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Supply chain: definition and meaning of supply chain management

The supply chain is a very complex system that involves people, activities, information, and financial resources aimed at transferring a product from suppliers to customers through a complex and often geographically extended production/distribution network.

This is why you are talking about supply chain as supply chain management. A complex process but with a clear and evident objective: obtain the level of service required by customers at the right cost.

What are the supply chain and supply chain management?

Let’s start with a definition. The supply chain is the network that includes all the individuals, organizations, resources, activities, and technologies involved in the creation and sale of a product: from the purchase of materials from the supplier to the delivery of the finished product to the user—the final.

Supply chain management (SCM) is the process of supervision of the materials, information, and financial flows that move from supplier to manufacturer, from wholesaler to the retailer and the consumer. The three main flows of the supply chain are, in fact, the product flow, the information flow, and the financial flow. Supply chain management involves the coordination and integration of these flows both within and between companies.

How the supply chain works and the management of the distribution chain

Supply chain management doesn’t start when the company orders a product from your suppliers. The process should begin when your suppliers buy from their suppliers. This process is called second-tier supplier management (Tier II suppliers).

In fact, if your suppliers do not practice supply chain management on their own, your supply chain will also be affected. That is why it is important to extend supply chain management to Tier II suppliers.

This is also why supply chain management is about products and information: what, for example, Tier II suppliers need is the information about the order that you have forwarded to your direct suppliers (first level ). Tier II suppliers can thus use them to plan their raw material purchases and manage their supply chain.

We now shift our attention to direct, first-level suppliers. In this part of the supply chain, many supply chain managers actually spend most of their time. Supplier management includes important aspects such as the cost of commodity negotiations, timely delivery management, quality management, new product development. Your company’s supply chain manager will then work with the supplier’s customer service teams, their engineers, the quality department, and possibly their supply chain manager as well.

Warehouse, logistics, and supply chain

Logistics and supply chain is not the same thing. Logistics concerns only the management of the movement of goods, while – as we have already seen – supply chain management also concerns many other activities.
Logistics is part of the supply chain. This means that the supply chain manager will be responsible for managing the shipping companies, express couriers, and other third-party logistics service providers. Logistics providers should be managed the same way your material and product suppliers are managed – costs and contracts can be negotiated.

The costs of logistics, shipping, and warehousing can, in fact, be among the largest expenses in the supply chain. Warehouse costs, in particular, are among the most delicate to manage. When you pay for logistics, you pay for an easily measurable benefit: a logistics service provider ships goods, and your company ships the service. For warehouse costs, it is different: the benefit of the service comes when the product is sold.

It is important to have inventory, but even more important is establishing how much your company really needs to minimize waste. This is one of the most critical aspects of lean manufacturing. Supply chain management experts will have to establish the correct balance between the planning of inventory and the space used for the warehouse in the context of supply chain management.

Business benefits of supply chain digitalization

Supply chain management has evolved from manual systems focused on logistics and warehousing to today’s digital systems that integrate all supply chain elements.

Today, companies are modernizing and digitizing their distribution network to operate competitively, often through solutions that integrate supply chain management into enterprise ERP software. Implementing effective supply chain management using software solutions will enable companies to optimize the three key flows in the supply chain: product flow, information flow, and financial flow.
For example, supply chain management through SCM software allows to improve the flow of products through accurate forecasts of demand and sales and to improve warehouse management; SCM software provides traceability of goods movements, strategic information, and analytics functions.

Supply chain Manager: how to assess the supply chain risk

One of the latest trends in supply chain management is integration with risk management techniques and tools. Applying risk assessment and management tools to the distribution chain allows you to minimize the risks inherent in the supply chain.

This, as we have seen, includes numerous actors and functions: suppliers of materials and products, logistics, warehouse, purchasing, etc. In every link of this chain and in every step, there is a level of risk that can be minimized through the risk management tools applied by the supply chain manager.
The growing integration of processes, actors, and objectives within the supply chain makes risk management increasingly strategic, and the digitization of the distribution chain becomes a necessity in this case.

Conclusions

Supply chain networks are becoming more and more complex, and the actors and processes involved are increasingly integrated with each other. Supply chain risks increase, but with effective supply chain management, companies will face and adapt to increasingly complex situations. The digitalization of the supply chain is the best weapon that companies have to face current and future challenges.

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