What is Supply Chain Management?

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Supply chain management (SCM) is one of the most important aspects of a business. Controlling your supply chain and getting your goods or products to market is essential to a company’s success and for customer/supplier relationships. Not only does an effective supply chain system boost customer satisfaction and service but it also helps reduce operating costs and improves the company’s bottom line. MANCOSA offers comprehensive supply chain and logistics management courses that are designed to allow our graduates to enter the lucrative, challenging and fast-paced world of commercial logistics. Find out more about this particular business field and how you secure your future with the right qualification.

What is Supply Chain Management?

A supply chain is a flow of material, information and money from raw material suppliers through factories and warehouses to the end customers. This flow consists of value-adding activities and processes that are effectively managed by people. Let us rephrase this concept of supply chain management as the “management of supply chains.” Supply chain management plays an integral role in any business in any sector. The importance of SCM encourages a company’s high turnover rates, the ability to meet high customer demands and to effectively produce complex products and services to an evolving and changing market.

The 6 Basic Steps of Supply Chain Management

There are 6 common basic steps of supply chain management which are imperative for efficient business practice. These components are planning, sourcing, making, delivering, returning and enabling and we discuss these in more detail:

1. Planning

Companies need to plan and manage all resources required to meet customer demand for their product or service. They also need to design their supply chain in order to ensure the supply chain is efficient, effective, delivers value to customers, and meets the objectives of the company.

2. Sourcing

Companies must identify and select the appropriate suppliers to provide the goods and services needed to create their product. Once the selected suppliers are under contract, supply chain managers use a variation of methods to monitor and manage supplier relationships. Main processes include ordering, receiving, managing inventory, and authorizing supplier payments.

3. Making

Supply chain managers coordinate the activities required to transform the product or service from accepting raw materials, to manufacturing the product, testing for quality assurance, to appropriate packaging for shipping, and to schedule for delivery. In order to meet quality standards of products and services, it is imperative for companies to measure quality, production output, and worker productivity.

4. Delivering

This is also the logistics aspect of the supply chain process which involves coordinating customer orders, scheduling delivery, dispatching loads, invoicing customers, and receiving payments. It is dependent on a fleet of appropriate modes of transport to move the product to various stages in the supply chain and the end customers.

5. Returning

The supplier needs a responsive and flexible system to take back defective, excess, or unwanted products. If the product is defective it needs to be reworked or scrapped. If the product is simply unwanted or in surplus, it needs to be returned to the warehouse for sale.

6. Enabling

Effective operation of the supply chain requires a number of support processes in order to monitor the movement of information throughout the supply chain. This will ensure the compliance of all regulations. These enabling processes include finance, HR, IT, facilities, portfolio management, product design, sales, and quality assurance.

The six basic steps of supply chain management
The six basic steps of supply chain management

Supply Chain Management Examples

Supply chain management forms part of any industry. In order to understand this concept, you will need to visualise the process. Take a look at prospective scenarios to help you better understand the meaning of supply chain management.

Example: Fruit smoothie business

A company manufactures fruit smoothies. There are many ingredients which are required to make this product. The ingredients are fresh fruit, yoghurt, ice, bender and glass bottles to package. The operations involved to make this fruit smoothie is very simple. The ingredients (raw material inputs) will be sourced from various suppliers, once finalized and purchased they are now ready for production (process) where they are chopped, sorted and put into a blender to make the finished smoothie. This mixture is poured into a glass bottle which is the ideal choice of packaging. The finished smoothie is stored into the fridge ready to hand over to the customer (finished output).

Example:  How Starbucks transformed its supply chain from bean to cup

It takes an efficient supply chain to ensure that a barista pours a good cup of Starbucks coffee. That’s because the journey from bean to cup is a complicated one. Coffee and other merchandise must be sourced from around the globe and then successfully delivered to the Starbucks Corporation. The first step of the transformation plan is reorganizing Starbucks’ supply chain organization. Which involved taking a complex structure and simplifying it so that every job fell into one of the four basic supply chain functions: plan, source, make, and deliver. For instance, anybody involved in planning, be it production planning, replenishment, or new product launches would be engaged in the planning group. Sourcing activities are grouped into two areas: coffee and “non-coffee” procurement. All manufacturing, whether done in-house or by contract manufacturers, is assigned to the “make” functional unit. And finally, all personnel working in transportation, distribution, and customer service are assigned to the “deliver” group.
After the supply chain functions are reorganized, the various departments need to focus their attention to the second objective of the supply chain transformation: reducing costs and improving efficiencies. As part of that effort, the sourcing group is responsible for identifying the cost drivers that are pushing up prices. The manufacturing group then develops a more efficient model for delivering coffee beans to its processing plants, with the goal of manufacturing in the region where the product is sold. The benefits of regionalising its coffee production allow Starbucks to reduce its transportation costs and lead times. Even though production is dispersed across a wide territory; transportation, distribution, and logistics make up the bulk of Starbucks’ operating expenses because the company ships so many different products around the world.

Understanding the Global Impact of Supply & Logistics

The production and distribution of goods and services are changing worldwide. All goods manufactured, purchased, and sold involve supply chains.  International supply chain management facilitates the smooth movement of goods, services, information, and money between nations. Global supply chains are sets of activities that are extended worldwide and throughout various countries with the aim of outsourcing and supplying goods and services.
Global supply chain management is the same as supply-chain management; the difference is that SCM  is a local supply chain located within the country in which the organisation is based whereas global supply chain management focuses on the distribution of goods and services throughout trans-national companies across the world. A better knowledge of global supply chains and their broader position in international business will present some of the following lucrative opportunities:

  • Low-cost price – Experts in this field help firms to take advantage of lower production costs. Through outsourcing, firms can free capital from non-core activities and generate large-scale efficiencies.
  • Expanded sourcing opportunities – A global market brings businesses prospects to secure various selection of goods and services of higher quality and reduced cost possibilities.
  • The opportunity to reach new customers in new markets – This trans-national business increases the opportunities of new customers in new places with new needs.
  • Those trained in international supply chain have a rewarding opportunity to develop a broad understanding of international business trends and be easily absorbed in international supply chain management jobs.

Benefits of Studying Logistics & Supply Chain Management

The significance of supply chain management and logistics has increased considerably in the existing business domain. Goods have to be moved efficiently and effectively to satisfy the various needs of consumers around the world. Delivering these goods at the right place and time, at the right quality, quantity and the right cost is the main goal of supply chain management/logistics. All these activities are combined and coordinated by experts in the supply chain. Studying a supply chain and logistics management course enables individuals to become part of these countless experts who plan and fulfil the movement of items at the lowest cost.
Here are some of the benefits of studying Supply Chain Management and Logistics:

  • Expand the company’s profitability: have a superior understanding of the flow of goods and services and make your organisation achieve a competitive advantage in the industry.
  • Increase quality control: Have control of a number of links in the supply chain and assist organisations to source higher quality of goods and services.
  • Control the demand: Gain knowledge of data analysis and communication between the suppliers and buyers in order to reduce the costs caused by demand fluctuations.
  • Lessen risks: knowledge of how to avoid or deal with supply chain’s risks.

Study Supply Chain Management with MANCOSA

MANCOSA offers two robust programmes in SCM. There is the Higher Certificate in Supply Chain Management, which is offered part-time and equips the student with sound knowledge and basic skills that allows the graduate to enter the job market quickly. There are also more intensive degree programmes, including the Bachelor of Commerce in Supply Chain and the Bachelor of Honours in Supply Chain Management. Start your future with MANCOSA and make an inquiry today.