What is the supply chain management process?

2 min read

Optimum management of the supply chain is one of the essential aspects that ensure a business's efficiency. It determines all the processes involved in the creation, manufacturing and distribution of a business's product. Here's a look at the supply chain management process to understand better what it comprises.

The supply chain process comprises four broad components that help foster customer satisfaction through steps determined by the industry and operations. These include demand management, supply management, sales and operations planning, product portfolio management and all the initiatives undertaken to achieve these goals - from planning to implementation.

Proper management of the supply chain process cycle results in high business performance, cost-effectiveness and revenue conversion throughout the supply chain.

Demand management

Demand management, one of the essential steps in the supply chain management process, consists of three parts. This primarily involves a forecast for reliable product delivery. Well-planned demand management results in improved revenue forecast accuracy while also achieving improved product profitability.

Merchandise planning refers to merchandise buying, planning, and selling for maximum returns while ensuring merchandise availability across the market.

Trade promotion planning involves marketing techniques that improve demand by stimulating factors such as pricing, demonstrations, etc.

Supply management

This stage of supply management involves planning for supply, production, inventory, capacity and distribution. Production and supply planning comprises supply management, collaboration and production schedule to fulfil requirements related to the demand process and resource allocation for improved production capacity.

Inventory planning helps optimise the inventory quantity and timing for aligned needs of business production and sales. Capacity planning under this process involves determining the staff and equipment required for production, as per assessed demand.

At last, distribution and network planning involve controlling goods movement across the supply chain, including the supplier, manufacturer and the point of sale.

Sales and Operations Planning

An integrated monthly system of managing business operations, sales and operations planning refers to the process view of the supply chain involving its key drivers, i.e., sales, production, inventory, demand, the introduction of a new product, etc.

Sales and operations planning aims to improve critical decision-making processes and propagate integrated strategic ideas focused on a business's financial impact. It has a vital contribution to improving the effectiveness of a business's supply chain management process.

Product portfolio management

This step plays a crucial role in a company's overall business strategy to achieve its business goals. It is a process of managing the company's products and the corresponding supply chains, from ideation to its introduction into the market. It also plays a vital role in maintaining the company's competitive position by driving sales and allocating resources for products to meet the market needs.

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.

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.

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 up to Rs. 75 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.

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