The Importance of Supply Chain Management

The Importance of Supply Chain Management

Supply chain management (SCM) is very important and effective to all companies. David Simchi-Levi, Philip Kaminsky, and Edith Simchi-Levi defines supply chain management as “a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize systemwide costs while satisfying service level requirements.” Supply chain management, also called logistics network, includes suppliers, industrialized centers, warehouses, distributions centers, and retail outlets, as well as unprocessed materials, work-in-progress stock, and finished goods that run linking the facilities. SCM is all about having the right product in the right place, at the right price, at the right time and in the right condition. A good way to explain supply chain management is to use a worldwide known restaurant for an example, because depending on where the location of the restaurant is tells you where the inventory comes from. It is essential for restaurants to have enough inventory to cover the customer demand no matter what. For this, supply chain management is extremely crucial and can make or break a business. Charles Dominick explains, “the three types of entities of a supply chain: customers, a producer, and the producer's suppliers. The extended supply chain includes customers’ customers and suppliers’ suppliers. SCM oversees and optimizes the processes of acquiring inputs from suppliers (purchasing), converting those inputs into a finished product (production), and delivering those products – or outputs - to customers (fulfillment).” From all the types of entities listed before, it falls on the supply chain manager’s job to choose where to find manufacturing and delivery services, how to send the goods and materials to those services, and from which parts of the world to outsource the effort.

Supply chain management is an extremely important area of study because of the several benefits it brings to a company. Thomson Gale says, “In addition to helping to create an efficient, integrated company, supply chain management also plays a large part in reducing costs. Depending on the industry, companies leading in supply chain performance achieve savings equal to three to seven percent of revenues compared with their median performing peers.” There are many different ways that SCM can help make a company more efficient and effective; such as strategic partnerships, information sharing, outsourcing, the Internet, and e-business models. The use of strategic partnerships builds a relationship between the suppliers and buyers that can help both parties reduce their cost, which also builds trust between them both. Information sharing is used by supply chain partners for manufacturers to be able to utilize retailers’ current sales information to better forecast demand and diminish lead times. It also helps manufacturers to manage the unpredictability in supply chains, and from doing this it reduces inventory and evens out production. The big responsibility to cut costs pushed more businesses to begin outsourcing, which is finding other suppliers from out of state or country to supply them with the products better and more cost effectively. An innovation that has expanded businesses profits and services is the Internet, because it allowed manufacturers to deal directly with consumer business models. E-business models, which are related to the Internet, gave false hope from all that it promised to accomplish. In all actuality, everything that was promised failed and the e-businesses were disastrous. Just about every