What Is Supply Chain Management (SCM)?

Ship, crane, and shipping containers at dusk.

Supply chain management (SCM) is responsible for ensuring that auto repair shops have necessary parts in stock, Christmas presents are delivered in time for the holiday and home furnace repair companies respond to requests quickly, according to the Council of Supply Chain Management Professionals (CSCMP). A 1 percent decrease in supply chain costs for the U.S. cereal industry would result in $13 million saved.

SCM has a large impact for most businesses, and it’s essential to company success and customer satisfaction. However, there is debate surrounding terminology and the exact meaning of SCM.

What Is Supply Chain Management (SCM)?

Within the field of logistics, “researchers continue to discuss and debate the meaning of the term supply chain management,” according to Leif Enarsson in Supply Chain Quarterly. “Every new book about logistics, it seems, contains another definition of SCM.” He offered a few examples of how logistics and SCM are defined.

  • “Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point-of-origin to the point-of-consumption in order to meet customers’ requirements,” according to the CSCMP.
  • “Supply chain management is the integration of key business processes from end user through original suppliers that provide products, services, and information that add value for customers and other stakeholders,” according to The International Journal of Logistics and Management.
  • “[SCM is] the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole,” according to Martin Christopher in his book Logistics and Supply Chain Management.

Variations in definitions for SCM have led to a lack of clarity. Enarsson argues that, depending on the situation, SCM can refer to anything. It describes “a focus on production and involves both the supply and distribution sides of the company,” he wrote. “As the chain expands, the distance between the manufacturer and the end consumer increases, both geographically and from an operational point of view. At the same time, there is a strong trend toward more and more customer-oriented products and production, which requires close relationships between suppliers and customers.”

SCM simply describes these dynamic business areas and points to how companies can improve.

Supply Chain Management (SCM) Processes

For SCM to work smoothly, different people need to perform their roles well. Activities in SCM are highly collaborative and build off each other; if one part breaks down, the whole project can be undermined.

CSCMP identified the following processes in SCM:

  • Planning: Create effective long- and short-range supply chain strategies. Supply chain leaders need to consider strategies from the design of the supply chain network to the prediction of customer demand.
  • Procurement: The buying process focuses on the purchase of required raw materials, components and goods.
  • Production: This process involves the manufacturing, conversion or assembly of materials into finished goods or parts for other products. Supply chain managers support production and ensure that key materials are available when needed.
  • Distribution: Manage the logistical flow of goods across the supply chain. Transportation companies, third-party logistics firms and others ensure that goods are flowing quickly and safely toward the point of demand.
  • Customer Interface: The demand process revolves around issues that are related to planning customer interactions, satisfying their needs and fulfilling orders perfectly.

Impact of Supply Chain Management (SCM)

The overall importance and impact of SCM includes the business world and extends to society, according to the CSCMP. There are three primary impact areas in business:

  • Boost Customer Service: Customers expect to receive the correct product and quantity to be delivered, the products they need in stock at a particular location, on-time deliveries and timely support after receiving the product. Proper SCM optimizes customer service in several different areas.
  • Reduce Operating Costs: Supply chains decrease purchasing costs by quickly delivering expensive products to avoid holding costly inventories in stores any longer than necessary; decrease production costs by reliably delivering materials to assembly plants to avoid material shortages that would shut down production; and decrease total supply chain costs by designing networks that meet customer service goals at the least total cost.
  • Improve Financial Position: The ability to help control and reduce supply chain costs can result in dramatic increases in profits. Decreasing fixed assets such as plants, warehouses and transportation vehicles in the supply chain is another strength of effective supply chain managers. Finally, by speeding up product flows to customers, organizations can increase their cash flow. Making and delivering a product sooner means that the company can invoice the customer that much sooner.

There are also three primary impact areas in society:

  • Ensure Human Survival: SCM helps sustain human life by delivering basic necessities like food and water. Medicine and health care rely on supply chains. During a medical emergency like helicopters transporting accident victims to hospitals, supply chain performance is a matter of life and death. In addition, energy supply chains deliver electrical energy to homes and businesses for light, heat, refrigeration and air conditioning. A breakdown can quickly threaten human life.
  • Improve Quality of Life: Highly developed supply chain infrastructures allow for the exchange of goods between business and customers quickly, leading to economic growth. The standard of living increases too, as customers can afford to buy more products. Jobs are created because supply chain professionals design and operate all supply chains in a society and manage transportation, warehousing, inventory management, packaging and logistics information. Other areas include decreased pollution and decreased energy use, as supply chain professionals develop more sustainable processes and methods, and are able to develop energy-efficient supply chains that use fewer resources.
  • Protect Cultural Freedom and Development: Logistics help defend human freedom, as military logisticians strategically locate aircraft, ships, tanks, missiles and other weapons to provide maximum security to soldiers and other citizens. SCM also protects the delivery of necessities. For example, sophisticated packaging techniques, state-of-the-art surveillance cameras, GPS and RFID inventory tracking help protect products in food, medicine and water supply chains from tampering.

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