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SCM Full-Form: What Is Supply Chain Management (SCM) And Why Is It Important?

Umesh Kurmi is a semi-qualified Chartered Accountant from the Institute of Chartered Accountants of Nepal. He has seven years of experience.

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What is supply management?

The process of discovering, procuring, and managing critical resources and suppliers for a company's operations is known as supply management.

It incorporates getting hold of tangible commodities, information, services, and any further resources needed to keep a business functioning and growing

The primary goals of supply management are cost control, resource allocation efficiency, risk management, and effective information collecting for corporate choices.

What is a supply chain?

A supply chain is a significant business movement that works within the conveyance of merchandise and items to clients.

A supply chain focuses on the essential actions necessary within our organization. Raw materials or parts are transformed into final goods or services through these processes. We buy raw materials or components from our suppliers.

Procurement has always supported the practice of interacting with suppliers. The materials will then pass through goods in warehouses through the manufacturing site. Finally, there are the finished goods in the warehouse, which is the core activity of operations management. Throughout the supply chain, logistics are of great importance. It helps with both inbound and outgoing cargo transit. This will ensure that resources and final goods flow as smoothly as possible.

A supply chain can be either product-focused or service-focused. Rather than a finished product, the services work together to provide overall client service. Shipping of customers' goods is one example of this, as staff, vessel supply, and fuel are all necessary to deliver the shipping service to the consumer.

We begin to shape a supply chain network when our supply chain is connected to that of our suppliers and clients. This permits us to have a superior comprehension of commodities and data streams.

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What is supply chain management (SCM)?

The dynamic administration of supply chain activities to augment customer worth and layout a sustainable competitive advantage is known as supply chain management (SCM). It is a giant step taken by supply chain organizations for the construction and operation of supply chains efficiently and effectively. E.g. material sourcing, product development, production, and logistics and the information systems required to manage these activities.

The Supply Chain Management (SCM) concept is founded on two fundamental ideas:

The first is that almost every product that reaches an end customer is the result of numerous businesses' efforts. The production network alludes to these organizations cooperating.

The second reason is that, despite the long history of supply chains, most firms have been obsessed with what happens within their "four walls." Few companies were able to comprehend, let alone manage, the entire chain of events that led to the ultimate delivery of products to the customer. As a result, supply chains become disjointed and inefficient.

Flows of Matter and Flows of Information connect the organizations that make up the supply chain.

Flows of Matter

The transformation, transit, and storage of goods and materials are all part of the flow of matter. They are the supply chain's most visible link. Information flows, on the other hand, are equally vital.

Flows of Information

The many supply chain partners can use information flows to arrange long long-term plans and administer the everyday progression of products and materials all over the supply chain.

Example of supply chain management

The use of agile and just-in-time (JIT) tactics can be considered a benchmark example of supply chain management best practices.

An agile supply chain team will manage the supply chain with a combination of reactivity, flexibility, and overall efficiency. When it comes to managing its supply chain and any challenges that may develop, agile management means that the supply chain team will be proactive rather than reactive. For example, rather than waiting for extreme weather events to materialize, the team may use data to forecast supply fluctuation tendencies.

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Just-in-time management is likewise a more productive way to deal with supply chains when dealing with goods, products, commodities rather than services. Just-in-time procurement (and manufacturing) refers to how organizations can acquire (and make) things depending on demand rather than maintaining excess inventory.

Other examples of best supply chain management practices include:

  • Coordinate a supply chain guiding meeting
  • Provide supply chain training
  • Make use of technology
  • Establish ideal supplier partnerships
  • Utilize pertinent statistics, such as the total cost of ownership
  • Develop a strategic sourcing strategy
  • Be an expert in contract management & execution
  • Make inventories more efficient
  • Make a risk management strategy
  • Do not forget the social, financial, and environmental consequences
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Functions of supply chain management

Coming up next are the five functions of supply chain management:

1. Making a purchase

The principal job of supply chain management is making a buy. Raw materials are fundamental in the manufacturing process to create goods, merchandise, items, and products. For production to begin, these materials must be bought and delivered on time. Communication with suppliers and delivery companies will be required to avoid any potential delays.

2. Operations

Before materials can be obtained projection, planning, and forecasting of demand are ordinarily expected. This is because the demand market will govern how many manufactured units the market will absorb and how much material is required for manufacturing. Because organizations must precisely predict demand to avoid having too much or too little inventory, which results in revenue losses, this function is crucial in supply chain management. To avoid such errors, demand planning and forecasting must be integrated with inventory management, production, and shipping.

3. Transportation and logistics

Logistics is a supply chain management component that coordinates all aspects of planning, purchasing, production, warehousing, and transportation to guarantee that products get to their destination on time. It's gainful to have great correspondence between divisions and departments so that items, products, or merchandise may be delivered without loss of time and at a reasonable cost to customers.

