What is Supply Chain Management?

Nearly every type of business organization needs to find the most efficient and effective methods of producing the goods or services it sells to its customers. Technological advances, ongoing competition, and consumer expectations force companies to rethink where, when, and how they will produce products or services.

What is Supply Chain Management?  ^[1]

As you saw in the video, supply chain management is the process of managing the movement of raw materials and parts from the beginning of production through delivery to the consumer. The supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. Supply chain activities involve the transformation of natural resources, raw materials, and components into a finished product that is delivered to the end customer. [1]

Every part of the supply chain must be efficient, nimble, and seamless to allow retailers to deliver products to the customers most efficiently and profitably to achieve success and meet their overall goals.  Some of the biggest issues in supply chain management are information systems, finance, effective supplier/partner relationships, qualified talent, and proper planning.

In many organizations, operational supply chain decisions are made hundreds of times each day affecting how products are developed, manufactured, moved, and sold. The complexity of the supply chain varies with the size of the business and the intricacy and quantity of items manufactured, but most supply chains have elements in common, such as the following:

• Customers – Customers start the chain of events when they decide to purchase a product that has been offered for sale by a company. If the product has to be manufactured, the sales order will include a requirement that needs to be fulfilled by the production facility.
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• Planning – The planning department will create a production plan to produce the products to fulfill the customer’s orders. To manufacture the products, the company will then have to purchase the raw materials needed.
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• Purchasing – The purchasing department receives a list of raw materials and services required by the production department to complete the customers’ orders.
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• Inventory – The raw materials are received from the suppliers, checked for quality and accuracy, and moved into the warehouse.
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• Production – Based on a production plan, the raw materials are moved to the production area. These raw materials are used to manufacture the finished products ordered by the customer and then sent to the warehouse where they await shipping.
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• Transportation – When the finished product arrives in the warehouse, the shipping department determines the most efficient method to ship the products so they are delivered on or before the date specified by the customer.

Take a look at the following video about BYU ice cream production. Can you identify each of the elements, above, in BYU’s supply chain? ^[2]

How do Supply Chain Management and Operations Management Differ?

Supply Chain Management (SCM) and Operations Management (OM) are two closely linked areas that both deal with the production side of a business, but they focus on different aspects of managing and controlling the flow of goods and services within a company. The difference primarily lies in the scope of what each discipline covers.

SCM is a broad field that encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management. It also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. SCM essentially integrates supply and demand management within and across companies. It is a more holistic view of how to deliver products and services from supplier to customer and involves a broader perspective on managing the interconnected businesses involved in a product’s lifecycle.

Operations management, on the other hand, refers to the design, operation, and improvement of the systems and processes that create and deliver a firm’s primary products and services. It’s more concerned with the internal processes of a business. OM focuses on ensuring that business operations are efficient, using as few resources as possible, and effective, meeting customer requirements. It involves a detailed analysis of the production process, quality control, inventory management, facility management, and equipment maintenance.

To put it simply, while operations management is focused more on the design and execution of operations within the company, supply chain management has a wider scope, managing materials, information, and finances as they move from supplier to manufacturer to wholesaler to retailer to consumer. Both disciplines, however, are vital to ensuring that a business runs efficiently and effectively, and there is significant overlap between them. Operations management is, in fact, a component of the larger supply chain management process, and both need to work in harmony for businesses to function optimally. [4]