What Is A Supply Chain And A Supply Chain Management (SCM)?

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In this article, we’ll be going over some of the basics of what a supply chain is and what supply chain management (SCM) is.

Before diving into the details of supply chain management, let’s first briefly discuss what supply chain means.

What is a supply chain?

The supply chain is the overall network of individuals, companies, resources, activities, and technologies involved in the process of manufacturing and sale of products and services.

Generally speaking, a supply chain is a journey where raw materials are delivered to a manufacturer from a supplier which then gets to the final consumer as a final product.

Have you ever wondered why the majority of businesses develop their own supply chain? It’s so that they can cut their costs and remain competitive in the business landscape.

What is supply chain management?

Now, let’s move on to the definition of ‘Supply Chain Management’, SCM for short.

Supply chain management is the management of the flow of goods and services including all processes involved in transforming 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.

So, how does supply chain management actually work?

Typically, supply chain management attempts to control or link the production, shipment, and distribution of a product and by managing the supply chain efficiently, companies can benefit from reduced overall operational costs.

It is usually done by staying in control of internal inventories, internal production, distribution, sales, and the inventories of company vendors.

In SCM, the supply chain manager is the key person who is responsible for logistical coordination of all aspects of the supply chain that are made up of five parts:

  1. Supply Chain Plans and Strategies
  2. Sourcing of Raw Materials or Services
  3. Manufacturing
  4. Logistics and Delivery
  5. Return Processes for Defective Products

As a supply chain manager, your role is to try to minimize shortages while keeping costs as low as possible and provide recommendations on how to improve productivity, quality, and operational efficiency.

Supply chain management key performance indicators (KPIs)

Now, moving on to typical supply chain management key performance indicators.

Key performance indicators, KPIs for short, are crucial elements of a successful SCM strategy.

KPIs help businesses identify required performance standards and allow supply chain managers to measure performance and find areas needing improvements.

Common KPIs include:

Cash to Cycle Time: the time between paying for raw materials and receiving payment for goods delivered which matters in determining working capital requirements.

Perfect Order Rate: the number of orders delivered successfully without any errors. This can be a crucial metric for companies striving for perfection.

Gross Margin Return on Investment (GMROI): measures the amount of gross profit earned on the cost of inventory used, a metric commonly used in retail.

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