Supply Chain Management (SCM) is the backbone of modern business operations, ensuring the smooth flow of goods and services from its raw stage to end consumers.
This article delves into the workings of SCM, expatiating its pivotal role in enhancing operational efficiency, minimizing costs, and promoting customer satisfaction in today’s global marketplace. Let’s dive right in
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What is supply chain management (SCM)?
Table of Contents
SCM is the strategic coordination and integration of multiple business functions inside an organization. It is responsible for guaranteeing the effective flow of goods and services from the point of production to the point of consumption.
It includes the procurement, production, and distribution of goods as well as the planning, carrying out, managing, and overseeing of supply chain activities. Process optimization, cost cutting, and increased customer satisfaction are all benefits of effective SCM, which boost a business’s overall success.
To adapt to changing market demands and gain a competitive advantage, it entails managing the complete network of suppliers, manufacturers, warehouses, retailers, and customers while fostering collaboration, transparency, and agility.
How supply chain management works (stages of SCM)
Supply Chain Management (SCM) is a complex and crucial process that ensures the efficient flow of goods and services from their point of origin to the end consumer. Here’s how SCM works:
1. Planning
Strategic planning is the first step in the SCM process. This is the stage where the business plans the entire production process and how to equalize demand from consumers and supply.
Demand forecasting, inventory planning, and manufacturing and distribution methods are all necessary for businesses. Making crucial choices regarding suppliers, shipping, and inventory is required at this point.
2. Purchasing/Sourcing
Once a plan and strategy are in place, businesses source and purchase components and raw materials from vendors. To guarantee a stable supply chain, effective supplier selection, negotiation, and relationship management are necessary.
3. Production
Production operations begin once the necessary resources are available. The company converts raw materials by using equipment, labor, or other external factors to create something new.
This is the core of the supply chain management process. Despite not being the last step in the supply chain management process, the result of this stage is what the manufacturing process ultimately aims to produce.
4. Warehousing
Finished products are transferred and stored in warehouses before distribution. Inventory management is vital at this stage to balance demand and supply while keeping costs low.
Other steps include:
5. Distribution/Delivery
After-sales are finalized, the company must deliver the products to their customers. The distribution process is usually seen as a brand image contributor, as the customer has yet to interact with the product. In strong SCM processes, a company must have effective and robust logistic capabilities and delivery channels to ensure the timely, delivery of products.
6. Returning
The business support for the product and customer returns marks the end of the supply chain management procedure. Sometimes, a customer has to return a product because of a mistake on the part of the business. This is called reverse logistics.
The business needs to make sure it has the resources to accept returned goods and refund for those returns. Resolving the transaction with the client is necessary whether a business is recalling a product or a customer is merely dissatisfied with the goods.
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6 common types of supply chain models
1. Continuous Flow Model
This model is frequently used in sectors like fast-moving consumer goods (FMCG) and is mostly utilized for high-volume, standardized items. It concentrates on increasing efficiency and lowering costs through continuous manufacturing and delivery.
2. Fast Chain Model
The Fast Chain Model places a focus on response to market needs and rapidity. It entails speedy manufacturing and delivery to meet the demands of industries like fashion and technology that produce items with short lifespans or see rapid shifts in consumer preferences.
3. Efficient Chain Model
Efficient supply chain models aim to reduce costs while maintaining a high level of service. It requires careful management of inventory and distribution systems, which is typical in sectors with consistent and predictable demand patterns.
4. Agile Supply Chain Model
This strategy works best for businesses that sell things that customers order or with unpredictable demand. This approach emphasizes adaptability because a business may have a particular requirement at any given time and must be ready to change course accordingly.
5. The Custom Configured Model
This model is for unique or customizable products that require a more intricate and personalized supply chain process. It involves close collaboration amongst various stakeholders to ensure that specific customer requirements are met efficiently.
6. Service Supply Chain Model
Unlike product-centric models, this model focuses on delivering services rather than tangible goods. It includes planning, sourcing, and delivering services effectively. This model is usually seen in industries such as healthcare, hospitality, and IT services.
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Importance of supply chain management (SCM)
1. Cost efficiency
Efficient SCM techniques help to reduce costs through improved inventory management, streamlined production procedures, and efficient transportation tactics, which increases profitability.
2. Improved customer service:
SCM guarantees prompt product delivery, cutting down on lead times and raising client satisfaction. Companies may create and keep a loyal consumer base by successfully addressing customer requests.
3. Enhanced collaboration
Suppliers, manufacturers, distributors, and retailers can collaborate better thanks to SCM. Through this collaboration, the supply chain network as a whole benefits from enhanced communication, transparency, and partnerships.
4. Risk management
A successful SCM strategy enables the detection and reduction of issues like interruptions in supply, changes in the market, or natural disasters. In the face of unforeseen difficulties, proactive risk management promotes business continuity and resilience.
5. Competitive advantage
SCM enables businesses to offer products at competitive pricing and react rapidly to market changes. Businesses are better able to respond to changing customer preferences and market trends thanks to this agility than their rivals.
6. Innovation facilitation
SCM promotes innovation by providing chances for process improvement and the use of cutting-edge technologies. It encourages the adoption of innovative techniques and tools that can raise the level of operational effectiveness and product quality.