4. Management of resources

Raw resources, technology, time, and labor are all consumed during production. Resource management guarantees that the appropriate resources are given to the appropriate activities in the most potential proficient manner. This in turn guarantees that an efficient production schedule is delivered to increment functional effectiveness. Consider each resource's capabilities and if they can do the task that has been allocated to them when calculating available capacity. This will assist you in avoiding over-promising orders and ensuring that your manufacturing strategy is realistic and precise.

5. Workflow of information

Every one of the different functions of supply chain management has remained focused on information sharing and distribution. If the information flow and communication aren't up to par, the entire chain may break apart. Increased visibility and communication can help to prevent many supply chain disruptions. Having a consistent system that all departments use ensures that everyone is working with the same data, which reduces miscommunications and time spent updating everyone on new developments.

Supply chain management job description

As a supply chain manager, you'll be in charge of overseeing and managing every stage of the manufacturing process, from raw material procurement to final product delivery.

You'll ensure the legitimate measure of the items, products, or merchandise are made brilliantly and coordinate their stockpiling. Organizing the transportation of commodities from distribution centers to customers and businesses requires forecasting trends and inventory control.

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Skills for supply chain management

Job seekers must have the following skills and expertise to succeed in various supply chain positions and industries:

  • Operations, logistics, SCM, and transportation knowledge
  • Organizing your finances
  • Forecasting
  • Streamlining the workflow
  • Business management and general management
  • Business practices in other countries
  • Comprehension of the law, regulations, guidelines, policies, and procedures
  • Languages and mechanical skills
  • Technology management in the supply chain
  • Insight into business analytics
  • Benchmarking and understanding KPIs
  • Make the change to a "mobile" mindset
  • Adapt to supply chain technology innovations
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Components of supply chain management

It is a difficult task. Manage the entire supply chain framework, is broken down into five primary components, which we will look at below:

Planning

One of the most important concerns procurement teams must address is whether the firm intends to create things in-house or purchase ready-made goods.

If the company makes finished goods, the next question is where it will get its raw materials. Is it going to be local, regional, or international vendors?

If the company buys ready-made products and sells them to customers as finished goods, this question is also asked. What's going to be the source of these things?

Sourcing

The second step, which involves sourcing, follows on the heels of the first.

This is the most important stage in the supply chain. It is now feasible to calculate the greatest possible cost savings.

If you can find the right vendor at the right price who can deliver the required volumes promptly, you've struck gold.

If you choose an inept supplier, it will have an impact on your entire supply chain.

This procedure will necessitate not only the identification of vendors but also their evaluation and qualification.

Inventory

Having many suppliers ensures that you have adequate raw materials and/or finished goods to keep your shelves stocked. Examining purchasing and supply chain management in the year 2022 could provide a wealth of information.

In 2022, the importance of getting this component properly was emphasized. According to RetailNext, 28% of businesses questioned suffered severe shortages and were even out of stock of key supplies. Sixty-six percent of these companies had to renegotiate their contracts.

It takes both talent and art to precisely manage stocks and ensure that manufacturing schedules are in step with consumer demand.

Production & Transportation

This element of the supply chain explores what is anticipated to ensure that the company is producing the correct amount of merchandise. And that the quality of the merchandise fulfills defined criteria and quality control guidelines.

This component also examines where the products will be housed, such as in warehouses, as well as transportation from those warehouses to businesses where the products will be kept.

Goods Returned

How would it be advisable for you to respond if a consumer returns a defective product? How do manage this type of situation?

These questions are addressed in the final component of the supply chain, 'Return of Goods.' Because customer satisfaction is so crucial, the returns process must be well-defined.

Your return of faulty items operations will be more effective if your customer satisfaction numbers are high.

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Supply chain management process and procedures

To properly execute supply chain management, you should have a greater grasp of the supply chain process. It is used by businesses to make their supply chains as proficient and financially savvy as could be expected. All of these things increase consumer value and provide you with a competitive advantage. There are eight steps in the supply chain process. The following are the details.

Strategic planning

The strategic planning process entails the construction of a strategic supply chain and strategic sourcing.

Demand planning

Forecasting, lifecycle planning, promotion planning, and consensus demand planning are all part of the demand planning process.

Supply planning

The supply planning process entails safety stock planning, supply network planning, outsourcing, distribution planning, customer collaboration, and supplier collaboration.

Procurement

Purchase order processing, receipt confirmation, and invoice verification are all part of the procurement process.

Manufacturing

Production planning/detailed scheduling, as well as manufacturing execution, are all part of the manufacturing process.

Warehousing

Inbound processing, outbound processing, cross-docking, warehousing, storage, and physical inventory are all part of the warehousing process.

Order fulfillment

The order fulfillment process entails sales order processing and billing business procedures.

Transportation

Transportation Planning, transportation execution, and freight costing process are all part of the transportation process.

