What is Supply Chain Management and Why is SCM Important?

What is supply chain management (SCM)?

No matter how competent or magnificent your organization is, you still need help from other sources when you need to get mass produce your product.

Let’s say that your company needs to mass produce a chair, it’s unrealistic that you need to grow trees first, right? There are companies where you can source raw materials from, factories to assemble the components at, distribution channels to sell your product to…

The companies and resources that are contributing to your final product form a complete supply chain. And supply chain management is a way to make sure all parties involved in making the product work together at the minimum cost and highest efficiency.

The core of supply chain management, or SCM in short, lies in 6R1M. I.e. make sure the right product arrives at the right time, right place with the right quantity, quality and status with the minimum cost. This is achieved by planning, coordinating, managing, controlling and improving all process and activities in the overall supply chain.

Today, it’s not uncommon that one company source raw materials and get your product mass produced in low-cost countries and regions like South Asia, and sell your products to higher-end markets like North America. This calls for global supply chain management.

In short, supply chain management coordinates all parties in the supply chain in a systematic way to ensure the overall efficiency and low-cost while producing quality goods.

Why is supply chain management important?

When you search for supply chain management, you must have seen “Get a SCM certificate”, “Supply Chain Mgmt Degree”, and more. This might give you an inkling of how important supply chain management is to a company. If not, we’re happy to break it down for you here.

Improve customer satisfaction

Supply chain management is a way to ensure all parties involved in your product from just a product concept to the finished goods delivered to your clients are working effectively and efficiently.

That said, it’s hard to imagine you’ll have happy customers if your product is of poor quality, delayed delivery and poor customer services. This is what an effective supply chain can help you avoid.

By increasing the flexibility and reliability in delivering the final products, SCM helps improve your customer satisfaction.

However, it takes expertise, capabilities and experience to make sure the effectiveness of supply chain management. For small businesses, it could be a challenge, which is why many of them would choose to go for a professional supply chain management team for help. It could be a bit costly, but with the right resources hired, the end result will more than pay for itself.

Reduce costs

One of the core goals for effective supply chain management is to reduce the overall spending of the supply chain and the cost of the product.

  • Manufacturing: To reduce manufacturing costs, people managing the supply chain need to find ways to control and cut costs in almost every section of the supply chain. This means sourcing suppliers, manufacturers and product materials from low-cost areas while maintaining the product quality. Having iPhones manufactured and assembled in China is a perfect example.
  • Inventory: Effective supply chain management will strike the correct balance between minimizing the stock and the capability to meet customer demands.

Improve profit margin

With that being said above, effective SCM helps reduce the overall cost of the supply chain, and thus increase the profit margin of your product.

Experienced and effective supply chain managers will also have ways to decrease the use of large fixed assets such as plants, warehouses and transportation vehicles.

Moreover, with the help of supply chain managers, you can increase your business’s cash flow, because your customers will receive your products faster than that of your competitors.

 

That’s all about we have for today’s topic. Feel free to let us know if you need your unique supply chain management team, we’re here to help.

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