Supply chain management

What is supply chain management and how does it work?

Supply chain management is, simply put, the management of the flow of goods and services and includes all the processes that transform raw materials into final products. Supply chain management handles the entire production flow of any good or service – beginning from the raw components all the way through to the delivery of the final product.

Supply chain management involves streamlining a business’s supply-side activities in order to maximise customer value and gain a competitive advantage in the marketplace.

Key takeaways from this section:

  • Supply chain management is the management of the flow of goods and services that encompasses all processes that lead to the transformation of raw materials into final products.
  • Supply chain management is a procedure that helps to reduce extra costs, improve efficiency, increase revenue and deliver products through the system faster.
  • A good and effective supply chain helps to benefit the company and save them from expensive recalls and lawsuits.

Understanding supply chain management

Supply chain management is a way to streamline business processes, minimise cost, waste and time in the production cycle. Supply chain management is based on the idea that nearly every product that comes to market is a direct result of the efforts of various organisations that make up a supply chain.

Each business that invests in the supply chain management system will have a specific supply chain manager that is dedicated to making improvements in productivity and efficiency.


How does supply chain management work?

Supply chain management can be complex, but traditionally, there are five components of supply chain managements systems: planning, sourcing, manufacturing, delivery and logistics, and returning.

Each of these components and stages make up the cycle of supply chain management. Planning is required when the supply chain is established in order to determine metrics to measure whether the supply chain is effective and delivers value to customers and helps to meet company goals. Once the planning has been done, sourcing will need to be taken into consideration, which involves identifying vendors who will be able to procure the goods and services needed to fulfil your business goals. This then leads to the actual manufacturing of the product – the firm will perform all activities related to the transformation of raw materials to the final product as per the plan and the preference of the company and the consumer.

Once you have the product, the only two steps left to take care of involve the delivery and logistics of distributing the product to consumers and setting up appropriate channels in case of returns.

The supply chain management system oversees every touchpoint of a company’s product or service from the initial creation of the product to the finale sale.


Supply chain management FAQs

What is supply chain management?

Supply chain management is the practice of coordinating and consolidating processes that encompasses the entire journey of the flow of goods and involves the streamlining of a business’s activities from the start (creation of product) to the finish – the sale of the product.

Why is supply chain management important?

Supply chain management is important for businesses as it can help to improve product quality, reduce costs, improve profit margins, minimises wastes, improves overall efficiency and more.

What are the five elements of every supply chain management system?

The five main elements of every supply chain management are: planning, sourcing, manufacturing, delivery and logistics, and the return system.


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