In commerce, supply chain management is a function within the manufacturing process that captures the flow of goods and services in production. This includes the movement of raw materials, work-in-process inventory, and delivery of the finished product to the customer. Its success is measured by how effectively and efficiently the supply chain is run. On the most basic level, the purpose of supply chain management is to make inventory readily available in customer-facing positions to fulfill demand.
Basic concepts of supply chain management
The concept of supply chain management is based on the core idea that every product that reaches the customer is a culmination of multiple efforts by multiple contributors, or “links” within the organization. Those links need to work cohesively through coordinated work streams to optimize efficiency, productivity, and the quality of the final product. Those work streams are linked in two types of flows:
Physical flows. Physical flows involve the transformation, movement, and storage of goods and materials. They are the most visible piece of the supply chain.
Information flows. Information flows allow the various supply chain partners to coordinate their long-term plans, and to control the day-to-day flow of goods and materials up and down the supply chain.
Key definitions for supply chain management
Logistics management. Logistics is a fundamental set of supply chain processes that facilitate fulfillment of demand. Its objective is to supply the right product or service, at the right place, at the right time. It’s the link that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information from order to delivery. Logistics management essential for achieving supply chain success.
Supply management. Supply management focuses on the identification, acquisition, access, positioning, resources, and related capabilities the organization needs or potentially needs to meet its strategic goals.
In general, logistics management controls the distribution of products; supply management controls the strategic sourcing of direct materials, finished goods, services, capital equipment, and indirect materials. Both are needed to ensure optimal performance of the supply chain.
Value chain. The value chain is the primary activities (inbound logistics, operations, outbound logistics, marketing and sales, and service) and support activities (infrastructure, human resource management, technology development, and procurement) that work together to provide value to customers and generate profits for the organization.
A value chain and a supply chain are complementary views of an extended enterprise, with integrated supply chain processes enabling the flows of products and services in one direction, and the value chain generating demand and cash flows from customers. The concept of a value chain was developed as a tool for competitive analysis and strategy.
Distribution channel. Distribution channels support the flow of goods and services from the manufacturer to the customer. An organization can establish direct channels to customers, or rely upon traditional intermediaries such as wholesalers and retailers to facilitate customer transactions.
The rapid expansion of the internet as a key selling platform has forced manufacturers and retailers to develop innovative and flexible omnichannel capabilities in their supply chains to fulfill customer demand from stores, distribution centers, and production locations.