How it works
SCM is the integrated approach to overseeing the flow of goods, information, and finances from the initial sourcing of raw materials to the delivery of the final product to consumers. By managing all activities that form the supply chain, SCM aims to create a seamless, efficient, and customer-focused process that enhances value at every step.
In the planning stage, SCM aims to determine what products to produce, how much to produce, and when. Forecasting demand is crucial at this step, often involving sophisticated software tools that analyze market trends and customer behavior.
Sourcing is the next critical activity in SCM. Organizations identify potential suppliers, negotiate contracts, and establish terms. Following this, procurement involves ordering the raw materials or services necessary for production. Quality, price, and supplier reliability are major considerations in this phase.
During the production phase, raw materials are transformed into finished products. Efficiency is paramount here, as waste reduction and cost control are primary goals. Post-production, the focus shifts to warehousing, where inventory management practices help maintain optimal stock levels.
Transportation is the backbone of any supply chain, affecting both cost and delivery time. Decisions on transport methods — be it by air, sea, or land — have a significant impact on the speed, cost, and environmental footprint of the entire operation. The delivery phase ensures that these products reach retailers or end-users efficiently, a critical element in customer satisfaction.
After the sale, SCM continues to add value through customer service. This includes handling returns, managing warranties, and gathering customer feedback for continuous improvement.
The final component in effective SCM is ongoing monitoring and feedback. Performance metrics like delivery times, inventory turnover, and order accuracy are continuously tracked. This data serves to refine and optimize the supply chain, leading to cost savings and better customer experiences.
Supply chain management types
Lean
A Lean supply chain focuses on eliminating all forms of waste in the system, such as overproduction, unnecessary transport, and excess inventory. The ultimate aim is cost reduction and efficiency. While this approach is highly efficient, it can struggle to adapt to sudden changes in demand or supply.
Agile
The Agile model prioritizes responsiveness and adaptability, making it suitable for industries with fast-changing demands, like fashion or technology. It can react quickly to market fluctuations but often comes with higher costs due to its flexible nature.
Hybrid (lean-agile)
This model attempts to combine the best of Lean and Agile supply chains. It aims for efficiency in stable conditions (Lean) and flexibility when necessary (Agile). This approach is common in businesses with a diverse product range but can be complex to manage.
Sustainable
Sustainability is at the core of this model, emphasizing not just economic value, but also environmental and social responsibility. While noble in intent, implementing sustainable practices often requires significant investment and may result in higher operational costs.
Global
Operating on an international scale, this type deals with the complexities of global logistics, legal compliance, and cultural differences. The extended reach can yield cost benefits but also increases exposure to global risks like geopolitical instability.
Just-in-time (JIT)
In this model, inventory levels are kept extremely low, and products or components arrive exactly when needed for production. This minimizes holding costs but makes the supply chain susceptible to disruptions and delays.
Centralized
A Centralized supply chain is controlled by a single entity or location, facilitating easier decision-making and implementation of a uniform strategy. However, this central focus can make it less responsive to local market conditions.
Decentralized
In a Decentralized system, control is dispersed across multiple nodes, often in response to regional demands. While this can improve local responsiveness, it may also lead to conflicts and inconsistencies due to the lack of centralized control.
Digital
Digital supply chains incorporate advanced technologies such as AI, IoT, and big data analytics to provide real-time visibility and decision-making capabilities. This enhances efficiency and adaptability but also requires significant investment in technology and specialized skills.
