An Overview of Supply Chain Management
The word “supply” in supply chain management refers to the supply-side activities of a business. Supply-side activities refer to those processes that convert raw materials into a finished product. Supply chain management oversees the flow of services and goods that are involved with these processes, as well as other processes related to this core process.
A supply chain is the link between a business and its suppliers. This network may involve people, processes, information, and technologies. The start of the supply chain is when a customer order is received by a business. The end of the supply chain is when a customer is satisfied with a product or service.
Supply chain managers are tasked with keeping supply-chain related costs to a minimum and to ensure that there are no supply shortages. Additionally, they are also expected to suggest improvements in the system. A particular focus is to eliminate and avoid expensive bottlenecks in the process.
The objective of supply chain management is to optimize the business-supplier network so that it becomes efficient and economical and to ultimately give value to customers. A well-tuned supply chain is also a way for a business to maintain a competitive edge. Supply chains have a direct impact on a company’s bottom line. Failing to manage inventory properly can result in either shortages or surpluses. Inventory shortages lead to missed revenue opportunities, while product surpluses add unnecessary storage costs.
There are four key elements of supply chain management: integration, operations, purchasing, and distribution.
Integration involves ensuring that ways of communicating are available to all members of the manufacturing process. Furthermore, supply chain management requires that manufacturing teams are able to effectively collaborate. One of the objectives is to avoid the creation of silos, or teams working on their own, with no coordination with other groups, a situation that could negatively impact the synergies that make a supply chain effective.
The operations element is concerned with the details making up the processes in the supply chain. The goal is to work to continuously improve processes. One such approach is to create leaner systems whose processes are entirely focused on well-defined objectives.
The purchasing element involves having the resources and materials on hand as inputs to supply chain management processes at the time when these inputs are needed. A weak or defective purchasing process can result in bottlenecks such as production delays because of raw material shortages, or, on the other end of the spectrum, oversupply of materials which results in unneeded storage costs.
The purchasing element is related to supplier relationship management. Businesses rely on suppliers not only to deliver supplies on time but to meet the quality standards necessary to produce the product to the satisfaction of the business and, ultimately, of the customer. Part of supplier relationship management is analyzing the importance of suppliers and their impact on the success of the business. This information feeds into initiatives to make processes involving suppliers more efficient.
Distribution involves the shipping and transportation arrangement a business has in place, whether it is an internal distribution system or a contract with a third party such as FedEx or UPS. The objective is to move products as scheduled, something that is important for internal operations as well as customer satisfaction.
The distribution element is related to logistics management. Logistics management is a sub-discipline of supply chain management. Logistics refers to product inventory storage and transportation.