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Supply Chain Management
Definition of
Supply Chain Management
What is Supply Chain Management (SCM)? Supply Chain Management is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. It involves the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Crucially, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, SCM integrates supply and demand management within and across companies. Effective SCM is vital for controlling costs and ensuring timely delivery of products and services.
Activities Related to
Supply Chain Management
Here is a list of activities related to Supply Chain Management: Demand forecasting and planning. Procurement of raw materials and components. Inventory management and control (including inventory valuation). Production planning and scheduling. Warehousing and storage. Logistics and transportation (inbound and outbound). Order fulfillment. Supplier relationship management. Customer relationship management. Returns management (reverse logistics). Monitoring performance ratios like inventory turnover.
The Importance of
Supply Chain Management
Effective Supply Chain Management is important because it leads to lower costs, greater efficiency, improved customer satisfaction, and enhanced profitability. By optimizing each step of the supply chain, businesses can reduce waste, minimize delays, ensure product availability, and respond more quickly to market changes. A well-managed supply chain is a significant competitive advantage, enabling companies to deliver better products and services to customers at lower prices or with greater speed. It also plays a crucial role in risk management by identifying potential disruptions and building resilience. Accurate bookkeeping is essential for tracking the financial aspects of SCM.
Key Aspects of
Supply Chain Management
Integration
Coordinates and integrates activities across multiple functions and organizations.
Efficiency and Cost Optimization
Aims to minimize costs and maximize efficiency throughout the chain.
Customer Focus
Ultimately driven by meeting customer demand and providing value.
Information Flow
Relies on the timely and accurate flow of information between all stakeholders. Good cost accounting supports this.
Risk Management
Involves identifying and mitigating potential disruptions and vulnerabilities.
Concepts Related to
Supply Chain Management
Supply Chain Management encompasses several key business functions and concepts, including Logistics, Inventory Management (including Inventory Turnover and Inventory Valuation Methods), Procurement, Operating Cycle, and Cash Conversion Cycle. It is vital for managing Cost of Goods Sold (COGS) and overall expense tracking.
Supply Chain Management
in Action:
The Adventures of Coco and Cami
Coco needs flour, sugar, and chocolate for her bakery. Professor A explains Supply Chain Management: it's how she gets those ingredients from her suppliers, bakes them into cakes (managing her inventory), and then sells and delivers the cakes to her customers.
Cami manages her boutique's supply chain by sourcing fabrics, overseeing dress production, stocking her shop, and ensuring customers get their orders. Efficient SCM helps them both keep costs down and customers happy.