What is Supply Chain Management?

Supply chain management refers to the optimization of the flow from the supply of raw materials of a product to its production, from the logistics process to its delivery to the final customer. SCM processes include the planning and execution of tasks necessary to manage demand planning, sourcing, production, inventory management, storage, transportation, logistics, and financial capital. In supply chain management, companies need both to develop business strategies and receive dedicated software support and collaboration processes.

Supply chain management has a comprehensive flow in itself. That's why every partner, from suppliers to manufacturers, needs to constantly communicate and work together to create efficiency, manage risk, and adapt quickly to change. In addition, the sustainability of supply chain management also includes sustainable product purchasing service, as well as environmental, social and legal issues. The concept of corporate social responsibility, which evaluates the impact of a company on the environment and social well-being, is one of the areas in which companies invest the most today. So, what is supply chain management and what are its benefits? Let's take a closer look at the curious details of supply chain management.

What is Supply Chain Management?

Supply chain management refers to the detailed consideration of the flow of products and services. SCM involves all the processes that transform raw materials into the final product. In order to gain a competitive advantage in the market and increase customer value, companies actively regulate their supply activities constitute SCM processes. The most critical elements of SCM are developing a strategy, raw material supply, production, distribution and product returns. The responsibilities of supply chain managers include controlling costs and avoiding supply shortages.

5 Parts of the Supply Chain Management Process

Supply chain management firms are committed to minimizing stock shortages and keeping costs low. But it's not just about logistics management and buying inventory. It is also important to supervise and manage logistics operations to maximize efficiency and minimize the organization's supply chain cost through proper supply chain management. The supply cycle itself is divided into 5 parts:

1. Planning

The first step to getting the best results from SCM starts with planning to match products with customer and production demands. Firms must anticipate what their future needs will be and act accordingly. This concerns the raw materials, equipment capacity and labor that are needed at each stage of production. Many enterprise companies use ERP system modules to collect and plan the necessary information for SCM.

2. Sourcing

Efficient supply management processes mean strong relationships with suppliers. The sourcing phase means collaborating with vendors to supply the raw materials needed throughout the manufacturing process. Companies plan with suppliers to supply products in advance. However, different resource requirements of industries may occur. The raw materials must meet the manufacturing specifications required for product production, and the prices paid for the products must be in line with market expectations. At this stage, the supplier must also have the flexibility to deliver emergency supplies due to unforeseen events. All these points constitute those that must be taken into account at the stage of finding resources for companies.

3. Production

At the heart of the supply chain management process, the company transforms raw materials using machinery, labor, or other necessary resources for production. Although the production process is not the final stage of supply chain management, it constitutes the main objective of the production process. The production process can also be divided into sub-branches such as assembly, testing, inspection or packaging. In the production process, companies must be wary of waste or other controllable factors that may cause deviations from the original plans. For example, if a company uses more raw materials than planned and supplied due to lack of employee training, it must identify and correct this problem. Thus, cost savings can be realized.

4. Delivered

After the production and sales stages, companies deliver the products to customers. The distribution process is one of the processes that contribute to the brand image. Because up to this point, the customer has not yet interacted with the product. To build strong SCM processes, companies use logistics capabilities and robust distribution channels to deliver products on time, safely and affordably. It is also extremely important to have backup delivery methods in the event that a transport method is temporarily unavailable in some cases.

5. Return

The supply chain management process ends with the fulfillment of product and customer returns. Customers may need to return a product for a variety of reasons. It is quite important to investigate the reasons for the return. This process is also called reverse logistics. During the return phase, the company is responsible for receiving the returned items and making refunds correctly. The failure of companies to make progress without addressing the underlying causes of customer returns is one of the factors that will result in failure of the supply chain management process. Ignoring this stage can also mean that there will be frequent returns in the future.

Why Supply Chain Management is Important

Using effective supply chain management systems for companies minimizes cost, unnecessary waste and time spent in the production cycle. Today, the industry standard for SCM has become an instant supply chain where retailers automatically notify manufacturers of their orders. From this point of view, store shelves have now reached a refillable speed as soon as the product is sold. It may be possible to improve this process further and see where further improvements can be made by analyzing data from partners involved in the supply chain and using business intelligence software.

By analyzing supply chain data, companies can better see potential problems that exist. For example, providing additional suppliers in cases of excess product orders and maintaining service quality to a certain standard is closely related to the interpretation of data in advance and the creation of action plans accordingly.

Regularly optimizing product prices in supply chain management becomes possible by analyzing the data in advance. The shelf life of seasonal products is limited. At the end of the season, these products are usually sold at huge discounts. Companies with limited shelf life continue to successfully meet demand by constantly adjusting prices. Using a variety of analytical software and resorting to business intelligence forecasting techniques are effective in improving profit margins.

In addition, analytical software tools developed for the procurement process help to dynamically allocate resources and carry out business planning based on sales forecasting, actual orders and committed raw material delivery. Thus, manufacturers can more easily confirm the product delivery date when they receive the order, which significantly reduces wrong/incomplete orders.

What Are the Benefits of Supply Chain Management?

Good supply chain management creates many benefits for companies that translate into higher profit rates, a better brand image, and greater competitive advantage. The main benefits of supply chain management for companies are as follows:

• Correctly estimating and meeting customer demand
• Gain risk management and predictive ability with better supply chain visibility
• Minimizing process inefficiency and less product waste
• Improvements in process quality
• Increased sustainability, both socially and environmentally
• Lower load carrying capacity
• Rise in cash flow
• Efficient logistics

If you also intend to improve the supply management processes in your company, you can examine the end-to-end solutions offered by Komtaş in the data and analytics ecosystem, and you can contribute to your digital transformation process by determining the programs that best suit your company needs.