What is Supply Chain Management (SCM)? | History, Phases & Importance

Introduction

In today’s fast-paced corporate climate, Supply Chain Management (SCM) is critical to ensure the continuous flow of goods and services from raw material procurement to final product delivery. Whether you own a small business or manage a major organization, an efficient supply chain may help you save money, increase productivity, and improve customer satisfaction.

SCM is not just about moving products from one place to another—it involves strategic planning, sourcing, manufacturing, logistics, and returns management to optimize the entire process. 

In this guide, we will explore what supply chain management is, how it works, its importance, and the key features of an effective SCM system.

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What is Supply Chain Management?

Supply Chain Management (SCM) is a strategic process that involves the transformation of raw materials into a final product, including multiple stages such as procurement, production, distribution, and logistics. Managing the flow of goods efficiently is crucial, as it helps companies produce and deliver products cost-effectively while maintaining quality and meeting customer demands.

Example of Supply Chain Management

Let’s take an example to understand this better. Imagine you order your favourite pizza through a restaurant’s app. Within minutes, the food is delivered to your doorstep. But have you ever wondered about the entire process behind making that pizza?

The pizza consists of multiple ingredients, such as dough (made from flour), tomato sauce, cheese, and various toppings. However, these ingredients do not come in their final form. Instead, they are sourced as raw materials from different suppliers. The flour is processed from wheat, tomatoes are turned into sauce, and cheese is made from milk.

Each of these raw materials undergoes various stages of production, which involve farmers, manufacturers, suppliers, logistics providers, and retailers before they reach the restaurant. Finally, the restaurant combines these ingredients, prepares the pizza, and ensures it is delivered efficiently using a logistics network.

This entire process, from sourcing raw materials to delivering the final product, is what Supply Chain Management is all about. It requires manpower, machinery, transportation, and cost management to operate smoothly and meet customer expectations.

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How Does Supply Chain Management Work?

The next question that might come to your mind is: How does Supply Chain Management (SCM) work?

Well, the process of supply chain management typically involves five key steps that ensure the smooth flow of goods and services from raw material procurement to the final product delivery. These steps are:

• Planning
• Sourcing
• Manufacturing
• Logistics
• Returns (Reverse Logistics)

Let’s explore each of these steps in detail.

1. Planning

Effective planning is essential for any process, and Supply Chain Management (SCM) is no exception. This is the initial and most crucial step, as it provides clarity, eliminates potential issues, and ensures a smooth workflow.

In the context of SCM, planning involves strategizing how to manage resources efficiently and aligning all subsequent steps to meet customer demand effectively. It serves as the foundation for the entire supply chain process and includes:

• Sourcing raw materials from reliable suppliers.
• Manufacturing goods while optimizing production costs and efficiency.
• Managing transportation and logistics to ensure timely delivery.
• Handling returns and defective products efficiently.

A well-structured planning phase ensures that each stage of the supply chain functions seamlessly, ultimately leading to cost-effective production and enhanced customer satisfaction.

Read More: Operational Planning

2. Sourcing  

The next step involved in the process of supply chain management is sourcing. Sourcing involves selecting the suppliers to provide us with raw materials or services that are involved in the production of goods and services. Then it involves monitoring the services done by the supplier and maintaining a good relationship with the supplier. 

The key process of sourcing includes ordering the raw materials and goods, receiving them, managing the inventories, and managing the payments to them.

3. Manufacturing 

The next step after sourcing the goods is manufacturing. Manufacturing involves accepting and processing the raw materials, manufacturing the goods or service, testing for any faults or defects, and finally delivering it to the customer. 

Supply chain managers should monitor every step that is involved in the function of manufacturing so that there won’t be any problems arising.

4. Logistics 

Logistics or delivery of the product is important since the producers want the goods to reach their customers without any hassles or delays. 

Supply Chain managers should monitor the orders made by the customers, schedule the order, and make sure that it reaches the order within the time and without any problems, making the invoice of the order and making sure that they receive the payments correctly.

5. Returns 

Every production of goods or services cannot be 100% perfect. There might be cases of defective or wrong products delivered to the customer. It can occur due to the faults that happen during the production of the good or while the order is being processed. Human or machine errors are something that we cannot eradicate. 

There might be also instances where the customer didn’t like the product or doesn’t need the product or service anymore. It may not be the fault of the producer. So supply chain managers should create a system that can handle the return of such goods back to the producer.

Importance of Supply Chain Management

Supply Chain Management (SCM) plays a crucial role in ensuring the smooth functioning of businesses. It helps organizations streamline operations, minimize costs, and improve customer satisfaction.

Here are some key reasons why SCM is important:

• Efficient production of goods and services – Ensures smooth manufacturing and processing.
• Cost reduction – Lowers production expenses and optimizes raw material sourcing.
• Effective order management – Helps track and fulfill customer orders accurately.
• Seamless delivery of goods and services – Ensures timely distribution to customers.
• Strong returns management – Facilitates the smooth handling of defective or returned goods.
• Enhanced customer satisfaction – Improves service quality, leading to happier customers.

• Increased revenue and profitability – Optimizes operations to maximize financial growth.
• Problem reduction – Minimizes challenges in sourcing, production, logistics, and returns.

Features of Effective Supply Chain Management

The key features of effective supply chain management include:

1. Integration of supply chain

The integration of the supply chain is very important because if there is no proper integration of the supply chain it would lead to a lot of problems and the production and delivery of goods would be less efficient. It would also create a lot of financial problems and the budget and cost analysis would go in vain.

2. Real-time analysis of what is happening 

Real-time analysis can help to detect problems very quickly and bring changes to the supply chain. This would help the supply chain work smoothly and there would be a reduction in problems and confusion.

3. Collaborations 

Collaborations with the supplier are indeed a crucial part of the supply chain and it would help the process to move smoothly.

4. Ability to optimize 

Nowadays there is a lot of involvement of technology in the process of supply chain management. Optimizations can reduce the overall cost of production as well as make production more efficient. 

The automation of regular tasks can make employees focus on more important functions regarding the production of goods and services. Also, difficult tasks involved in the supply chain can be solved using analytics and artificial intelligence.

5. Forecasting

Forecasting as well as analytics can improve the performance and production capacity and capabilities of your supply chain.

Supply Chains vs. Supply Chain Management

A supply chain is a network of people, businesses, resources, tasks, and technology used to produce, distribute, and sell a good or service. It begins when raw materials are sourced from suppliers and ends when the final product or service is delivered to the customer.

On the other hand, Supply Chain Management (SCM) refers to the process of managing every stage of a product’s lifecycle—from initial development to final sale. SCM focuses on optimizing each phase to ensure efficiency, cost reduction, and enhanced profitability.

• Effective supply chain management can:
• Increase profitability by optimizing operations.
• Reduce costs by eliminating inefficiencies.
• Enhance business performance by improving logistics and resource allocation.

Since there are multiple stages in a supply chain where inefficiencies can occur, proper management is crucial to maximizing value and minimizing unnecessary expenses.

Conclusion

Supply Chain Management is an essential component of any successful business. From sourcing raw materials to delivering the final product, an efficient supply chain ensures cost-effective production, timely deliveries, and enhanced customer satisfaction.

As businesses continue to evolve, embracing technology, automation, and data-driven insights can help optimize SCM processes and improve overall efficiency. Whether you’re a startup or a well-established company, investing in a well-structured supply chain strategy can lead to long-term success and profitability.

By understanding the importance and working of SCM, businesses can reduce costs, eliminate inefficiencies, and meet customer demands effectively. If you’re looking to streamline your supply chain, adopting best practices and modern technologies can significantly enhance performance.