1 Supply chains refers to all of the people, activities, resources, and information involved in turning goods and services from raw materials into final products. A supply chain consists of several production processes like manufacturing from natural resources, transferring and storing commodities, and delivering the finished product to customers. It used to be that all of the organizations in a supply chain, from supplier to retailer, focused only on their own contributions and the processes they were responsible for. This led to disorganization, inefficiency, and revenue loss for companies that employed such a narrow vision of the supply chain. Now, companies understand that every component of a supply chain is dependent on those before and after it. Managers must recognize the supply chain as not individual parts but a whole interdependent network.
What is Supply Chain Management (SCM)?
Supply chain management is the act of overseeing the network mentioned above. It involves monitoring all of the supply chain activities so that every individual process runs smoothly and is in sync with the others. It also involves managing the people and businesses along the supply chain and ensuring clear communication between them. This unifies a business’s production process, increases its efficiency and improves the value and quality of the final product.
What is the importance of Supply Chain Management?
The main objective of supply chain management is to ensure that the movement of products along the supply chain is smooth, efficient, and flexible. While using supply chain management is good for the entire supply chain, it also has a beneficial impact on a few aspects of the main business. Let’s take a look at them in detail:
-
Supply chain management reduces production costs by ensuring that assembly factories receive timely shipments of raw materials. This way, businesses can avoid material shortages and delays in production.
-
A proper supply chain management strategy helps avoid the need for an expensive warehouse since it ensures quick delivery of products from the manufacturer to a retail outlet. By eliminating warehouses, supply chain management reduces purchasing costs.
-
With time, a supply chain management strategy will allow businesses to be able to predict stock shortages before they occur. By using data like their reorder frequency, amount of stocked ordered, and number of orders received, they can prevent the loss of potential sales.
-
Supply chain management also makes sure that customers are provided with the right number of products at the right locations during the right time. All of these factors improve customer service.
How does Supply Chain Management(SCM) work?
In simple terms, the overall workflow of supply chain management is split into three different categories: product, information, and finances. Every business that is a part of the supply chain works under one of these categories. Here’s a little more about each one:
-
The product flow includes the timely formation, storage, and delivery of products along the supply chain. It also involves conducting quality assurance at each product location.
-
The information flow consists of sending and receiving sales and purchase orders, as well as updating delivery statuses. It is essential that this workflow runs smoothly because all the other workflows depend on the accuracy of information that is sent throughout the supply chain.
-
The finances flow deals with payments, inventory management, billing, credit terms, and other workflows related to finance.
Why is Walmart’s Supply Chain Management famous?
Walmart executives were pioneers of modern supply chain management. They built a streamlined flow for their products by establishing a network with the other businesses involved in their production process. Up until that point, not many companies had created such a robust system out of their supply chains. This network helped all members of the supply chain to communicate more efficiently with each other. Better communication meant a better flow of products and more revenue for Walmart. Walmart’s relationship with Procter & Gamble was a shining example of this. Walmart put together an automatic reordering system by connecting the P&G factory computers with theirs through a satellite communication system. Every time the stock for a product at Walmart dropped below a certain threshold, the system sent P&G a notification to ship it immediately. This made sure that Walmart always had sufficient stock in its warehouses. After its success, this system of communication set a standard for supply chain management at other companies worldwide.
What is Supply Chain Management Software?
Supply chain management software are tools that help simplify and improve the accuracy of several supply chain activities. Most supply chain management software include the following essential features:
- Inventory management and warehouse management
- Order management and billing management
- Product lifecycle management
- Supply chain planning, inventory planning, and maintenance of enterprise assets and production lines
- Logistics and transportation and fleet management
- Supplier collaborations
In short, supply chain management refers to supervising all the businesses and individual workflows within a supply chain. While it may seem like using just a supply chain is enough, supply chain management is what keeps it organized and efficient. It helps bring down production and purchasing costs, minimizes the risk of inventory shortages, and improves customer service. If you feel like your supply chain has room for improvement, then maybe supply chain management is just what it needs.
This blog has helped me understand the SCM in an extremely simple language. Thanks for the amazing content and explanation using example of Walmart. This made it much easier to understand. Thank you.