Supply chain concepts, principles, and processes
This article aims to evaluate the key supply chain concepts, principles, and processes for the effective supply chain management of an organisation. It begins with exploring the definition of supply chain management (SCM) and continue analysing a number of related issues. Supply chain managers have a challenging job as the chain has grown in length and complexity as a result of organisations expanding around the world to have access to better and often cheaper raw materials.
Definition of supply chain management (SCM)
What is supply chain management? Well, according to CSCMP (n.d.) cited in Wisner et el. (2012) SCM refers to the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers.
Concepts of supply chain management (SCM)
Companies need to work with many partners in order to transform raw materials into the end products/services. It is about working with many at the same time, not working alone. Supply chain management helps organisations handle the entire production flow of a good or service — commencing from the raw components all the way to delivering the final product/service to the consumer (IBM, 2021).
Imagine, a customer orders takeaway food from a restaurant. Where does the restaurant buy raw materials from? How does it cook the food? How does it deliver the food to the customer? Answers to these questions provide the readers with a clear idea about the concepts of supply chain management.
Principles of supply chain management (SCM)
Different writers have written about different principles of supply chain management. The discussion that follows highlight the key ones:
Principle 1: Organisations need to have a good segmentation strategy to select the right group of customers to target and serve. For instance, a restaurant may target vegetarians and add vegetarian foods in its menu.
Principle 2: Customisation of the logistics network. The restaurant in the above example, now needs to ensure that everything in place to serve the vegetarian customers in a profitable manner.
Principle 3: Understanding the market signals. The restaurant needs to analyse what is happening in the market. Is the demand for vegetarian products going up or down? It can then make optimal number of products available on a given day.
Principle 4: Some organisations apply differentiation strategies while others apply standardization strategies. Some organisations fear that differentiation (offering different value propositions to different customers) cause complexities to the supply chain, and therefore, apply standardisation strategy. However, the key here is that organisations need to understand their customers very well to determine whether differentiation or standardisation is best for them.
Principle 5: Raw materials may be very costly sometimes. The transport costs may be painful as well in addition to taxes, tariffs etc. Therefore, organisations need to manage the supply chain efficiently and strategically to reduce the overall costs. They can only then be able to sell the final products at affordable prices should they wish.
Principle 6: The world is gradually moving towards automation. Technology is heavily used in everything we do. Organisations need to use technology throughout the supply chain as best as they could to have quicker access to raw materials and increase the rate of production and delivery.
Principle 7: Organisations need to have quality measures in place to evaluate the success in reaching the customers effectively and efficiently.
Processes of supply chain management (SCM)
How does supply chain management work? According to IBM (2021) there are five elements in a supply management system as follows:
Organisations need to plan and manage all the resources that they need to address the needs and desires of their customers. Let’s say Apple Inc. identifies that there is a huge demand for a new iPhone. Likewise, a coffee shop identifies that there is a huge demand for chicken burgers.
Organisations need to identify and then after a thorough assessment, select the best suppliers to have access to the raw materials to make the planned products. Going back to the examples used above, Apple needs to select the best suppliers to provide it with raw materials such as rare earth minerals, naturally occurring solids, aluminium, iron, gold etc. Similarly, the coffee shop needs to select the best butcher that can supply it with good quality chicken with reasonable prices,
Having received the raw materials, both Apple and the coffee shop need to organise activities to transform the raw materials into finished goods. The coffee house may decide to make the burgers inhouse. It should be mentioned that most iPhones are assembled in China though several Asian countries take part in the process.
Delivery and Logistics
The products are now ready to be dispatched to the customers. Apple use different strategies to take iPhones to the doorsteps of the customers. iPhones can be purchased from Apple stores, phone networks, and retailers. The coffee house may select Deliveroo, Uber Eats, and other delivery partners to deliver the burgers to the customers in addition to having eat-in provisions.
Customers may sometimes decide to return some products. Therefore, organisations need to have systems and policies in place to take back unwanted products. In some countries, organisations are legally bound to take back unwanted products if returned within a specified time period.
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Last update: 17 October 2021
IBM (2021) What is supply chain management? Available at: https://www.ibm.com/uk-en/topics/supply-chain-management (accessed 16 October 2021)
Wisner, J. Tan, K., Leong, and Leong, K. (2012) Principles of supply chain management – a balanced approach, 3rd edition, USA: Southwestern Cengage Learning
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.