Supply Chain – Meaning, Benefits and More

Supply Chain is a network connecting the company and its suppliers for producing and distributing the final product to the end user. This network would include various activities, information, entities and resources. In all, we can say the supply chain involves the entire process from procuring raw material to sending end product to the customer. In terms of functions, it includes the following – developing a product, operations, managing distribution, marketing, finance, and customer service.

For delivering goods and services to the buyers, companies need to ensure a smooth supply chain. This, in turn, translates into making the product and company successful. The process of managing the supply chain becomes crucial if a company wants to be at the top of the competition.

What is Supply Chain Management?

Supply chain management or SCM basically means managing all things in the supply chain. It is a very broad term encompassing planning, sourcing the raw material, production stage, inventory management and logistics and so on.  As clear from the name, it incorporates the activities, plans, control and execution of the whole supply chain. These activities are taken care of from the pre-production stage and go until the product or service reaches the last customer.

With the advent of technology, it has become much easier for companies to integrate supply chain with the business to get an edge over other companies. SCM is so important for a business that educational institutions now offer specialized courses to help professionals improve their expertise in the area.

SCM Process

The SCM process starts with demand planning. For planning demand, the management uses past data, information from suppliers, statistical modeling and more. The next step is production planning, where the company plans how to optimize the resources for production purposes.

Thereafter, the company goes for material requirements planning (MRP). Under this, the company ensures that it has enough materials and components for the production to complete on time. Once the production completes, the company goes for distribution. Under this, the company aims to make available the products in time to the end-user or the distributor or the retailer.

These are the main processes of SCM. Apart from these, there are a few more processes, such as logistics, inventory management and procurement.

Supply Chain vs. Business Logistic Management

In a business environment, we often use the term SCM and business logistics management interchangeably. However, both concepts have minor differences between them.

Logistics is all about planning, coordinating and controlling the transporting and warehousing of goods and services from start till the final destination. Final destination, in this case, means delivery of the product to either a retailer or distributor or the end user. We can say, logistics management stretches from procuring of raw materials until the delivery of the product to the user.

Companies make efforts to have a fool proof logistics system. This ensures that the delivery is on schedule, and in turn, helps the company to keep costs in control. Supply chain, on the other hand, ensures that at no point in the entire chain of product and services, there is mismanagement or break in the information.

Separately, business logistics management ensures that the product or service is delivered where it is supposed to be. Supply chain, on the other hand, involves keeping an account of everything and also prepare for any contingencies that might occur during the delivery of the product.

Supply Chain

Benefits of Efficient Supply Chain

Reducing Cost

An efficient supply chain ensures that throughout the process, right from procuring the raw materials to delivering the final product, the f is in control. In fact, supply chain management is all about cutting cost in different areas throughout the product life cycle. Moreover, it helps in taking inventory management a notch higher as well. Further, proper management of the supply chain ensures there is enough space for finished goods. This helps to bring down the damage or spoilage to a minimum.

Boost Efficiency and Output

The feedback and information from the personnel’s in the supply chain assist management in forecasting the demand and then plan accordingly. Additionally, an efficient and active network makes it easier for the management to make changes as per the fluctuations in the economy, markets and changing customer preferences. Moreover, it ensures better coordination and collaboration between shipping, transporting companies, suppliers, as well as, vendors.

Cutting Down on Process delays

Since SCM is all about streamlining processes at all stages of the product life cycle, it automatically cut down on delays and fixes the loopholes. Since there is clear communication, every participant in the process is clearly aware of their responsibilities and dependencies. Further, each participant is also aware of what to expect from others in the network. This minimizes the delays and logistical errors in the whole process.

Better Cooperation

Communication is the key to a successful business and lack of communication might disturb the whole process. If there is no proper communication from the management or between the vendors, no one will have any information on what stage the product is. Technology has made the SCM much easier by streamlining the processes. Also, communicating and coordinating with people throughout the supply chain has become easier, thereby making the whole SCM process smooth.

Flexibility

Different customers have different requirements, and proper SCM guarantees that customers get what they want. Further, SCM improves the relationship of the company with both the distributors and the vendors, thereby allowing the company to communicate changes, if any, to suppliers quickly.

Important for Society

Along with being important for the company, SCM is crucial for society as well. We can say it assist in human survival as we all depend on the supply chain for the supply of necessities, such as food, medicine and more. In fact, the supply chain plays a part in almost every aspect of our daily life, including the delivery of electricity and internet.

A proper supply chain infrastructure is a must for every country. This infrastructure includes interstate highway, massive rail network, airports and seaports. Proper coordination among all these helps a nation to make necessity items available to the public at lower costs and, in turn, raise their standard of living. Additionally, it contributes to economic growth by increasing employment opportunities.

Final Words

From the above information, it is very clear that SCM is very crucial for a company to be successful. Companies nowadays use both specialized software and business strategy for SCM. This, in turn, helps them to get an edge over others.

 

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1.
How Do Business Management Logistics Work? smallbusiness.chron. December 2019. [Source]
2.
Key 7 Advantages and Benefits of Supply Chain Management | AIMS Blog. aims.education. December 2019. [Source]
Last updated on : December 5th, 2019
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