Supply Chain Management: Elements & Goals – definition | essential element | strategy
Supply Chain Management: Elements & Goals
Supply Chain Management Defined
Meet Mary. She’s a VP for an auto manufacturing firm and is responsible for supply chain management, or SCM. Supply chain management involves the management and integration of flows of goods, services and information into the company to create the goods and services that will then flow out of the company to its customers. But what exactly is the supply chain?
Supply Chain Elements
A supply chain consists of all the activities relating to the flow of goods, services and information that come into and out of a company from creation of goods and services through distribution to end users. Let’s look at a quick example.
The supply chain necessary for manufacturing a car is complex. A simple automobile supply chain may include:
– Procurement and transportation of raw materials and components to the company
– Producing the vehicle from raw materials and components
– Distribution of finished automobile to retail dealerships
– Delivery of automobile from dealership to consumer
All supply chains consist of four essential elements that we can glean from our example above. These elements include:
– Purchasing the resources necessary to make the company’s goods and services
– Production of the goods and services from the resources acquired
– Managing the inventory of material necessary for product and the inventory of finished goods and services
– Transportation & distribution of the resources necessary for production and distribution of goods and services to wholesalers, retailers or through direct sales to customers
It’s important to note that information flows are also critical to supply chain management. Information allows Mary and her partners in the supply chain to respond quickly and effectively to, because information increases the visibility of the supply chain.
For example, information about a shortage of a crucial raw material down the chain can allow Mary to seek alternatives to keep production flowing. Likewise, a downward or upward trend in sales from retailers will help manage inventory. If sales are increasing, Mary will know to keep more inventory on hand and speed up production. On the other hand, if sales are decreasing, Mary will want to keep inventory levels lower and even slow down production. In this manner, Mary helps her company be efficient with its resources while still keeping customers satisfied.
Supply Chain Elements & Strategy
Mary’s job of managing the supply chain is important for strategic success of her company. Mary’s goals in managing the supply include:
– Managing quality
– Satisfying customers
– Maintaining competitiveness
Let’s take a closer look at how managing the supply chain can help achieve these goals. Managing the quality of your product requires ensuring that all inputs and processes used to produce the product are of first-rate quality. In other words, poor-quality steel, inefficient engines, substandard electronic components and shoddy assembly lead to poor-quality cars. High-quality steel, energy-efficient engines, and quality electronic components lead to high-quality cars.
Effectively and efficiently managing the supply chain also helps create satisfied customers. It helps ensure quality products as we already discussed. Moreover, carefully managing distribution and inventory levels is also crucial. Mary knows that in today’s world, customers simply don’t want to wait for backordered product and will often go to the next available option.
Managing the supply chain effectively means that customers will have a quality product where and when they want it.
Finally, supply chain management helps keep companies competitive. Managing the supply chain effectively means you not only create quality products that get to customers when and where they want it, but it’s done efficiently and cost effectively. In other words, SCM helps a company manage its bottom line through ensuring that its supplies are procured for the best price in the proper amount at the proper time. It also means keeping inventory at optimal levels and utilization of the most cost-effective transportation and distribution options available.
Lesson Summary
Let’s review what we’ve learned. Supply chain management is concerned with managing the flows of goods, services and information into the company for production of finished goods and services and the flow of the finished goods or services out of the business for the end user. A supply chain involves four general activities, including purchasing, production, inventory management, and transportation and distribution. Another important aspect of supply chain management is controlling the flow of information to make effective and efficient decisions. Effectively managing a company’s supply chain helps the company achieve strategic goals of quality management, customer satisfaction and maintaining competitiveness.