What is Supply Chain Management

Supply Chain Management (SCM) is a process used by companies to ensure that their supply chain is efficient and cost-effective. A supply chain is the collection of steps that a company takes to transform raw components into the final product. Typically, supply chain management is comprised of five stages: plan, develop, make, deliver, and return.

The first stage in supply chain management is known as plan. A plan or strategy must be developed to address how a given good or service will meet the needs of the customers. A significant portion of the strategy should focus on planning a profitable supply chain.

Develop is the next stage in supply chain management. It involves building a strong relationship with suppliers of the raw materials needed in making the product the company delivers. This phase involves not only identifying reliable suppliers but also planning methods for shipping, delivery, and payment.

At the third stage, make, the product is manufactured, tested, packaged, and scheduled for delivery. Then, at the logistics phase, customer orders are received and delivery of the goods is planned. This fourth stage of supply chain management stage is aptly named deliver.

The final stage of supply chain management is called return. As the name suggests, during this stage, customers may return defective products. The company will also address customer questions in this stage.

Another model for understanding supply chain management groups all management activities into three categories: strategic, tactical, and operational. Strategic activities include building relationships with suppliers and customers, and integrating information technology (IT) within the supply chain. Studying competitors and making decisions regarding production and delivery would fall under the tactical category. The operational category includes the daily management of the supply chain, including the making of production schedules.

Companies use forecast-distribution models in order to have the appropriate inventory, or safety stock, necessary to meet fluctuations in customer demand. Forecast-distribution helps companies maintain more efficient, and therefore more effective, supply chain management. Under this model, participants in the lower-end of the supply chain, rather than those near the end-customer, increase their orders frequently when there is a rise in demand. Conversely, when there is a decrease in demand, they decrease or stop their orders to prevent excessive inventory.

This greater variation in demand that can be seen in the supply chain as one moves away from the end customer is known as the whiplash or bullwhip effect. A possible solution to this effect is Kanban, a demand-driven supply chain. The participants in the supply chain would react to actual customer orders, not forecasts of them.

Problems associated with supply chain management are handled within supply chain event management (SCEM), which is the process of planning for and preventing factors that might affect the supply chain.

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