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What is Supply Chain Management?

Supply chain management (SCM) is the process of planning, implementing, and optimizing the flow of materials, information, and finances from the point of origin to the point(s) of customer consumption via a system of storage facilities, transportation mechanisms such as trucks, ships or planes that move goods around in supply chains. Supply Chain Management involves bringing products to market with minimal exposure to stock-outs or excess inventories, creating efficiency at low cost.

Why is Supply Chain Management Important?

In today’s business environment, supply chain management is important. It helps manufacturers and suppliers reduce the cost of goods and services while maintaining quality for customers. Poor performance in supply chains also affects customer service. When a product is unavailable or doesn’t meet expectations (quality issues), consumers go elsewhere, impacting your ability to grow market share. Finally, poor supply chain systems can result in the loss of valuable time.

Supply Chain Management Process:

Most companies use one or more processes to manage their supply chains, including:

Forecasting:

Forecasting is the process of trying to predict future demand for goods and services. It can be done through statistical methods or quantitative techniques to estimate future supply, demand, and other information in a given market. This helps businesses gauge how much material they should have ready at hand for customers. Forecasts are usually based on historical demand data and economic indicators that influence buying patterns (e.g., retail sales, consumer confidence).

Buying/Ordering:

When companies forecast that their orders will exceed current inventory levels, they order additional products from their suppliers (external sourcing) or purchase them from within the organization (internal purchasing.) Buying processes typically include opening purchase requisitions, reviewing vendor bids, selecting vendors who can provide the product at a favorable price and in desired quantities, then placing orders.

Management:

Once orders are placed, they need to be processed by purchasing and receiving personnel. The timely arrival of materials is essential for filling customer orders promptly.

Inventory Management:

Inventory management is the process of matching supply with demand within an organization’s supply chain. It uses statistics to find the optimal location for inventory storage and tracks the number of goods held in different locations or at different stages of production. Also called “activity-based costing,” part of ABC analysis, which breaks down all costs into direct and indirect costs and helps management match direct labor with each specific product or service sold. Finally, if too much inventory builds up in one place or stage along the production line, production may drop because parts are unavailable when needed.

Demand Management:

Demand Management is a process of managing customer requests for products and services. Demand forecasts are used to determine how much inventory should be held in the supply chain (see forecasting above). Some companies also use “just-in-time” delivery, which means that when customers place orders, they may get them the same day or within 24 hours.

Procurement / Purchasing:

Procurement refers to the activities related to purchasing goods and services from outside sources. Purchasing covers many activities and focuses on internal decisions such as selecting suppliers, placing orders with suppliers, monitoring contracts, issuing payments, and other financial transactions. Procurement often involves pricing products or services, negotiating agreements, reviewing contracts for compliance, writing contract specifications which include technical aspects (e.g., quality standards), legal issues (e.g., indemnification), and administrative requirements (e.g., reporting requirements).

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Forms of Supply Chain Management Homework Help We Offer

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