What is Supply Chain Management? 5 Phases, Strategies, Benefits, and Importance

The global supply chain consists of an intricate network of suppliers, manufacturers, distributors, retailers, wholesalers, and customers. Effective SCM focuses on optimizing this network to ensure that materials and products move efficiently to the right place at the right time. This includes sourcing components, manufacturing, storage, transportation, and final delivery.

SCM also requires coordinating both internal operations and external partners to streamline processes. According to the Council of Supply Chain Management Professionals (CSCMP), supply chain management integrates supply and demand management across and within companies.

Why is supply chain management important?

Supply chain management (SCM) is crucial as it ensures the efficient flow of goods and services from suppliers to customers. Effective supply chain management is crucial for businesses to remain competitive in today's global marketplace. It enhances efficiency, reduces costs, improves customer satisfaction, and minimises risks. By streamlining processes, optimising inventory, and fostering collaboration with suppliers and distributors, supply chain management enables businesses to respond swiftly to changes in demand, mitigate disruptions, and achieve sustainable growth.

Ensuring adequate planning for all steps involved in the supply chain management process requires sufficient funding with timely fulfilment. Bajaj Finserv brings adequate supply chain financing in the form of high-value business loans of upto Rs. 80 lakh* (*Inclusive of Insurance Premium, VAS Charges, Documentation Charges, Flexi fees and Processing Fees) with quick approval to ensure a venture does not run out of funds when they are needed the most.

How Supply Chain Management works

Supply chain management involves the coordination of activities and processes involved in sourcing, procurement, production, and distribution to deliver products or services to customers efficiently. It encompasses strategic planning, logistics, inventory management, and collaboration with suppliers and distributors to optimise performance and meet customer demands while minimising costs and risks. It also involves the use of technology and data analytics to optimize the supply chain and respond to changes in demand or market conditions.

5 phases of Supply Chain Management

The five phases of supply chain management include planning, sourcing, making, delivering, and returning.

• Plan: This phase involves forecasting demand, setting objectives, and designing strategies to meet those objectives efficiently. Key tasks include demand planning, resource allocation, and setting inventory levels based on anticipated demand.
• Source: In this phase, the focus is on identifying and selecting suppliers, negotiating contracts, and establishing relationships to ensure a smooth flow of materials or services into the supply chain. It involves activities such as supplier evaluation, selection, and procurement.
• Make: This phase involves the actual production or creation of goods or services. It includes manufacturing processes, quality control, scheduling, and resource allocation to ensure timely production while maintaining quality standards.
• Deliver: This phase focuses on logistics and transportation, ensuring that products are efficiently delivered to customers. It involves activities such as warehousing, order fulfillment, transportation planning, and tracking shipments to optimize delivery times and minimize costs.
• Return: Also known as reverse logistics, this phase deals with handling product returns, repairs, and recycling. It involves processes for managing returned products, refurbishing or disposing of them, and identifying opportunities to improve product quality or customer satisfaction based on feedback from returns.

These phases are interconnected and require seamless coordination to ensure an efficient supply chain.

Strategic Approaches to Supply Chain Management

Businesses adopt various supply chain management strategies based on their needs, budgets, capabilities, and long-term goals. Here are some of the most common approaches:

• Lean supply chain management: Eliminates waste in all forms, such as excess inventory, unnecessary transportation, and inefficient processes. The goal is to create a streamlined, cost-efficient supply chain.
• Agile supply chain management: Focuses on quick adaptation to customer demand and market changes. Includes practices like quick batch production, fast replenishment, and flexible supplier agreements.
• Six Sigma: A data-driven approach that reduces defects and minimizes variability in supply chain processes. Uses statistical methods to identify and eliminate sources of errors for consistency and efficiency.
• Total quality management (TQM): Prioritizes continuous quality improvement to enhance customer satisfaction. Involves supplier quality management and process standardization to ensure consistency.
• Resilient supply chain management: Builds a supply chain capable of withstanding disruptions and adapting to changes. Focuses on risk identification and mitigation through supplier diversification, contingency planning, and investing in supply chain visibility tools.

Types of supply chain management models

Supply chain management (SCM) encompasses various models tailored to meet diverse business needs:

1. Efficient model: Maximises resource utilisation and minimises costs, crucial for industries with narrow profit margins.
2. Continuous flow model: Ideal for stable industries, where production remains constant to meet predictable demand patterns.
3. Fast model: Focuses on quick product turnover, essential for industries with short product life cycles or fast-changing trends.
4. Agile model: Suited for unpredictable demand or custom products, emphasising flexibility and rapid adaptation to market changes.
5. Flexible model: Adjusts production levels to seasonal demand fluctuations, ensuring resources are optimally utilised throughout the year.
6. Custom model: Tailored for specialised industries needing unique SCM strategies due to technical complexity or specific market requirements.

Entrepreneurs often create supply chain strategies that match their specific business needs. Understanding entrepreneurship is important when selecting the right model, particularly when starting a new business or expanding into new markets.

