Supply Chain Management

What is Supply Chain Management?
Supply chain management 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. SCM represents an effort by suppliers to develop and implement supply chains that are as efficient and economical as possible. Supply chains cover everything from production to product development to the information systems needed to direct these undertakings.

SCM encompasses the integrated planning and execution of processes required to optimize the flow of materials, information and financial capital in the areas that broadly include demand planning, sourcing, production, inventory management and storage, transportation -- or logistics -- and return for excess or defective products. Both business strategy and specialized software are used in these endeavors to create a competitive advantage.

Supply chain management is the management of the flow of goods and services in order to deliver value to the end customer effectively along with optimizing the process of delivering it. Supply chain management covers procurement of the raw materials, followed by production, inventory management, storage, warehousing and then transportation, logistics & distribution to the end consumer. The main reason to have Supply chain management is to create a flow of inventory that ensures greater availability and removal of surpluses.

Supply chain management not only deals with the physical flow of the products but also and importantly deals with the delivering of information related to this flow. Keith Oliver of Booz Allen Hamilton coined the term and focused its integration with operations management, production management and project management.

Why SCM strategy is important for an Organization?
Supply Chain Strategies are the critical backbone to Business Organizations today. Effective Market coverage, Availability of Products at locations that hold the key to revenue recognition depends upon the effectiveness of Supply Chain Strategy rolled out. Very simply stated, when a product is introduced in the market and advertised, the entire market in the country and all the sales counters need to have the product where the customer can buy and take delivery. Any glitch in the product not being available at the right time can result in the drop in customer interest and demand which can be disastrous. Transportation network design and management assume importance to support sales and marketing strategy.

Inventory control and inventory visibility are two very critical elements in any operations for these are the cost drivers and directly impact the bottom lines on the balance sheet. Inventory means value and is an asset to the company. Every business has a standard for inventory turnaround that is optimum for the business. Inventory turnaround refers to the number of times the inventory is sold and replaced over a period of twelve months. The health of the inventory turn relates to the health of business.

In a global scenario, the finished goods inventory is held at many locations and distribution centers, managed by third parties. A lot of inventory would also be in the pipeline in transportation, besides the inventory with distributors and retail stocking points. Since any loss of inventory anywhere in the supply chain would result in loss of value, effective control of inventory and visibility of inventory gains importance as a key factor of Supply Chain Management function.