What is supply chain management (SCM) and Why it is important

what is supply chain management (SCM)?

Supply chain management is the management of the flow of goods and service. By the concept of flow of goods and service in supply chain management we means a flow of entities i.e starting from the procurement of the materials, description of the transportation of raw materials, various parts or components, integrated object, transformation of these materials into finished product and finally distribution of these finished product to the customers. This all activity managed by supply chain management to maximize customer value and achieve a sustainable competitive advantage. With the help of SCM company can reduced cost and deliver product to the customer fast and efficiently.

How does supply chain management works?

Supply chain management workflow is split into three difference categories 1)materials 2)finance 3)information. Every company’s supply chain management work and manage under this three categories. let’s understand these three category.

1)flow of materials :- In every business flow of materials is a continues process. Flow of materials include procurement of materials, transformation of these materials into finished, storage of finished product and finally distribution of these products to the customer.

2)flow of finance :- The financial flow of supply chain management include thousands of invoice and payments in a given financial year. It involves activities such as payment option, credit card information, credit terms, payment schedule etc.

3)flow of information :- In SCM flow of information is considered to be as significant as the flow of material and finance as it provide the organization with an opportunity to collect, aggregate, and share valuable information across the entire supply chain. Flow of information includes product related information, demand forecast, order status report, delivery report, customer’s feedbacks, suggestions etc.

Five components of supply chain management

All process of supply chain management categorized into five steps.

1. Planning: This step emphasizes effective and efficient planning and management of resources to ensure maximum customer value and sustainable competitive edge by meeting the company’s aims and goals.

2. Sourcing: Involves procuring raw materials from different vendors to initiate the manufacturing process. It is also essential to choose the suppliers wisely to build a healthy supplier network. Ordering, Receiving, inventory management, and payment authorizations are a few key processes that need specific attention here.

3. Manufacturing: Once you obtain all the raw materials, the manufacturing process sets in motion. It is imperative to conduct a quality check thoroughly to avoid future mishaps in the manufacturing process. Then the manufactured products are packaged and scheduled for delivery.

4. Delivery and logistics: This stage is about distributing the goods by properly coordinating key processes like taking customer orders, delivery scheduling, dispatching packaged goods, generating customer invoices, and receiving payments.

5. Returning: This step is crucial to building a network that ensures customers can return damaged, surplus, or unwanted goods with an efficient feedback system.

Why sCM is important?

Supply chain management is an essential part of business success and customer satisfaction. Supply chain management works on every touchpoint of company’s product or service, from initial creation to the final sale. With the help of SCM companies can boost customer service (deliver quality products, right delivery time, best customer support after sale etc.), reduce operating cost (decrease purchasing cost, decrease production cost, decrease supply chain cost) and improve financial position (increase profit leverage, decrease fixed assets, increase cash flow).

Supply chain vs Supply chain management

Supply chain is a network of the individual, organization, resource and technology which are involved In creating a product and delivering it to the customers. Supply chain include everything from procurement of raw material and  deliver final product to end customers.

Supply chain management is the management of the flow goods and services. SCM managed all process from procurement of raw materials to deliver final product to end customers. With the help of SCM company can reduced cost and deliver product to the customer fast and efficiently.

Evolution of supply chain management

According to “inTechopen.com” The supply chain literature review was conducted to study the past researches. Before the 1950s, logistics was thought of in military terms (Ballou, 1978). It had to do with procurement, maintenance, and transportation of military facilities, materials, and personnel. The study and practice of physical distribution and logistics emerged in the 1960s and 1970s (Heskett et al., 1973).

The logistics era prior to 1950 has been characterized as the “dormant years,” when logistics was not considered a strategic function (Ballou, 1978). Around 1950s changes occurred that could be classified as a first “Transformation.” The importance of logistics increased considerably, when physical distribution management in manufacturing firms was recognized as a separate organizational function (Heskett et al., 1964). The SCM concept was coined in the early 1980s by consultants in logistics (Oliver and Webber, 1992). The authors emphasized that the supply chain must have been viewed as a single entity and that strategic decision-making at the top level was needed to manage the chain in their original formulation. This perspective is shared with logisticians as well as channel theorists in marketing (Gripsrud, 2006).

SCM has become one of the most popular concepts within management in general (La Londe, 1997) since its introduction in the early 1980s (Oliver and Webber, 1992). A number of journals in manufacturing, distribution, marketing, customer management, transportation, integration, etc. published articles on SCM or SCM-related topics. The evolution of SCM continued into the 1990s due to the intense global competition (Handfield, 1998). Berry (1994) defined SCM in the electronics industry.

Drucker (1998) went as far as claiming there was a paradigm shift within the management literature: “One of the most significant changes in paradigm of modern business management is that individual businesses no longer compete as solely autonomous entities, but rather as supply chains. Business management has entered the era of inter-network competition and the ultimate success of a single business will depend on management’s ability to integrate the company’s intricate network of business relationships.”

Fernie (1995) adopted SCM in the National Health Service. In fact, it was the first paper of SCM in the service industry. Sampson (2000) explored the customer supplier duality in the service organizations as it pertained to SCM in the service industry. Kathawala and Abdou (2003) explored supply chain application to the service industry. O’Brien and Kenneth (1996) proposed an educational supply chain as a tool for strategic planning in tertiary education. The study was based on a survey among employers and students. Survey findings revealed that integration and coordination among students and employers should have been promoted. Cigolini et al. (2004) explored a framework for SCM based on several service industries including automobile, grocery, computers, book publishing etc. According to the case study conducted at the City University of Hong Kong, Lau (2007) defined educational supply chain as the ‘Student’ and the ‘Research’ supply chain.

Habib (2009a) represents the first large scale empirical study that systematically investigate input of the university, output of the university through educational SCM. This exploratory research addresses the education supply chain, the research supply chain, and educational management as major constituents in an Integrated Tertiary Educational Supply Chain Management (ITESCM) model (Habib and Jungthirapanich, 2010a, 2010c, 2010h). Its applicability was successfully verified and validated through survey data from leading tertiary educational institutions around the world (Habib, 2010b, 2010d, 2010e, 2010f). survey data from leading tertiary educational institutions around the world (Habib, 2010b, 2010d, 2010e, 2010f).