Benefits of Supply Chain Management

Supply chain management is crucial for enhancing business profitability and competitiveness. Beyond these core advantages, here are some additional key benefits:

• Improved operational efficiency: Streamlined supply chain processes enhance machine performance and workflow, effectively reducing bottlenecks and boosting overall productivity. This optimisation results in smoother operations and better resource utilisation.
• Anticipating customer demand: SCM helps businesses gain deeper insights into customer preferences and timing, allowing them to plan and adjust their production schedules accordingly. This ensures that businesses can meet customer needs more effectively.
• Improved visibility: With a comprehensive view of the entire supply chain, businesses can identify potential risks and opportunities. This enhanced visibility supports proactive decision-making and helps in mitigating issues before they escalate.
• Accurate forecasting: Through data analysis and forecasting, SCM enables businesses to predict future demand with greater precision. This capability helps avoid bottlenecks, optimise resource allocation, and plan for fluctuations in demand more effectively.
• Enhanced product quality: By monitoring and optimising processes at every stage, SCM contributes to improved product quality. This leads to greater customer satisfaction and loyalty, as well as a stronger market reputation.
• Sustainability: Effective SCM incorporates responsible sourcing, waste reduction initiatives, and efficient transportation practices. These efforts help minimise the overall environmental impact and reduce associated costs, promoting a more sustainable business model.
• Cash flow management: SCM plays a crucial role in managing cash flow by ensuring efficient resource allocation and avoiding costly disruptions. This financial stability supports better operational planning and investment opportunities.
• Efficient logistics: SCM aids in optimising transportation and distribution processes, ensuring timely delivery of products to customers. This efficiency improves overall service levels and helps businesses stay competitive in the market.
• Better customer service: Effective supply chain management leads to improved customer service by enabling quicker responses to customer needs, better delivery times, and the ability to offer personalised products. This enhances customer satisfaction and reinforces competitive advantage.

SCM also involves managing working capital effectively. Understanding your working capital ensures that you have the resources to maintain cash flow, cover costs, and make investments as needed.

The history of SCM (Supply chain Management)

Supply chains have been integral to commerce since ancient times, evolving from simple trade routes to complex networks. The Industrial Revolution marked a significant shift, with standardised production processes pioneered by figures like Henry Ford. These advancements laid the groundwork for modern supply chain practices. Over the years, technologies such as computers have enhanced efficiency, yet traditional supply chains remained linear and siloed until recent decades. Depreciation plays a role in the evolution of asset management within supply chains, reflecting how businesses account for the declining value of equipment used in production and logistics.

Objectives of supply chain management

Apart from understanding the meaning of supply chain management, it's essential to delve into its objectives and why it's crucial for businesses:

• The primary goal of supply chain management is to enhance profitability. This involves maximising the difference between the price a customer pays and the cost incurred in producing and delivering the product.
• Another key objective is to strike the right balance between product quality and production costs. The aim here is to ensure customers feel satisfied with the value they receive relative to the price they pay.
• Additionally, SCM seeks to identify and optimise the sources of revenue involved in the flow of information, products, and finances throughout the supply chain.
• Reducing the time required to fulfil orders is another significant goal. By streamlining the ordering and delivery processes, SCM aims to make these operations more efficient and faster.
• Finally, SCM strives to maintain an equilibrium between supply and demand. This is achieved through developing a flexible planning and control system capable of quickly adapting to changes and ensuring that supply meets demand effectively.

A good understanding of the business environment is important to align these objectives with market realities. This ensures that your supply chain strategy supports business goals and adapts to changes in the industry.

Challenges of supply chain management

Managing supply chains involves several significant challenges:

• Rising risks: Issues such as fluctuating consumer demand, raw material shortages, and economic uncertainties contribute to increasing risks in supply chain management.
• Unexpected delays: Long distances and multiple steps in the supply chain can lead to delays, especially when dealing with extended lead times.
• Cost control: The rising costs of raw materials, labour, energy, and freight make it challenging for businesses to manage expenses and maintain smooth operations.
• Data synchronisation: Efficient supply chain management relies on accurate and timely data, which can be difficult for businesses to achieve.
• Digital transformation: While adopting advanced technologies like IoT, AI, robotics, and drones is essential for enhancing supply chain management, integrating these technologies into existing systems can be complex.

Understanding what an audit is important for tackling the challenges of supply chain management, particularly for ensuring transparency and meeting regulatory requirements.

Including the working capital cycle in your business strategy can also help ensure that your supply chain runs efficiently. Proper planning and resource allocation are key to reducing operational costs and supporting business growth.

Additionally, when involved in public-private partnerships, understanding the details of supply chain management can lead to better collaboration between the private and public sectors, ensuring smoother implementation of large-scale projects.

Example of supply chain management

Consider a smartphone manufacturer. From sourcing raw materials like metals and minerals for components to manufacturing in factories worldwide, coordinating transportation, and delivering products to retail stores or customers' doorsteps, the smartphone manufacturer’s supply chain management ensures efficient operations, timely deliveries, and high-quality products.

Another example of effective supply chain management (SCM) can be seen in the automotive industry. Car manufacturers coordinate with suppliers globally to source raw materials, such as steel and rubber, needed for production. Parts are manufactured, assembled, and distributed to dealerships worldwide. SCM ensures that the right parts are available at the right time, minimizing inventory costs while meeting customer demand. This process involves complex logistics, inventory management, and collaboration between multiple stakeholders to ensure smooth operations and customer satisfaction.

Future of supply chain management

The future of supply chain management (SCM) is characterised by agility and customer-centricity in a global, digital economy. No longer linear, today's SCM networks are dynamic and interconnected, powered by technologies like AI, IoT, and automation—key components of Industry 4.0. Future SCM systems will prioritise real-time responsiveness, integrating planning and execution seamlessly. Blockchain technology will enhance transparency and trust across supply networks, while cloud-based SCM solutions offer scalability and adaptability. Continuous SCM evolution will be essential, aligning with evolving consumer demands and regulatory landscapes for sustainable business success.