In business, supply chain management, which includes the entire flow of products and services, from their origins in raw materials to their destinations and final locations, and is the visible system and pipeline for the smooth flow of goods. It also involves the physical storage and distributing of goods, as well as the tracking and collecting of payments. The term “supply chain” is derived from the supply chain management of petroleum. In crude oil, it refers to the network of pipelines and tanks that is used to transport petroleum from the exploration and development sites to the refineries. This supply chain is crucial in the efficient operation of the crude oil industry.
Supply chain management also refers to the use of customer demand generated by market participants to select the most appropriate suppliers that can deliver to a targeted customer base. Supply chain management also integrates all elements of manufacturing, including engineering, manufacturing, marketing, business processes, and financial activities. There are five essential components of supply chain management: Physical infrastructure, process technology, information technology, customer demand, and the financial system. There are various application areas for this management system.
Supply chain processes are a crucial part of modern-day supply chain management. It includes operations that are required to move raw materials and finished products from the processing plant to the point-of-sale for both profit and loss, including logistics. It also includes activities such as purchasing, selling, delivering, inventory, and returns. These activities affect the bottom line. In supply chain management, there are four important factors that affect these processes: quality, reliability, efficiency, and service. Modern supply chain management is an increasing focus these days due to the changes in the supply chain environment.
Objective of supply chain management:
The objective of supply chain management is to improve the operational procedures, policies, and practices that handle the supply chains. Supply chain management helps to ensure that all aspects of supply chains are optimized for maximum performance and to determine the costs involved in executing activities. A supply chain consists of four stages: discovery, sourcing, production and logistics.
Discovery is the stage in supply chain management where companies determine what they want to produce and where they want to purchase these goods from. For example, when a company decides to produce computers, it first begins the process of discovery by evaluating the current requirements of its operations. Based on this requirement, the company determines what type of computers it needs, its budget, and its sales and service plans. In order to complete this stage of the process, companies usually hire an outside party or engage in research.
Then, sourcing is the next stage in supply chain management. This stage involves identifying the best source for the raw materials and other goods that you need for your operation. It also involves coordinating with suppliers to find out what they have available and how much they charge. It is during this stage where you negotiate prices with suppliers. Also, if your budget does not allow for purchasing the goods in bulk, you should look for ways in which you can acquire the good in small quantities at a cheaper price.
Research and development phase of supply chain:
Production and logistics follow after the research and development phase of supply chain management. During production, raw materials are converted into finished goods that are delivered to your customers. In addition, the good also undergoes quality control and packaging so that it meets quality standards before it is shipped to your customers. After your goods are shipped to your customers, they make their way through your supply chain to reach your retail stores where you sell them.
Your distribution also comes after the research and development phase of supply chain management. It involves the shipment of your products to your final retail packaging logistics. You can either arrange your own distribution or engage a distribution company that will provide you with the goods in bulk. Again, planning is required here because you need to understand the factors that affect the value chain and the factors that affect your distribution.