Supply Chain Management

• Supply chain management (SCM) is the centralized management of the flow of goods and services to and from a company and includes all of the processes involved in transforming raw materials and components into final products.

• By managing the supply chain, companies can cut excess costs and deliver products to the consumer faster and more efficiently.

• Good supply chain management can help prevent expensive product recalls and lawsuits as well as bad publicity.

• The five most critical phases of SCM are planning, sourcing, production, distribution, and returns.

• A supply chain manager is tasked with controlling and reducing costs and avoiding supply shortages.

5 Phases of Supply Chain Management

A supply chain manager's job is not only about traditional logistics and purchasing but finding ways to increase efficiency and keep costs down while also avoiding shortages and preparing for unexpected contingencies. Typically, the SCM process consists of these five phases:

Planning

To get the best results from SCM, the process usually begins with planning to match supply with customer and manufacturing demands. Companies must try to predict what their future needs will be and act accordingly. This will take into account the raw materials or components needed during each stage of manufacturing, equipment capacity and limitations, and staffing needs. Large businesses often rely on enterprise resource planning (ERP) software to help coordinate the process.

Sourcing

Effective SCM processes rely very heavily on strong relationships with suppliers. Sourcing entails working with vendors to supply the materials needed throughout the manufacturing process. Different industries will have different sourcing requirements, but in general, SCM sourcing involves ensuring that:

• The raw materials or components meet the manufacturing specifications needed for the production of the goods.

• The prices paid the vendor are in line with market expectations.

• The vendor has the flexibility to deliver emergency materials due to unforeseen events.

• The vendor has a proven record of delivering goods on time and of good quality.

Supply chain management is especially critical when manufacturers are working with perishable goods. When sourcing goods, companies should be mindful of lead times and how well equipped a supplier is to meet their needs.

Manufacturing

This is the heart of the supply chain management process, where the company uses its machinery and labor to transform the raw materials or components it has received from its suppliers into something new. This final product is the ultimate goal of the manufacturing process, though it is not the final stage of supply chain management.

The manufacturing process may be further divided into sub-tasks such as assembly, testing, inspection, and packaging. During the manufacturing process, companies must be mindful of waste or other factors that may cause deviations from their original plans. For example, if a company is using more raw materials than planned and sourced for due to inadequate employee training, it must rectify the issue or revisit the earlier stages in SCM.

Delivery

Once products are made and sales are finalized, a company must get those products into the hands of its customers. A company with effective SCM will have robust logistic capabilities and delivery channels to ensure timely, safe, and inexpensive delivery of its products.

This includes having a backup or diversified distribution methods should one method of transportation temporarily be unusable. For example, how might a company's delivery process be impacted by record snowfall in distribution center areas?

Returns

The supply chain management process concludes with support for the product and customer returns. It's bad enough when a customer needs to return a product, but even worse if that's due to an error on the company's part. This return process is often called reverse logistics, and the company must ensure it has the capabilities to receive returned products and correctly assign refunds for them. Whether a company is conducting a product recall or a customer is simply not satisfied with the product, the transaction with the customer must be remedied.

Returns can also be a valuable form of feedback, helping the company to identify defective or poorly designed products and to make whatever changes are necessary. But without addressing the underlying cause of a customer return, the supply chain management process will have failed, and future returns will likely persist.

Types of Supply Chain Models

Supply chain management does not look the same for all companies. Each business has its own goals, constraints, and strengths that will shape its SCM process. These are some of the models a company can adopt to guide its supply chain management efforts.

• Continuous flow model: One of the more traditional supply chain methods, this model is often best for mature industries. The continuous flow model relies on a manufacturer producing the same good over and over and expecting customer demand will show little variation.

• Agile model: This model is best for companies with unpredictable demand or custom-order products. This model prioritizes flexibility, as a company may have a specific need at any given moment and must be prepared to pivot accordingly.

• Fast model: This model emphasizes the quick turnover of a product with a short life cycle. Using a fast chain model, a company strives to capitalize on a trend, quickly produce goods, and ensure the product is fully sold before the trend ends.

• Flexible model: The flexible model works best for companies affected by seasonality. Some companies may have much higher demand requirements during peak season and low volume requirements in others. A flexible model of supply chain management ensures that production can easily be ramped up or wound down.

• Efficient model: For companies competing in industries with very tight profit margins, a company may strive to get an advantage by making its supply chain management process the most efficient. This includes utilizing equipment and machinery in the most ideal ways in addition to managing inventory and processing orders most efficiently.

• Custom model: If any model above doesn't suit a company's needs, it can always turn toward a custom model. This is often the case for highly specialized industries with high technical requirements, such as an automobile manufacturer.

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