What is Supply Chain Management?
Supply Chain Management (SCM) is the handling of the flow of goods and services from the raw manufacturing through to its consumption by consumers. This process requires an organisation to have a network of suppliers that serve as links in the chain to move the product through several stages.
Why is SCM important?
Effective SCM improves the financial position of an organisation by delivering value linked to the organisation’s corporate strategy. SCM is critical at reducing operating costs from procurement activities, through operations and logistics, and throughout the whole supply chain. The scale of profitability for large organisations is relative to the management of their supply chain.
SCM also has a lesser societal role – ensuring that the basic necessities people depend on like, food, energy, medicine and modern infrastructure are flowing and available. Our Partner, Viracopos Airport (Brazil) has written a blog post on this in relation to COVID-19 here.
What are the 6 components of SCM?
- Planning: Make vs buy decision to understand whether an organisation will manufacturer or buy domestically or internationally.
- Sourcing: Identifying, evaluating and building relationships with suppliers that will provide goods and services.
- Demand/Inventory: Managing inventory and manufacturing schedules to meet consumer demand.
- Production: Ensuring the right volumes and quality of production.
- Warehouse & Transportation: Storing and delivering the product effectively.
- Return of Goods: Ensuring an efficient returns process for customer satisfaction.
The distinction between the two is that supply chains are responsible for the overall sourcing, processing, and delivery of goods to the end customer, while logistics specifically focuses on moving and storing goods between different supply chain organisations.
SCM sets the strategy and directs daily logistical activities that happen in factories, warehouses, local shipping centres and other facilities. Logistics is an aspect of the supply chain that stores or delivers finished goods or services to the customer, whether that’s a manufacturer, distributor or consumer.
Supply Chain Management vs Operations Management (OM)
The biggest difference between SCM and OM is that supply chain management is mainly concerned with what happens outside of a company – obtaining materials and delivering products – while OM is concerned with what happens inside the company.
This means that a supply chain manager will spend their time negotiating contracts and evaluating suppliers, whereas the operations manager will often be planning and overseeing daily operations and processes. SCM activities tend to be the same across industries; however, OP roles and responsibilities can vary widely depending on the product or service the business produces.
How does SCM reduce costs?
There are several cost-effective benefits from SCM, the most obvious one being the freeing up of finances to be allocated where they are needed. Looking at how to reduce these costs encourages supply chain managers to take a holistic view of their chain, which provides the opportunity to identify methods of saving money through making their process more efficient.
An example of this could be looking at the diversity of a supply chain. By thoroughly investigating its supplier network, and identifying alternative providers, a supply chain manager could easily detect further benefits to their company, such as: new business, efficiency and improving their organisations corporate image.
Why would a supply chain manager outsource to another company?
Key benefits of outsourcing supply chain management can enable an organisation to:
- Cut costs
- Develop strategic plans
- Improve logistics
- Expand your reach
- Add more flexibility