Supply Chain Management: Understanding its Processes

by Robyn Neath | September 26, 2022 | Reading time: 8 minutes

What is Supply Chain Management?

Supply Chain Management (SCM) is the proper management of goods and services from its raw material stage to their delivery as a final product. It represents the contribution made by managers, business owners, and employees to streamline the development and supply of a product to customers. The concept of product supply and a network of suppliers, manufacturers, and producers has been around for a long time, but the term "supply chain management" wasn't coined until the 1980s. Since then, SCM has driven the notion of efficient and effective product development and supply.

When manufacturers, production companies, or business enterprises start to create or produce goods and services, the most important thing is ensuring the final product supply is seamless, efficient, and safe. SCM therefore aims toward customer satisfaction as it embodies the logistics process of products and how to manage the supply of products in a bad economy in the post-pandemic era.

An excellent supply chain management means that every process, step, and procedure involved in the delivery of goods and services have gone through proper audit and evaluation, ensuring it is cost-efficient, safe, and seamless. A good supply chain manager will ensure that they erase any loopholes that can affect the smooth supply or delivery of products to customers.

SCM is a systematic concept; it has various components or features that support its success. From raw material procurement to final product and maximization of customer value, the supply chain aims to simplify all processes that allow a company's supply chain to run efficiently.

The SCM practice focuses primarily on the successful management of operations, procurement, system and industrial engineering logistics, and also helps to improve the technology involved in marketing. SCM also strives for an integrated course of actions that takes discipline and total quality control in business.

Most organizations or companies today rely on SCM to stay competitive in the global market and networked economy. Competitive businesses now strive to achieve excellent product planning, demand planning, supply planning, sales and operations planning, and supply management.

In this article, we'll be discussing the following::

1. The business process of supply chain

2. The five most critical elements of supply chain management

3. The types of supply chain model

4. Why supply chain management and planning is important

What Are Supply Chain Business Processes?

SCM only becomes successful through the proper integration of necessary activities into the supply chain process. This helps streamline the entire management system by laying out an order of operational instructions to safely and efficiently manage the supply of goods to customers. In 2004, Douglas M. Lambert, Director of the Global Supply Chain Forum, pointed out a list of vital supply-chain practices which we can further summarize as the following:

1. Customer Service Management Process: This boils down to the relationship between organizations and patrons, as good customer service is the source of customer retention, so most successful organizations try to build a relationship where their clients keep a good rapport and provide real-time information that keeps people interested in continued patronizing.


2. Inventory Management: This entails properly managing the timing and quantity of orders and stocked goods by an organization to always satisfy demand in a cost-effective manner. In simpler words, it is the management of supplying the right goods in the right proportion, in the right location, at the right time, and at the right cost.


3. Production Development: The standard key to product development is understanding customer needs through proper customer service management, choosing the appropriate materials and suppliers to meet up with the procurement requirements, and upgrading the production technology and manufacturing flow to better develop products that will attract customers.


4. Procurement Process: This refers to the management of the entire product production process and the seamless manufacturing activity flow. Manufacturers obtain the necessary material to produce and develop products that are in line with customers' requirements. Properly managing this process is important to ensure that both parties (companies and customers) benefit equally.


5. Manufacturing Flow: An organization whose line of operation relies on manufacturing goods should be able to manage the flow of production activities and processes adequately. The manufacturing flow of a company must be flexible and adapt to changes in customers' preferences, economic goals, and organizational standards.


6. Physical Distribution: This concerns the physical transportation of goods and services to customers. Physical distribution fosters relationships between marketing or supply channels and customers, like linking wholesalers, retailers, and manufacturers.


7. Outsourcing/Partnerships: Manufacturing materials and equipment are not the only things companies outsource. Other sectors that can deliver in-house activities, like logistics, can also be outsourced or partnered with to strengthen the effectiveness of supply-chain in manufacturing and delivery.


8. Performance Measurement: As a quality manager, evaluating the performance of each process in manufacturing and supply is imperative for growth and the improvement of the supply chain and product activity. Highlighted setbacks in the performance of any procedure reveal a chance for development, which further maintains competitiveness.


9. Warehousing Management: This involves proper management of the storage of goods (raw material, parts, finished products, equipment, etc.) for the sake of improving marketing and supply inventory, downsizing workforce costs, and ensuring on-schedule delivery.


10. Workflow Management: This aims to introduce an atmosphere of utmost devotion to organizational and customer requirements that will increase supply-chain efficiency and effectiveness. The existence of a proper workflow in an organization is needed to complete business systems seamlessly, including supply chain management.

What Are The Elements of Supply Chain Management?

To ensure that the supply chain is effective, managers try to implement strategies to cut costs and minimize shortages. These strategies are supply chain management components that promote productivity and efficiency in the entire cycle of product creation, development, and delivery. These five-part strategies are:

• Planning
  

  Planning, as we know, is a necessary stage for all processes or projects. In the process of supply chain management, planning involves coming together as an organization to evaluate the requirements for the company to meet customer expectations and their future goals. Because of this, organizations consider the competency of the current staff, the capacity and limitations of each piece of equipment and machinery, and the raw materials needed in each manufacturing stage. If any of these do not meet the required standard intended to favor organizational goals and customer needs, managers will try to compromise for that by planning.



• Sourcing
  

  Sourcing is simply working with partners outside the original organizational team that will help supply raw materials necessary in each manufacturing stage. Your supplier, who is also your vendor, must be able to comply with specific requirements based on the type of goods to be delivered. If you aim to outsource suppliers, asking for a record of their last successful delivery would be helpful. Make sure that the record entails them delivering goods on time (both raw materials, equipment, and finished products) and in good quality.



