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What Is Supply Chain Management?

Supply chain managers may choose shipping companies that can carry intermodal containers for the sake of efficiency.
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  • Originally Written By: Venus D.
  • Revised By: A. Joseph
  • Edited By: Lucy Oppenheimer
  • Last Modified Date: 07 April 2014
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A supply chain is the collection of steps that a company takes to transform raw components into final products and deliver them to customers. Supply chain management (SCM) is the process that is used by a company to ensure that its supply chain is efficient and cost effective. This typically is comprised of five stages: planning, development, manufacturing, logistics and returns.

During the planning stage, a strategy must be developed to address how a given product will meet the needs of the customers. A significant portion of this strategy often focuses on planning a profitable supply chain. The development stage involves building a strong relationship with suppliers of the raw materials that are needed in making the product the company delivers. This phase involves not only identifying reliable suppliers but also creating methods for shipping, delivery and payment.

In the next stage, the product is manufactured, tested, packaged and scheduled for delivery. Then, at the logistics phase, customer orders are received, and delivery of the goods is planned. The final stage of supply chain management is when customers can return defective products. The company also must address customer questions during this stage.

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Another model for supply chain management groups all management activities into three categories: strategic, tactical and operational. Strategic activities include building relationships with suppliers and customers and integrating information technology (IT) within the supply chain. Studying competitors and making decisions regarding production and delivery would fall under the tactical category. The operational category includes the daily management of the supply chain, including the making of production schedules.

Companies use forecast-distribution models to have the appropriate inventory that is needed to meet fluctuations in customer demand. Forecast-distribution models help companies maintain more efficient — and therefore more effective — supply chain management strategies. Under this model, participants in the lower end of the supply chain, rather than those nearest to the customer, increase their orders frequently when there is a rise in demand. Conversely, when there is a decrease in demand, they decrease or stop their orders to prevent excessive inventory.

This greater variation in demand that can be seen in the supply chain as one moves away from the customer is known as the whiplash or bullwhip effect. A possible solution to this effect is Kanban, a demand-driven method of supply chain management. Using this method, which originated in Japan, the participants in the supply chain would react to actual customer orders, not forecasts of them.

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Discuss this Article

anon289523
Post 13

I am an internal audit consultant with six years if internal audit experience (including auditing the procurement function). Can I move from internal auditing to supply chain management? What do I have to study to be able to do this and what position can I hold?

anon137561
Post 9

SCM is planning to boost the earning by satisfying the customer, so even a shop keeper is also doing so. tell me what's new in SCM?

anon128342
Post 8

What technologies are best for handling SCM?

anon128341
Post 7

what computer technology enables me to have an efficient and effective SCM?

anon94788
Post 5

will a diploma in supply chain management help me become a carrier in air or sea cargo industry?

anon36664
Post 3

why is scm required for any business?

anon18462
Post 2

Q1:Many people say that supply chain management is hard. Why do you think so?

Q2: If supply chain management is hard, then why do companies try to work with suppliers, their suppliers' suppliers,customers and their customers' customers to improve their supply chains? What benefits can they hope to achieve?

Q3: There are a number of tools that can be used to try and improve supply chains. Explain how it is used and what a company may hope to achieve by using it?

-Benchmarking

-Postponement

-Outsourcing

-ABC Analysis

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