Writuparna Kakati | 13 May, 2008
'Supply chain management or SCM' - sounds just like a difficult jargon! But, is it really such a difficult concept? Give a closer look and you may find that SCM is instead something very easy to understand, and, of course, not so difficult a strategy to implement.    

In a simple sense, supply chain management is a network of three primary types of units; firstly, the one that involves obtaining of raw materials; secondly, the type of units that involves transformation of these raw materials into intermediate goods and final products; and thirdly, those that bring the products to customers.   

As the whole distribution system is a 'chain',  all these aforesaid types of units are closely connected and the strength of the entire chain depends upon each of them. One ring is broken and the entire chain may fail.  

Why SCM is so important

But the question arises here is why an effective supply chain is necessary for your business. The primary aim of supply chain management is to "obtain the right products at the right place in the right quantities at the right moment at minimum costs".  

According to the CIO Magazine, supply chain management is "the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers". In other words, supply chain management mainly addresses some core areas of the distribution mechanism which includes Distribution Network Configuration, Distribution Strategy, Information, Inventory Management, Cash Flow, etc.

The success of any business depends upon the revenue derived from the sale of its products or services. If this revenue does not create required profit margin over the cost of its production, then the business is likely to fail. The purpose of supply chain management is to give a business competitive edge by lowering cost at different stages of the supply chain, increasing efficiency and improving customer satisfaction.     

Success factors of SCM

In supply chain management, three main factors primarily define the success of the chain or network; They are: customer satisfaction, inventories, and flexibility.

Among the three, customer satisfaction, which largely depends upon the quality of customer services, is undoubtedly the ultimate goal of virtually all management strategies. Customer service measures such as filling orders promptly or prompt delivery of products/services are expected by every customer, and therefore, play crucial role in earning customer satisfaction.

Flexibility, the second success factor of supply chain management, refers to a company's ability to respond to the changes in the external environment that can affect the business operations of the company. For example, a manufacturing company must effectively respond to the changing customer demands on products manufacturing products as per customer expectation. However, it is not as simple as it sounds. The changing demands of customers may be on anything and it requires to identify them clearly to respond to them effectively.

The third success factor of supply chain management is inventory. In these days, almost every company keeps inventories despite the fact that it is considerably expensive. Keeping inventories for raw products, products that are used in production, and for finished goods means keeping a business ready to cater to the requirements of customers without breaking the supply chain. Without inventories, a business will not be able to speed up the process of supplying goods/services from one stage to another until they reach the customers and end users.

Thus, supply chain management means nothing but effective handling of the network through which a product or service passes through different stages, from the initial stage of production to the final stage of delivery to the customers. These stages start right from the extraction of raw material, all production processes, customer orders, order processing, inventory, scheduling, storage and distribution of products, product delivery and customer services.

Supply chain management strategies are aimed at achieving primarily three goals- to speed up distribution, enhance customer satisfaction, and minimize the total cost of the entire process through which a product or service passes from the provider to the end users.