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What is SCM (Supply Chain Management)?

In a broad sense, supply chain management (SCM) is the management of the flow of goods and services from raw materials through to delivery to the customer. This includes all the processes involved in planning, sourcing of goods, manufacturing, delivery, and returns. Typically, supply chain management attempts to centrally control and link all these processes to create a more efficient system. In this article, we’ll look at supply chain management in more detail, breaking down the core processes and explaining how businesses can implement a system that will cut excel costs and expedite delivery to end consumers.

The Five Processes of Supply Chain Management

There are five basic components to supply chain management that cover the core processes involved in everything from production and product development to delivery:

1. Planning

Planning and managing the resources required to meet customer demands is essential to SCM. Planning ensures manufacturers have the materials and the workforce required to produce and deliver products on time and minimize the risk of surplus resources.

2. Sourcing

Sourcing involves choosing the best suppliers to provide the goods and services needed to manufacture your products. Key processes include ordering, managing inventory, and authorizing supplier payments. Businesses should focus on monitoring and managing good relationships with suppliers.

3. Manufacturing

This includes all the activities required to turn raw materials into the end product. Businesses should organize production, quality testing, shipping, and schedule for delivery.

4. Delivery and Logistics

Coordinate customer orders, schedule deliveries, dispatch loads, invoice customers and manage payments.

5. Returning

Create an efficient process for the return of defective, excess, or unwanted products.

The Core Functions of Supply Chain Management

Five main functions are important for successful supply chain management:

1. Aligning Flows

SPC keeps the money, materials, and information passed between customers and suppliers flowing up and down a supply chain.

2. Integrating Functions

SPC connects the processes involved in logistics, purchasing, and operations, ensuring that businesses have a singular goal that benefits the overall performance.

3. Coordinating Processes

SPC aligns processes used to plan, source, make, deliver and return company products and services, increasing efficiency and profitability.

4. Designing Complex Systems

Simulation tools can predict how a supply chain will behave and identify potential disruptions in the flow of materials.

5. Managing Resources

Supply chain managers are responsible for allocating people, processes and technology to best meet the demands of customers.

Why Do Businesses Need SCM?

We have established a deeper understanding of the role of supply chain management, but what do businesses stand to gain from implementing a successful strategy? The benefits of effective SCM include:

Improved Collaboration

Information flow is a key challenge in the supply chain, integrated management solutions remove bottlenecks and allow for the seamless sharing of information. This provides a big-picture view of the supply chain from end-to-end, allowing management to make more informed decisions to improve efficiency and the bottom line.

Strict Quality Control

Companies implementing effective SCM principles benefit from having greater control over their suppliers and their suppliers’ supplier. Establishing a minimum control criterion provides direct suppliers with the ability to identify and partner with secondary suppliers who also meet those requirements. It recommends businesses implement a Management Operating System (MOS) for monitoring key performance indicators including:

• On-time delivery
• Scrap rates, reworks, and other issues at suppliers
• Final product quality
• Time for complaint resolution
• Findings from supplier quality assessment

This data allows manufacturers to maintain strict quality control, delivering the best possible goods to their customers.

Greater Efficiency and Risk Mitigation

The real-time data provided by supply chain management means manufacturers can be flexible and limit the problems caused by things like delays and material shortages. Analyzing big-picture data can reveal potential risks, allowing for proactive action to be taken to supply chain disruptions. Having backup plans in place to readily respond to unexpected circumstances limits disruptions and the potential negative impact from the disruptions. Investing in automation solutions also helps increase efficiency on the production line, leading to faster delivery times and a positive customer experience.

Reduced Costs

Using the data to predict demand and allocate resources reduces overhead costs associated with slow-moving inventory. Businesses can stock less low-velocity inventory and make more room for higher-velocity and revenue-producing inventory. Optimizing your warehouse layout by adopting the right automation solutions can improve productivity and reduce warehouse fulfillment costs. SCM also helps identify unnecessary spending and achieve leaner operations. It allows business leaders to make more informed decisions regarding where budget is spent, and revenue is made.

Shipping Optimization

The cost of delivering goods is growing, particularly after the increase in demand caused by the COVID-19 pandemic. This has made shipping optimization a priority, and SCM helps identify the most efficient shipping methods for a range of products and order sizes. This also contributes to lower overhead costs, boosts the company’s bottom line and leads to happier customers.

Keeping Up with Demand

Without an effective supply chain management strategy, there can be a disconnect when it comes to communicating supply and demand changes, leading to surplus resources or shortages. Real-time, accurate information, and integrated data allow supply chain leaders to predict demand and respond to an ever-changing market.

This article should cover everything you need to know about supply chain management, allowing you to identify your business requirements and successfully implement a new system. PLEX DemandCaster improves inventory management, reduces costs, exceeds market delivery expectations, and optimizes the supply chain. You can learn more about Plex Supply Chain Management’s features here.