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What is Supply Chain Management?

Supply chain management
Supply chain management is a conscious effort to run supply chains in the most efficient and effective way possible.
Credit: arka38 | Shutterstock

When you enter a retail store, the products you see filling the shelves in each aisle are the result of supply chain management. Every product that reaches your shopping cart is there based on the cumulative effort of multiple organizations, typically referred to as the supply chain. From manufacturer to shipper to retailer or consumer, the supply chain is typically an aspect of business few organizations truly understand as it consists of activities beyond their “four walls.” Managing the entire chain of supply activities to maximize customer value and create a competitive advantage is becoming a common business practice.

The ideology of the supply chain

Supply chain management is a conscious effort to run supply chains in the most efficient and effective way possible. Such strategies include product development, sourcing, production and logistics, each of which assists in creating quality products and coordinating their flow to the consumer. The supply chain exists in many different forms, but the most common structure contains four separate entities:

  • Suppliers. These entities provide the materials needed to create the product, whether they’re raw materials or individual parts to a finished product. For example, Apple’s iPad comes from a variety of suppliers: Samsung manufactures its processor chips, LG produces the touch-screen display, and Toshiba creates the flash memory.
  • Manufacturers. This stage of the supply chain entails bringing together all of the parts provided by suppliers to create the finished product. Apple would take each individual part from the suppliers and put them together to create a finished iPad for distribution.
  • Distributors. These entities both store and sell the finished product, creating a storefront through which consumers can buy a product. Locations like Apple stores and Wal-Mart provide a physical location through which consumers can buy an iPad.
  • Customers. Without buyers to purchase products, the entire purpose of the supply chain is defeated. Consumers create demand for products and ultimately influence the quantity of products and the overall supply chain structure.

The organizations that ultimately create the supply chain are “linked” together through both physical and informational means. The physical element involves the creation, shipping and storage of goods, obviously the visible part of the process. However, critical to the coordination of goods is the informational element which allows supply chain partners to communicate with one another and control the flow of goods.

The evolution of supply chain management

In the 1980s, companies had begun to discover new manufacturing technologies and techniques that allowed for reduced costs and higher levels of competition in varying markets. Strategies from just-in-time manufacturing to total quality management became very popular, leading to the investment of countless resources in their implementation. As strategies became more firmly rooted in the foundations of supply chain entities, the costs of logistics dropped as inefficiencies were identified and removed.

Common unnecessary cost components included redundant stock, inefficient transportation and other wasteful practices. As supply chain management continued to mature, organizations came to realize the importance of strategic partnerships between suppliers and buyers intended to help both organizations reduce overall costs. Wal-Mart is among the best example of strategic partnerships, utilizing its partnerships to move product directly from manufacturing to distribution without the need for wholesalers.

The elements of a successful supply chain

Risk management is a key driving force to creating a supply chain. Reducing the costs of a supply chain carry with it inherent risks associated with reduced quality and unreliable shipping times. Common practices like outsourcing, offshoring, lean manufacturing and just-in-time all create increased risk levels. Countless industries seek after the right balance of risk and cost, and utilize more modern approaches such as supply chain redundancies, information tracking, flexible supply contracts and risk assessment measures.

Consumers are ultimately the individuals who most influence supply chain management. Were the consumer’s goods to not reach them promptly, they wouldn’t be happy with the current system and be more likely to take their purchasing choices elsewhere. While consumers have the least to do with a supply chain, they have the most significant financial impact on them. The end result of disgruntled consumers is less revenue to operate the supply chain with. 

A reliance on technology

The successful management of a supply chain relies heavily on technology. Whether it’s for supplier performance assessments to inventory planning, software plays a very strong role in the ability of a supply chain. Supplier performance assessments help improve chain resiliency and even positively impact company responses times. Inventory planning systems help chains better position inventory and demonstrate the impact product design alternatives have on costs and risks. These, and many other software solutions create what is presently experienced as a dynamic system that seamlessly flows from supplier to consumer.