What Is Supply Chain Management? Supply Chains Explained

A supply chain is the connected network of raw materials, processes, and information systems required to make and deliver a finished product (like a computer) or a service (like healthcare). A well-organized supply chain can optimize production lifecycles and reduce costs for businesses.

A supply chain network consists of a range of processes and infrastructures, including but not limited to:

1. 1. Product development: Physical products and services begin with ideas. Behind every new business offering is a new product development process that informs the execution of a product from start to finish.
2. 2. Raw materials: Raw products like ore and timber go toward building final products. Their procurement is the first step in a manufacturing chain.
3. 3. Transportation and distribution: The flow of goods and raw materials depends on reliable transportation from one location to another. This includes sending raw goods to factories and sending finished goods to retailers.
4. 4. Manufacturing: The manufacturing process encompasses the supply chain activities that turn raw goods into finished products.
5. 5. Inventory management: Supply chain managers must handle the warehousing of both raw materials and finished products. Finished products often sit in buildings called distribution centers until they are ready to be shipped to customers and retailers.
6. 6. Pricing and sales: To ensure profitability, companies set prices that cover their costs and fall within their target customers' budgets.
7. 7. Overstock: Supply chain managers must also handle unwanted products that retailers cannot sell. Part of supply chain planning is knowing what to do with overstock.
8. 8. Information systems: Many of today's global supply chains run on supply chain management software. Companies purchase this software from third-party logistics providers. Managing this software and its providers is one of the key parts of running a successful supply chain.

Supply chain management, or SCM, is the craft of coordinating the various business processes that keep a supply chain moving. Effective supply chain management lets a company keep sustainable inventory levels, meet customer demand, engender a collaborative workforce, and give a business a competitive advantage over its rivals. Poor supply chain management can lead to erroneous sales forecasting, a lack of raw materials, unstable inventory control, and frustrated customers. Ensuring that a supply chain functions smoothly helps protect a company's bottom line and long-term reputation.

Supply chain management works through a combination of professional expertise and technological support.

• Trained specialists: The largest manufacturers and retailers hire trained supply chain management professionals to oversee every aspect of the supply chain process. Supply chain specialists are trained in the science of demand planning and optimization. They develop close relationships with supply chain partners for sourcing raw materials and distributing products. They also work with various deputies—such as factory foremen and regional retail managers—to make sure all elements of the supply chain are flowing smoothly.
• Advanced software: While human specialists oversee global supply chains and operations management, massive computing platforms help inform decisions. Thanks to automation and real-time machine learning, demand management has greater precision than ever before. The largest retailers use big data sets and predictive programs that give managers insight into every element of the supply chain process. This leads to greater optimization and reduced supply chain risk.

Global supply chains contain a wide array of nodes and processes that supply chain management professionals must handle in their day-to-day work.

1. 1. Product development: Manufacturers and retailers forge partnerships to create new products. Part of the supply chain process is understanding what end-users need from a manufactured good or a service and providing that good or service as efficiently as possible. Successful companies respond to customer needs and design supply chain strategies around fulfilling those needs.
2. 2. Procurement: Companies must procure raw materials to make their products, and these raw materials can come from different suppliers. Increasingly, businesses use electronic data interchange (EDI) programs to efficiently connect buyers and sellers of raw goods. Supply chain professionals must establish supplier relationships that prioritize reliability, sustainability, and social responsibility.
3. 3. Manufacturing flow management: A well-managed supply chain can turn a steady flow of inventory into a steady flow of finished products. This requires coordinating the sourcing and manufacturing processes. Supply chain managers help establish reliable lead times on creating new products and passing them along to retailers and end-users.
4. 4. Warehouse management: Warehousing is an integral part of today's retail market. Whether a company's customers buy its products in retail stores or via mail order, the products are likely to spend some time in a warehouse.
5. 5. Order fulfillment: When retailers put out demand for product inventory, it is up to supply chain managers to make sure they receive their orders in a timely and cost-effective manner. Supply chain professionals have found ways to automate and optimize their order management using the most up-to-date supply chain management software.
6. 6. Customer relationship management: Customers expect reliable products and worthwhile services. They need supportive customer service outlets to manage user experience issues. A strong customer relationship operation can bring lifelong loyalty to a company.
7. 7. Returns and overstock: Companies that sell physical goods must invariably deal with returns and overstock. Some brands sell returned products at deep discounts. Some refurbish defective items. Others donate or even destroy their excess product.
8. 8. Risk management: Supply chain disruptions can be devastating to a company's bottom line. A supply chain manager's decision-making process must prioritize efficiency and profitability and limit risk. Modern supply chain management software is a key tool in today's risk management as it keeps steady tabs on suppliers, manufacturers, distributors, and retailers—all of whom are stakeholders in overall logistics management.
9. 9. Workflow management systems: Supply chains function best when all business processes are integrated with one another. A company's suppliers may never meet its sales teams and its factory workers may never meet its retail managers, but a supply chain management professional may interact with all of these teams. Integrating each unit's function gives a company a competitive advantage in the broader marketplace.

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