What Is the Importance of Supply Chain Management?

Efficient supply chain management ensures prompt delivery of goods and services.

Supply chain management (SCM) is a business practice that aims to improve the way a business sources its raw materials, and delivers it to end users. For any product or service offered by any business, there are usually a number of different business entities involved in the various stages of the supply chain, including manufacturers, wholesalers, distributors and retailers; the last group in a supply chain is consumers. SCM is important for modern businesses because it coordinates and synchronizes activities of partner businesses, giving higher efficiency. The principles of supply chain management are derived from five basic components.

Plan

Planning is the first and most important strategic function in SCM. The planning process lays down the strategy for managing and handling all resources that are used in providing the service or product that the company is involved in. Planning involves developing a set of metrics that enables the company to maximize efficiency by monitoring the flow of materials through the supply chain. Timely and effective planning makes a company's supply chain more responsive and prepared for contingencies. SCM managers who plan are able to keep costs low, and deliver high quality and high value to customers in time.

Source

Sourcing is the next component that managers consider in SCM. Sourcing involves studying supplier competencies and selecting one, based on one or more criteria. When a supplier is chosen, they must be prepared to deliver goods and services that the businesses need to create their products. Managers in SCM develop policies for pricing, delivery and payment with each supplier, and monitor and improve relationships by using metrics. The SCM managers supervise inventory and execute tasks such as collecting and verifying shipments, sending them to manufacturing plants and authorizing payments.

Manufacture

The next component involves the actual manufacturing process. SCM managers schedule activities for manufacturing, quality testing, packaging and shipping by coordinating the actions of each and every entity involved in the various related processes. In SCM, manufacturing makes the most use of the metric system, enabling managers to measure quality, output of production and productivity of workers. These are important parameters that can be evaluated, and remedied (if performance is sub-par) to enhance efficiency.

Deliver

After the manufacturing process comes delivery. SCM managers in the delivery process must synchronize activities of partner businesses involved in the transportation of goods. Sometimes referred to as logistics, delivery is an involved stage requiring large amounts of data from customer orders, warehouses and carriers. For most efficient operation, managers make use of an integrated system, developing a network of warehouses and carrier companies. For the product to reach their customers in time, their carriage must be seamless and without incident, each and every time. The delivery process also involves preparation of an invoicing system for payment receipts.

Return

Often the trickiest component in SCM is establishing an efficient system for returns of defective goods. Setting up a responsive and flexible network is a very important aspect of SCM because excess and defective goods should ideally be received by the company as quickly as possible. Defects and excesses are causes for concern for a business's consumers and clients, and as such, accepting goods back ensures future business relationships. Companies that are unable to establish fluent transport of goods back to the warehouse may lose customers and future business opportunities.

References

• CIO: Supply Chain Management Definition and Solutions
• NC State University: Supply Chain Management