Definition of Supply Chain Management
Supply chain management (SCM) refers to managing the flow of goods and services starting from the phase of the transformation of raw materials until the production of final products. It involves monitoring the supply chain activities and managing businesses and people along the supply chain.
The supply chain management process divides into three categories: product flow, information flow, and financial flow.
- The Product Flow: This category includes the development, storage, and delivery of the goods along the supply chain.
- The Information Flow: It contains processes like sending and receiving sales orders and purchase orders. This flow is of crucial importance in the supply chain management process because the accuracy of the information in the flow is related to the effectiveness of the supply chain.
- The Financial Flow: This flow consists of processes such as billing, inventory management, and payments.
What About The Importance of Supply Chain Management?
Supply chain management is of crucial importance for a business. That’s because businesses can have multiple benefits if the SCM is handled properly. For example, enhancing customer satisfaction, building effective inventory management, and reducing operating costs.
Enhancing Customer Satisfaction
Supply chain management plays a key role in customer satisfaction. When companies handle properly the supply chain, customers deliver the correct product assortment and quantity. This way companies ensure that they fulfill the promises given to customers regarding the delivery of their orders.
Effective Inventory Management
Effectively managing stock is critical in the supply chain management processes. With inventory tracking capabilities, companies can prevent orders from late shipment, reduce the order cycle time and improve forecasting.
By efficiently managing a supply chain while ensuring that the management processes of products are handled fruitfully, businesses can run smoothly while also reducing their spending and maximizing their profits.
Four Functions of Supply Chain Management
What functions does a supply chain ecosystem include?
Procurement is the process that consists of finding reliable suppliers that provide competitive products and services at a reasonable price based on the company’s needs.
Production includes the transformation of raw materials into finished goods. The production process is of vital importance in supply chain management because it affects all the procedures that are part of the supply chain cycle.
Logistics include the organization and implementation processes of the storage and transportation of goods throughout the supply chain. Also, it involves coordinating resources such as facilities, personnel, equipment, and others to ensure the timely and efficient movement of products, as well as adequate storage space.
Distribution involves the processes of overseeing the movement of goods from supplier to manufacturer to wholesaler or retailer and then to the end customer.