What is Supply Chain Management (SCM): How it works and its Importance

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Supply Chain Management (SCM) is like a big puzzle; each piece is a step in making and selling products. It starts with getting the raw materials needed to make the product and ends with reaching the end consumer.

The main aim of SCM is to keep as little stock as possible while ensuring products reach customers smoothly and cost-effectively. Keep reading as we explore the interesting world of Supply Chain Management.

What is Supply Chain Management (SCM)?

Supply Chain Management (SCM) is like a control centre for a company’s goods and services. It’s about turning raw materials into finished products and getting them to the customer. It’s a team effort that involves moving materials into the company, making the goods, and then sending them to the customer.

Importance of SCM in Business Administration

SCM is a big deal for businesses because it helps companies work smarter. SCM helps manage waste materials, makes customers happy, and gives companies an edge over competitors. It’s a key part of a business because it oversees the production process and the delivery of goods and services. It ensures everything runs smoothly from start (production) to finish (delivery to customers).

SCM as a Competitive Advantage

Managing the supply chain well can save companies money and get products to customers in less time and more efficiently. SCM aims to give companies a leg up by smoothing the flow of goods and services from suppliers to customers. By cutting costs, making customers happy, and working more efficiently, companies can boost their profits and get ahead of the competition.

How Does SCM Work?

SCM works in five main steps:

Planning: A company decides what products to make, how many to make, how to make them, and where to send them.
Sourcing: A company gets the raw materials and parts needed to make the products.
Manufacturing: This is when the raw materials are turned into finished products.
Distributing: This is when the products are sent to customers, either through stores or directly to the customer.
Return: This is when a company deals with products that are returned because they are faulty or not wanted.

So, in simple words, SCM is all about planning, buying, making, sending, and dealing with returns.

The Importance of Supply Chain Management

Supply Chain Management (SCM) plays a crucial role in managing the flow of goods and services from their origin to the consumer. It involves coordinating and handling all activities associated with sourcing and procurement, production, distribution, delivery, and customer service.

Effective SCM systems are designed to minimise cost, waste, and time in the production cycle. Here's how:

Saving Money: SCM helps companies to avoid unnecessary costs. It does this by keeping a close eye on things like stock levels, production, distribution, sales, and the stock levels of its suppliers. Technology also helps to cut costs in buying materials and making products. It can automate processes, plan sales, and even choose the best way to transport goods.
Cutting Down Waste: SCM systems can help cut down waste by ensuring the right amount of stock is available and working well with suppliers. The standard way of doing things now is to have a supply chain that works just in time. This means that as soon as a product is sold in a shop, an order is sent to the manufacturer to replace it. This helps to cut down on waste.
Saving Time: SCM systems can help to save time in making products. They use data to automate processes, predict trends, and track goods in real time. This can reduce the time it takes to get a product from the factory to the shop. Software tools can also help to plan resources and work schedules based on sales forecasts, actual orders, and when raw materials will be delivered.

Future Trends in SCM

Supply Chain Management (SCM) is always changing. There are new trends that will change SCM in the future.

AI in Operations: AI is changing SCM by looking at lots of data and making sense of it. It helps with buying things, following rules, making things more efficient, and talking about shipping.
New Technologies: With new technologies like data analysis, automation, machine learning, Internet of Things (IoT), and blockchain, supply chains are becoming smarter. These technologies help companies respond faster, solve problems proactively, and make fewer mistakes.
Digital Architecture: Companies are moving to a new digital structure to use new technologies. This includes learning about AI, blockchain, easy-to-use platforms, and electric fleets.
Data Governance: Companies are focusing on using good, clean data to get the most out of their new technologies.

Current Issues in SCM

Global Disruptions: Things that disrupt supply chains, like conflicts, inflation, climate change, or other issues, are here to stay.
Geopolitical Tensions: Countries are becoming more self-focused and less willing to work together. This has led to governments and businesses trying to be self-sufficient.
Labour Shortages and Equipment Availability: Not having enough workers and equipment is a big problem for global supply chains.
Global Bottlenecks: The ripple effect of global bottlenecks has disrupted many global supply chains.

The future of SCM is about embracing these trends and solving these problems. By doing this, companies can make their supply chains more flexible and responsive, leading to more value creation, cost reduction, and improved shareholder value.