The supply chain of a company involves different departments, ranging from procurement of materials to production, packaging and finally placement to the right place at the right time. Supply Chain Management (SCM) means transforming a company's "supply chain" into an optimally efficient, customer-satisfying process, where the proficiency of the whole supply chain is more important than the efficiency of each individual department.
Some 15 to 20 years ago, the supply chain concept was little known and all the departments of a manufacturing concern had their individual functions to perform. There was no link between distribution and warehousing. Both the departments worked independently and thus the entire process was more costly and time-consuming. As the market demand grew, these two functions were merged into logistics. This helped in reducing the cost and improving the services. Soon it was realised by the manufactures that production and procurement could also be integrated with logistics (distribution and warehousing) into a single function - the supply chain.
A supply chain consists of three types of entities: customers, a producer, and the producer's suppliers. In a broader term, the supply chain includes customers' customers and suppliers' suppliers. Supply chain management oversees and optimises the processes of acquiring inputs from suppliers (purchasing), converting those inputs into a finished product (production), and delivering those products to customers (distribution). In other words, supply chain management deals with inputs, conversion and outputs.
The trend of global economy globalisation gives a real challenge to the supply chain. In the global business, materials and components are shipped world-wide and products may be produced offshore and sold in many different countries. For global companies the management of the supply chain process has become an issue of great importance. The difference between profit and loss for an individual product depends upon global supply optimisation, since the manipulation costs are significant.
Economy globalisation tends to expand supply chains, as companies are increasingly moving production to offshore or outsource from more distant locations. This trend is particularly meant to acquire low-cost labour from offshore countries. For example, a large number of companies in the United States and UK are outsourcing their productions to China, India and Philippines etc. Now the finished goods need to reach their destinations safely and on time. This has given rise to the concept of logistics management systems or supply chain management.
The supply chain outsourcing is the method of dislocation of supply chain activities to the third parties, with the purpose of organisational simplification and expenditure flexibility. This is a business opportunity that can cover different segments of supply chain or several of them combined.
With the development of supply chain, precise timing, co-ordinated supply and just in time deliveries are crucial. The globalisation of economy is inevitable therefore supply chain needs to keep the pace with this trend. Keeping up with the growing demand for logistics suppliers, numerous local and multinational companies have surfaced. Some of them are very well equipped to share the rising burden of the manufacturers.
Supply chain management (SCM) is the combination of art and science that goes into improving the way a company finds the raw components for making a product or service and delivers it to customers. There are five basic components of SCM: plan, source, make, deliver and return.
Plan: This constituent involves strategic planning for the organisations to help its customers improve bottom line and stay flexible in the face of changing business needs. Source: Companies must choose suppliers or vendors to deliver the goods and services they need to create their product.
Make: This is the most critical section of the supply chain, where companies are able to measure quality levels, production output and worker productivity. An expert logistics company can offer full range of turnkey manufacturing and other solutions.
Deliver: Moving products from manufacturing plants to warehouses, between international, national, and regional facilities and to distributors, can represent more than half of total logistics costs. Add international sourcing and final distribution to store or end customer, and those costs can rocket even higher. Transportation management solutions give the resources and visibility to the manufacturer, at a manageable cost.
Return: This is also referred to as reverse logistics bringing it back when it's not needed. This can be a problematic part of the supply chain for many companies. Supply chain planners have to create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have problems with delivered products. It is not necessary that all the organisations use the same SCM process; it can vary from organisations to organisations and at times product to product also.