People Innovation Excellence

What is Supply Chain Management (SCM)?…Part 1

Have you heard about Supply Chain Management? Nowadays, people more likely call it SCM, which is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. Supply chain management software includes tools or modules used to execute supply chain transactions, manage supplier relationships, and control associated business processes. Supply chain management flows can be divided into three main flows:

  • The product flow
  • The information flow
  • The finances flow

The product flow includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs. The information flow involves transmitting orders and updating the status of delivery. The financial flow consists of credit terms, payment schedules, and consignment and title ownership arrangements. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and the velocity of inventory movement. There are several benefits from SCM, as follows:

  • Reduce uncertainty along the chain
    By using SCM, we can know the flow of materials from Suppliers, until distributor, or even end customer.
  • Proper inventory levels in the chain
    By using SCM, systems send the notification to the supplier if the inventory level already reach reorder point.
  • Minimize delay
    By using SCM we can monitor the flow of goods, so if there’s something happen during the flow, than we can come up with backup plan and can minimize delay.
  • Eliminate rush (unplanned) activities
    Every processes in SCM are planned well because all activities controlled by the SCM systems.
  • Provide good customer service
    By deliver product on time and make sure the product is suitable for customer needs, company can serves customer better.

There are five basic components of SCM, as follows:

  1. Plan, Every company needs a strategy on how to manage the resources in order to achieve their customers demand for their products and services.
  2. Source, The managers need to develop a set pricing and delivery system in the supply chain. They can also put processes for managing their goods and goods inventory, for example; receiving shipments.
  3. Make, In manufacturing the supply chain manager should always schedule the activities that are needed for the production, packaging, testing and preparation for delivery.
  4. Deliver, In this case companies coordinate receipts of orders, pick carriers to get products to customers and develop a network of warehouses.
  5. Return, The planners should create a flexible and responsible network for receiving a flaw and excess products sent back to them (from customers).

Published at : Updated
Written By
Marisa Karsen
Subject Content Coordinator | Information System Laboratory, Binus University
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