Supply chain management (SCM) is where companies are able to manage their entire supplier network as one entity. Starting with managing the companies that procure their raw materials and up until delivery of complete goods and services to their consumers. Though most consumers are not aware of this, the goods and services that consumers purchase are a result of the cumulative effort by a number of supplier companies. Even individual companies are sometimes not aware of how their products will be used by their direct customers to produce final products for the end consumer. It is a problem when companies don't pay attention to what is happening within their supply chain and only concentrate on activities within the four walls of their business. The modern practice of supply chain management is meant to fix this problem. It is where businesses along the entire supply chain, from raw materials to assembly to final sale, are all managed as one network and optimized accordingly.
Components of Supply Chain Management:
1. Plan – An organization must plan how it is going to execute its SCM. It must develop a set of strong metrics that will need to be followed by multiple parties within the supply chain. This should result in more efficiency, less costs and prompt deliveries of goods and services to the consumer.
2. Source – Organizations must chose suppliers who are going to deliver to them goods and services. This is a long process and requires patience and diligence.
3. Make – This is the manufacturing stage. An organization must ensure that it is manufacturing goods that are of high quality and that it is using the right materials. It is also the stage where companies have to measure the quality level of the products that they are producing.
4. Delivery stage – In other words this is the logistics stage where organizations receive orders and prepare to deliver goods and services to their respective clients.
5. Product Returns – This is the stage that many organizations do not want to face. At this point a company must put in place how they are going to receive and process returns from their consumers or retailers. It must have collection points so that customers are not inconvenienced.
In supply chain management each of these components might be managed by the company itself or may be outsourced to a separate company. However, whether the company manages the activity or not, the goal of supply chain management is managing these activities as if the same company was undertaking all of them. Metrics, plans, processes and problems within each of the components must be shared with the other companies within the supply chain in order to optimize the supply chain as a whole.
Benefits of SCM:
1. Lower cost of production – Supply chain management enables an organization to identify areas that are increasing the cost of production without necessarily adding value to the finished product.
2. Increased efficiency – With a smooth process of procuring raw materials or components, an organization can realize more efficiency in service delivery. This will in turn result in more profit for the organization due to proper planning and reducing wastage of resources.
3. Higher production rate – An organization that deploys supply chain management is able to have a close working relationship with its suppliers thus ensuring timely delivery of goods and services. This will attract more customers which in turn will result in increased sales and growth.
4. More profits – With increased production and sales, it is likely the company will make more profit and hence grow at a faster rate.
5. Increased Transparency – With SCM, there will be more transparency as everything is done in a systematic manner. Anyone in the supply chain will be able to know what is happening, which in turn will increase efficiency and lower costs of production.
6. Closer vendor management – Supply chain management will also bring a tighter connection with vendors and suppliers. This will better align vendor and supplier goals with your business's goals and strategic plans thus allowing your organization to meet its goals and vision more easily.
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