What is Supply chain Management ( SCM )

What is Supply Chain Management (SCM)? | What is a Supply Chain?

In this article, we are going to explore the concept of supply chain management. But before delving into supply chain management, let's first understand what a supply chain is.

What is a Supply Chain?

A supply chain is a connected network of individuals, organizations, resources, activities, and technologies involved in the manufacturing and sale of a product or service. The supply chain starts with the delivery of raw materials from a supplier to a manufacturer and ends with the delivery of the finished product or service to the end consumer. Companies develop supply chains to reduce their costs and remain competitive in the business landscape.

What is Supply Chain Management (SCM)?

Supply chain management (SCM) is the management of the flow of goods and services and includes all processes that transform raw materials into final products. It involves the active streamlining of a business's supply-side activities to maximize customer value and gain a competitive advantage in the marketplace.

How Supply Chain Management Works

Typically, SCM attempts to control or link the production, shipment, and distribution of a product. By managing the supply chain, companies can cut excess costs and deliver products to consumers faster. This is achieved by maintaining tighter control over internal inventories, internal production, distribution, sales, and the inventories of company vendors.

In SCM, the supply chain manager coordinates the logistics of all aspects of the supply chain, which comprises five parts:

The Plan or Strategy
The Source of Raw Materials or Services
Manufacturing
Delivery and Logistics
The Return System for Defective or Unwanted Products

The supply chain manager aims to minimize shortages and keep costs as low as possible. They recommend improvements in productivity, quality, and efficiency of operations.

Key Performance Indices in Supply Chain Management

Key Performance Indices (KPIs) are crucial elements of a successful SCM strategy. They identify required performance standards and allow supply chain managers to measure performance and identify areas needing attention. Additionally, KPIs are useful for measuring performance improvements. Common KPIs include:

Cash to Cycle Time: The time between paying for raw materials and receiving payment for goods delivered. This metric is essential for determining working capital requirements.
Perfect Order Rate: The number of orders delivered without errors. This is a crucial metric for organizations striving for perfection and is often broken down further by function.
GMROI (Gross Margin Return on Investment): It measures the amount of gross profit earned on the cost of inventory used. This metric is commonly used in retail.

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Keywords

Supply chain
Supply chain management
SCM
Raw materials
Manufacturer
Cost reduction
Competitive advantage
Logistics
Key Performance Indices (KPIs)
Cash to Cycle Time
Perfect Order Rate
GMROI

FAQ

Q1: What is a supply chain?

A1: A supply chain is a network of individuals, organizations, resources, activities, and technologies involved in the manufacturing and sale of a product or service, from the delivery of raw materials to the finished product reaching the end consumer.

Q2: What does supply chain management (SCM) entail?

A2: SCM involves managing the flow of goods and services, transforming raw materials into final products, and streamlining supply-side activities to maximize customer value and gain a competitive market advantage.

Q3: What are the key components of supply chain management?

A3: The key components include the plan or strategy, the source of raw materials or services, manufacturing, delivery and logistics, and the return system for defective or unwanted products.

Q4: What are Key Performance Indices (KPIs) in SCM?

A4: KPIs are metrics used to measure performance in SCM. Common KPIs include Cash to Cycle Time, Perfect Order Rate, and GMROI (Gross Margin Return on Investment), which evaluate various aspects of the supply chain's efficiency and effectiveness.

Q5: Why is supply chain management important?

A5: SCM is crucial for reducing costs, improving productivity, maintaining competitive advantage, and ensuring quicker delivery of products to consumers by effectively managing inventories, production, distribution, and vendor interactions.