

It basically, focus on the coordination and management of various functions, such as sourcing, procurement, conversion, transportation, and also with customer relationship management (CRM). 

The main goal of supply chain management is to optimize the whole value generated by the supply chain. It is calculated by the difference between the value of the final product for the customer and the effort used by the supply chain to fulfilling the customer requests.

Supply chain success is measured in terms of profitability and efficiency at the overall supply chain level, rather than individual stages or components.

Definition of Supply Chain Management

“Supply chain management is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. SCM spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.”

Oliver and Webber

“Supply chain management encompasses materials/supply management from the supply of basic raw materials to final product. Supply chain management focuses on how firms utilize their suppliers’ processes, technology, and capability to enhance competitive advantage.”

Tan and Kannan, and Handfield

“Supply chain management is the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole.”

Mentzer

Components of a Supply Chain 

So simply we know that a supply chain is a network of entities involved in the production, distribution, and delivery of products or services to customers. Here are the key component of supply chain:

Suppliers

Suppliers are those people who basically provide raw materials for the production process. They are typically located at the beginning of the supply chain. Suppliers can be producers of natural resources like mines, farms, and oil wells, manufacturers of intermediate goods, or providers of specialized services like logistics, packaging, or software.

Manufacturers

Manufacturers are those people who are responsible for converting the raw materials into the finished products. They basically convert the inputs which are received from suppliers into the outputs that can be consumed by customers. Manufacturers play an important role in the supply chain by adding value through production processes, assembly operations, and quality control measures.

Distributors

Distributors are those middlemen who provide the movement of goods from manufacturers to retailers and the end consumer. They basically purchase products in bulk from manufacturers in lower price and break them into smaller quantities for distribution on various places. Distributors may also provide additional services such as warehousing, inventory management, and transportation. I already covered these point in our another article you can check out them

Retailers

Retailers are those people who sell products directly to end consumers. They act as the final link in the supply chain, providing a physical or online storefront where customers can purchase the desired goods or services. Retailers may receive products from manufacturers or distributors. I also run a shop of clothing so we basically buy the products from the wholesaler.

Customers

Customers are the end-users or consumers who purchase and consume the final products or services offered by the supply chain. They are the driving force behind the entire supply chain, as their demand determines the production and distribution requirements. Customers can be individuals, households, businesses, or organizations that benefit from the products or services provided.

There is one more point which basically missed out by many of article and books that is feedback

Feedback

This is the last step of supply chain management where the end consumer give the response are there experience regarding the product to the retailer and then retailer take decisions about the product that how much quantity is required or is it good for sale or bad for sale then then response affect the distributor and manufacturer.  

Why is SCM Important?

1. SCM basically helps the people to optimizing the flow of different materials, information, and finances with in the supply chain, which help the industry in cost savings. By continues processes, reducing inventory levels, and improving coordination with suppliers and customers.

2. It focuses on achieving the customer demands in the given timeframe. By checking that the timely delivery, product availability, and responsiveness to customer needs, SCM helps in enhance the customer satisfaction. Satisfied customers are more likely to become repeat customers. They can also increased sales and market share of that company.

3. Good and Managed SCM can provide a competitive help to the company. By optimizing supply chain processes, companies can reduce lead times and also improve the product quality, and offer competitive pricing. It can help in gaining and retaining the customers who are outperforming competitors, and gaining a larger market share.

4. SCM involves coordination among various department within the supply chain. It including suppliers, manufacturers, distributors, and customers. By sharing information, aligning goals, and working together, Basically, SCM can help in better decision-making, improved efficiency, and reduced risks. This collaborative approach helps in building strong relationships with supply chain partners.

5. SCM helps in identifying and reduces the risks in the supply chain. By having visibility into the whole supply chain. Companies can easily find the potential error, such as supplier issues, transportation delays, or natural disasters. Effective risk management in SCM help in continuity of operations, minimizes error, and protects the company’s goodwill.

6. SCM plays an important role in promoting sustainability practices. By optimizing transportation routes, reducing carbon emissions, and implementing green initiatives, SCM contributes to environmental conservation. Additionally, SCM can also ensure ethical sourcing, fair labor practices, and responsible waste management, aligning with social and ethical values.

7. SCM involves the collection and analysis of data from various points in the supply chain, which helps in better forecasting and planning. By understanding demand patterns, market trends, and customer preferences, companies can optimize production schedules, inventory levels, and distribution strategies. This leads to improved efficiency and reduced costs.

8. SCM enables companies to quickly adapt the changes in demand, market condition in the supply chain. By having real-time visibility communication with suppliers and customers, companies can adjust production, inventory, and distribution strategies accordingly. This flexibility helps in meeting customer demands, reducing lead times, and maintaining a competitive edge.

9. SCM  help in growing collaboration sharing among supply chain partners. It can lead to new product development. By involving suppliers and customers in the product development process, companies can gain valuable insights, access new technologies. This can result in the introduction of new products or improvements to existing products, driving growth and market differentiation.

10. SCM promotes a culture of continuous improvement within the supply chain. By regularly evaluating performance metrics, identifying areas for improvement, and implementing corrective actions, companies can enhance efficiency, reduce waste, and optimize processes. This focus on continuous improvement helps in achieving operational excellence and staying ahead of competitors.

11. CM enables companies to expand their operations globally by effectively managing international suppliers, transportation networks, and distribution channels. By leveraging global sourcing opportunities, companies can access cost-effective suppliers, tap into new markets, and reach a wider customer base. This global reach enhances competitiveness and opens up growth opportunities.

12. SCM helps companies ensure compliance with various regulations and standards related to product quality, safety, and ethical practices. By implementing robust quality control measures, traceability systems, and ethical sourcing practices, companies can meet regulatory requirements and build trust with customers and stakeholders.

Impact on Business Efficiency and Profitability

Basically, Profitability is defined as an enterprise’s power to generate profit by covering expenses with income and obtaining a surplus value. It is knowns as the fundamental criterion for getting economic efficiency. Profitability is influenced by various factors, including labor productivity, production quality, and production costs and also wastage reduction.

Whenever we talk about the supply chain management, economic efficiency and profitability play an important role. Efficient SCM help to optimize the flow of goods, information, and finances across the entire supply chain, from raw material suppliers to end customers. By improving efficiency in supply chain operations, businesses can reduce costs, increase productivity, and enhance profitability.

Efficiency in supply chain management can be achieved through various strategies. Such as reducing lead times, improving inventory management, enhancing transportation and logistics, and implementing effective demand forecasting. Basically, these strategies help in minimizing the wastages and streamline processes, and also help in to cost savings and improved profitability.

For example, by reducing lead times and improving inventory management, businesses can minimize stockouts and excess inventory, which can result in cost savings and increased customer satisfaction. Efficient transportation and logistics operations can optimize delivery routes, reduce transportation costs, and improve delivery speed, leading to improved customer service and reduced expenses.

Furthermore, effective demand forecasting can help businesses to align their production and inventory levels with customer demand and also reducing the risk of overproduction or out of stock. This can result in cost savings, improved resource allocation, and increased profitability.