• Manufacturing
  

  The manufacturing process of a product is the heart of SCM; a product's manufacturing process determines the supply chain's workflow. Without a final product or goods to be transported to a customer's location, there will be no supply chain in the first place. The processes involved in the manufacturing process are assembly, testing, inspection, and packaging.



• Distribution
  

  After a product goes through the final stage of manufacturing, if it's not mandated for assessment, evaluation, and review, the next step usually involves packaging it and sending it out to customers. Large organizations ensure that their delivery personnel, channel, and routes are in the right condition for on-time delivery of goods in perfect quality. For utmost efficiency and effectiveness, backup delivery components like extra routes, channels, and staff are ready for deployment should anything jeopardize the functionality of the previous components. In line with backup delivery components, it would also be beneficial to have an alternative distribution method if one fails to yield a positive result.



• Reverse Logistics
  

  Reverse logistics, also termed "Returning," involves customer and product returns. Say a customer develops a reason to return a good; it is the responsibility of the organization or company to handle the interaction successfully, especially if the reason is the company's fault. An organization must be capable of accommodating customer returns and assigning refunds for returns received. To avoid future returns, organizations should strive to use a product return scenario to highlight the possible defects on a returned product and identify non-conforming goods and expired products.






What Are The Types Of Supply-Chain Modules?




The implementation of a supply chain management system differs per company as each possesses different goals, strengths, features, and weaknesses; hence different approaches are used to implement supply chain management properly. The type of company involved will determine what the supply chain management process will look like. Because of this, six different types of SCM models are available for a business or organization to implement. They are as follows:



• Continuous Flow Model: This is the most traditional method of SCM, which involves continuously manufacturing the same goods while expecting steady customer demand. This model is often used by large and successful companies that already have many dedicated customers on their lists. Companies like this mainly deliver pieces of equipment, materials, and goods for basic needs like food, clothing, shelter, transportation, etc.


• Agile Model: This SCM is mostly used by manufacturing and production companies that thrive on flexibility. Companies like this are often unpredictable and might require specific needs and require tweaking their manufacturing and supply processes more often.


• Fast Model: Companies that use this model are often production organizations that capitalize on trending products. Companies that thrive on delivering products quickly during a certain period for awareness, trends, and seasons use this model to ensure that their quick turnover, manufacturing, and supply of product is possible.


• Flexible Model: This model is often used by companies whose demand rate is affected by seasonality. For example, an industry that works on selling Christmas trees knows that demand will always be higher during the Christmas season, so appropriate steps are taken to make the supply chain fast and reliable during that period.


• Efficient Model: This SCM model is often used by companies that place efficiency and quality above all other things. The efficient supply chain model will introduce tight profit margins, strict inventory, logistics, and processing measures that prove the most efficient.


• Custom Model: The custom SCM model is often compatible with any company as long as customers are waiting on the receiving end. Companies that utilize this model do not often need to apply pressure - they structure their supply chain process based on the organization's technical and specific requirements.





Why Is Supply Chain Management & Planning Important?




SCM and planning is essential because, without an effective and efficient supply chain, the reason for producing and manufacturing goods to sell to customers cannot be fulfilled. SCM is integral to major international companies and businesses with wide-scale operations. It helps maintain good consumer brand identity, good customer relationships, good inventory management and control, and successful business transactions. Supply chain planning can help a company meet stated annual goals and keep up with other organizations in terms of efficiency and delivery. SCM proves helpful in organizations making the following objectives achievable:



• Improvement of All-Around Efficiency: An excellent supply chain management system is paramount for realizing cost-efficient manufacturing and supply processes. With SCM practices in play, it would cost you less expenditure, labor, and intrusion as an operational industry.


• Enhancement of Productivity: SCM can help you enhance the productivity of goods and different services in your company. When a valid supply chain plan is put into action, there will be a noticeable increase in positive customer feedback and an increase in demand due to a favorable supply system. This is an influential factor that will positively impact productivity in general.


• Optimization of Transportation & Logistics: A proper adherence to supply chain practices can help streamline and optimize all the processes involved in the distribution of goods to customers, especially transportation and logistics. Proper supply chain planning paves the way for a well-organized logistics procedure.


• Customer satisfaction: Satisfactory supply chain management is paramount for an excellent business-to-customer rapport. As a result, customers are relieved and pleased because they know they have a reliable company that can deliver their products safely, at the right time, and in excellent quality. SCM practices also make an organization aware of any customer satisfaction survey results so that they can apply even more practices for increased client happiness.





Commonly Asked Questions about SCM

What is the most commonly practiced type of supply chain?

This would be the "Continuous Flow Model" - it is ideal for businesses that produce the same goods consistently with high demand.

Who invented the supply chain?

Keith Oliver, who was a British logistician and consultant, coined the term "supply chain management" back in 1982, although the concept can be traced back to the 20th century.

What are some common examples of supply chain activities?

Some examples would include: design, manufacturing, farming, packaging, and transportation, to name a few.

Share this guide:
Robyn Neath

Robyn started her writing career after receiving her screenwriting diploma from InFocus Film School in Vancouver, BC. Before joining lumiform she worked as a freelance copywriter for esteemed news and online tech organizations. She is a content writer who also does copy for websites, sales pages, and landing pages. Aside from writing she is passionate about TV series like Frasier and movies.