What Is Supply Chain Management?

Supply Chain Management Explained in Less Than 4 Minutes

A restaurant owner picks up some fresh produce.
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Supply chain management (SCM) is the combined effort of various businesses to get a product to the end user. SCM represents the flow from product development to delivery logistics, and the physical handling and information flow.

Supply chain activities allow a business to be successful and profitable. However, the many linked-but-separate activities involved in SCM may be confusing as you scale your company. You first need to understand the various elements of SCM before enacting them yourself.

Definition and Examples of Supply Chain Management

SCM is the management of the supply chain activities that elevate the business's financial standing through efficient product flows from manufacturing to the consumer. SCM covers planning, product development, inventory management, storage, delivery, and return service.

  • Alternate name: Supply network management, supply management
  • Acronym: SCM

Supply management systems are often technologically driven to connect global businesses around one effective process. SCM allows companies to meet the customer's need for speedy deliveries and innovative products.

Although the physical flow of the product is important, the relationships and communication standards created by supply management are critical for a business's success. This could include trade and tariff laws, international politics working with foreign contributors, and governmental quality control.


North Carolina State University’s Supply Chain Resource Cooperative points to car manufacturer Ford’s relationship with Johnson Controls as an excellent example of efficient supply management.

A Ford assembly plant can send an order for seats to Johnson Controls, and Johnson can deliver the order in just four hours.

How Supply Chain Management Works

SCM outlines the various processes and businesses involved in creating and delivering goods or services. This physical and informational flow includes components such as:

  • Product planning
  • Manufacturing
  • Inventory management
  • Demand planning
  • Warehouse storage
  • Transportation
  • Sales
  • Customer returns

SCM is key for big stores that utilize several key contributors in turning a profit. A big-box retailer such as Target needs an organized supply management system to meet demand and uphold customer satisfaction.

A big-box retailer works with a design team to create a new product idea or line before selecting a domestic or international manufacturer to produce the product. Using customer data, the retailer works with the manufacturer to identify the best volume and production quality.

The SCM system then shifts to storage and transportation, executing warehouse needs, and selecting the delivery service for customer orders. The retailer uses the SCM to constantly check in on inventory and demand, managing the flow of information and the manufacturer relationship to create the product quickly and effectively.

Finally, SCM covers the process for customer returns, ensuring a positive customer experience with a simple return operation.

Positive customer experiences are one of the goals of adequately executed SCM. A single purchase from a customer affects each SCM step and presents ample opportunities for failure or a bad customer experience.

Pros and Cons of Supply Chain Management

Pros
    • Quality of products that meet standards
    • Boost cash flow
    • Strong customer relationships
Cons
    • Costly system
    • Domino effect in a breakdown

Pros Explained

  • Increased product quality: Outsourcing product manufacturing means you have less control over the quality as you cannot directly manage the production. However, SCM ensures that manufacturers meet the quality you specify and gives you a process to check in and edit the needed specification.
  • Strong customer relationships: A supply management system focuses on creating and delivering the goods or services that meet your customers' needs. Strong SCM allows a brand to present quality products and a top-notch delivery experience.
  • Boost cash flow: The faster you can get a product in the hands of your customers, the quicker you can bring in sales.

Cons Explained

  • Costly system: Supply chain management includes different business processes and communications, and each phase of that comes with a cost. Overall, SCM can be expensive, accounting for 20% of a product’s cost.
  • Domino effect in breakdown: Supply management covers everything from product discovery to customer returns. One component breaking down would cause a domino effect through the chain, as each process is linked to the next.

Key Takeaways

  • Supply chain management is the organizational system that implements and tracks the businesses and activities involved in creating and delivering products or services.
  • SCM covers information, communication, and the physical flow of products.
  • An excellent SCM system focuses on customer success and building positive customer experiences.