Supply Chain Management Definition
A supply chain involves a channel between an organization and suppliers, so as to manufacture and deliver a particular product or service to the ultimate customer. Supply chain comprises of several individuals, tasks, firms, and resources with varied forms of information. It further showcases the steps that the firm follows for making the product available to the buyer.
Supply chains help organizations in keeping their costs minimum, and retaining their competitiveness in their industry. This process is of significant importance as the optimum supply chain can lead to less costs and smoother production.
A Little More on What is a Supply Chain
The supply chain consists of a specific sequence that needs to be considered for getting the final product or service in the hands of the final user. This sequence involves conversion of raw materials into final products, transportation of those products and allocating them to the final customer. There are various entities such as manufacturers, warehouses, vendors, organizations, distribution offices, retailers, etc. that use the supply chain process.
The components involved in a supply chain involve all functions initially associated with an order designed as per customers’ interests or preferences. Such functions cover development of a product or service, operations, marketing, finance, distribution, customer support, and a lot more.
Supply chain holds vital importance in any organization. In supply chain, there are a lot of areas that demand skilled and expert personnel. An effective supply chain management team can help in reducing the costs of an organization, and ultimately, increase its profits or revenues. In case of failure of one link or area, the other areas or links would also get affected, which ultimately increase the ultimate costs of the company.
When supply chain management enables quick or timely delivery of products to its customers, it results in customer satisfaction and ultimately, customer loyalty.
Supply Chain Management vs Business Logistics Management
Both terms, supply chain management and business logistics management (logistics), seem to be synonymous to one another. However, logistics is just one part or element of the entire supply chain process.
Logistics involves following a specific plan, and controlling and storing products and services effectively. It starts right from the initial point till the final product reaches its customers. In simple words, logistics management initiates with the raw materials, and ends with the ultimate delivery of the product.
A company will have its logistics management right when there are no time lags during the process, and the customers receive the final product or service in proper condition. Ultimately, this enables the organization in controlling its costs.
- A supply chain refers to a network built between a firm and suppliers with a view to manufacture and deliver the final products or services to customers.
- Vendors, organizations, business firms, manufacturers, retailers, etc. usually follow the supply chain.
- From developing a specific product from scratch to enhancing the maximization of customer’s interests, there are many functions involved in a supply chain.
- A firm can lower its costs, and enhance its production operations by having an effective supply chain management approach.
How the Flow of Manufacturing Costs Work
The flow of manufacturing costs elaborates the process of utilizing resources such as raw materials and labor force for completing a final product, and selling it to the ultimate user. A producer using many resources can simply its production process, and decrease its costs by using a supply chain management approach.
For instance, a textile manufacturer will use raw materials like fabric, zips, etc. for producing a piece of cloth. Then he or she will bear labor expenses for equipment handling and carrying out other tasks. After the completion of the final product, they are packaged and warehoused, and then finally sold to a customer.
For making a supply chain management process successful, it is important to have contacts with suppliers on whom you can rely completely. A reliable supplier will be the one who manufactures a top-notch product as per the requirements and expectations of the producer, and makes the timely delivery of product.
For instance, ABC Furniture produces premium furniture, and has links with a supplier that offers metal handles and related attachments. Such elements provided by the supplier should be long-lasting so that they add to the durability of the furniture. Also, the metal accessories delivered to ABC should serve the similar purpose as mentioned. It should be the responsibility of the supplier to meet the producers’ orders, and offer shipping of metal accessories in a timely manner, and as per the manufacturing requirements of ABC. Such steps make it easy for manufacturing a premium product, and making it available for the customer at the right time.
Supply Chain and Deflation
Supply chain management, if performed in the right manner, can help in controlling inflation. When there is an efficient movement in products from A to B, there will be less costs involved, which will ultimately reduce the final cost of the product. Deflation, though considered to be negative for an economy, appears to be feasible for efficient supply chains.
With the ongoing globalization, there tends to be an optimization in supply chain efficiencies, which regulates the pressure on input prices.