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Supply chain management companies

The Gartner Supply Chain Top 25 for 2021

RankCompanyScore

1

Cisco Systems

6.37

2

Colgate-Palmolive

5.58

3

Johnson & Johnson

5.22

4

Schneider Electric

5.07

5

Nestlé

4.41

6

Intel

4.40

7

PepsiCo

4.37

8

Walmart

4.23

9

L’Oréal

4.05

10

Alibaba

3.90

11

AbbVie

3.78

12

Nike

3.60

13

Inditex

3.51

14

Dell Technologies

3.47

15

HP Inc.

3.46

16

Lenovo

3.40

17

Diageo

3.36

18

Coca-Cola Company

3.34

19

British American Tobacco

3.13

20

BMW

3.13

21

Pfizer

2.97

22

Starbucks

2.87

23

General Mills

2.83

24

Bristol Myers Squibb

2.80

25

3M

2.78

Note:
The score is the weighted average of Peer Opinion, Gartner Research Opinion, ROPA, Inventory Turnover, Revenue Growth, and ESG Component Score.

Source: Gartner (May 2021)

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Why is supply chain management important?

Supply chain management has turned into a fundamental part of business and is presented like never before basic to an organization's prosperity and client satisfaction. Customer service can be improved, operating expenses can be reduced, and a company's financial situation can be improved through supply chain management, but how?

1. Customer satisfaction has increased

As a result of supply chain issues, several customer-centric issues may arise, such as:

  • Not having the option to stay aware of buyer demand
  • Customers who receive orders that are partial or incorrect
  • For a long time, you've been waiting for orders to come
  • Not having the appropriate products in the right place at the right time

Effective supply chain management and product flow proficiency will assist you with staying away from such occasions and keeping up with high consumer loyalty.

2. Lower operating expenses

Shortcomings in your supply chain could negatively impact your profit and loss account. Conducting thorough reviews as part of your management process will help you reduce supply chain costs and the time it takes for a finished product to reach your customer's hands.

Don't limit your search to operational inefficiencies. Take a look at the supply chain of your own company. For example, if you switch to a just-in-time strategy, you can dramatically reduce warehousing and other storage expenditures.

3. Cash flow has improved

Supply chains that are efficient from start to finish are effective.

As a result, you'll be able to predict what you'll sell and how much inventory you'll need to meet client demands. As a result, you end up with a smooth process in which you sell things while ordering effectively, optimizing your cash flow and making financial indicators easier to analyze.

4. Procurement and sourcing are more efficient

Your sourcing and procurement teams will have an easier time finding new suppliers if your supply chain is efficient.

How?

Because you'll know what good looks like in terms of what you're searching for from vendors. As a result, you may either keep an eye on suppliers who meet your needs or engage with them to ensure they adhere to quality standards. You'll know exactly what you're looking for when it's time to replace a component in either circumstance if you start with excellence in your supply chain.

5. Ensures a steady supply of raw materials

It's critical to remember that supply chain management involves something beyond business processes.

Everything comes down to how you work with your suppliers and how well you coexist with them. Assume you and your vendors have a good working relationship. If there are any worries, such as raw material shortages, you will be first in line and given priority. Having strong links to mitigate these potential interruptions is also a straightforward gain.

6. Improved inventory control

What would be your reply if someone asked to summarize the goal of your supply chain in a single phrase?

A decent starting point would be "right product, right place, right time."

An all-around and well-crafted supply chain will assist you with accomplishing this since it will make stock administration significantly more effective and efficient. There are advantages to having a supply chain management plan that helps you move toward a just-in-time supply chain strategy, improves forecasting, or allows you to provide better warehousing solutions to suppliers.

7. Improved relationships with distributors

Numerous organizations accept that the finish of their supply chain happens when an item is conveyed to a store or a godown. Thus, such organizations have no chance of laying out a relationship with the vendors who give the final products to their clients.

Remember that your store network is finished when your clients, not you, get an item. Make distributor relationships a significant piece of your supply chain management strategy.

Because of the nature of current global supply chains, you're just as responsible for your suppliers' compliance with legal and ethical standards as you are for your own.

In recent years, supply chain sustainability and transparency have become increasingly important, and this trend will continue. You can ensure that you satisfy the essential standards both at home and wherever your suppliers are by closely managing your supply chains and collaborating with them.

9. You'll have a competitive advantage in your field

Each supply chain has its arrangement of issues and intricacies. While it's generally expected to detect shortcomings and spots for advancement, actually many firms don't manage them as effectively as possible.

If you focus on supply chain management in your company, you'll acquire a competitive advantage over your competitors.

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SCM & Industry 4.0

Innovation has progressed rapidly, and new advances are created and utilized consistently.

AI, the Internet of Things, man-made consciousness, sensors, and computerization are largely changing the supply chain.

SCM can now do more than just track a product from raw material procurement to delivery; it can also detect future problems like faults and prevent them from occurring.

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Conclusion

Supply chain planning used to be a once-a-year business exercise. It will continue to remain ongoing in the future. Future SCM systems will also improve the alignment of planning and execution, which is currently lacking in most businesses. In SCM, the demand for speed and accuracy will only grow. Make sure your supply chain is future-ready by implementing an intelligent SCM solution.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2022 Umesh Kurmi

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