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What is Supply Chain Management? Why is it Important?

Supply chain management is a very important thing in the business world. Supply chain management (SCM) is directly connected to the company's competitiveness so that it has a big influence on the company's success. For companies in the manufacturing sector, implementing SCM is an absolute.

Of course, a businessman establishes a company with the goal of obtaining maximum profit. To achieve this goal, business people must be good at managing product by doing supply chain management.

Definition of Supply Chain Management

The supply chain is a physical network so that all companies will play a role in supplying raw materials, producing goods to sending them to end users or consumers. For supply chain management itself is a tool, method or management.

SCM is the management and supervision of the cycle chain starting from materials or raw materials, payments, information from suppliers to producers, wholesalers, checkers, to consumers.

The definition of Supply Chain Management is an activity that includes coordination, scheduling and control of procurement, production, provision, or delivery of products or services to consumers.

Supply chain management and control includes materials or raw materials, payments, information from suppliers to producers and from wholesalers to consumers. The scope of supply chain management also extends to the day-to-day administration, operations and logistics of the company.

Purpose of SCM

There are several purposes for implementing SCM. The most basic goal is to be able to align demand with existing supply. With SCM, companies can deal with some of the obstacles or problems that are often experienced when running the supply chain such as in procurement management and supplier management.

Another purpose, SCM can help manage relationships with customers, identify problems and then respond to these problems and provide input in risk management. Supply chain management also helps a company to be able to provide products that are not only cheap, but high quality, varied, and also provided on time.

Supply Chain Management Components

In order for the supply chain process to going well, there are three components in supply chain management that must be observed. The three components include:

  • Upstream Supply Chain Management is the process by which a company gets supplies from outside the company in the form of raw materials for production.
  • Internal Supply Chain Management is the next stage where raw materials that have been received are then processed and produced into finished materials.
  • Downstream Supply Chain Management is the process of distributing finished products to consumers through distributors.

Process Stages of Supply Chain Management

In supply chain management there is a long process involving many parties. This process ensures a product or service can reach the consumer. The following are the main stages in supply chain management:

1. Customer

The first stage that starts supply chain management comes from the consumer. At this stage, the customer submits an order for a product offered by the manufacturer.

When placing an order, the customer will provide information related to ordering the product. This information includes the number of products ordered and the delivery date of the products ordered.

2. Planning

After the order is received by the manufacturer, the planning team or department will make plans regarding the production of the requested product. Apart from production planning, the planning team is also responsible for the preparation of the required raw materials.

3. Purchasing

The third stage in supply chain management is the purchase of raw materials. This is done by the purchasing department after receiving the production plan that the planning department carries out.

At this stage, the purchasing department will contact the supplier to make purchases of raw materials and supporting materials. Apart from making purchases, this department also determines the date of receipt of materials and the amount of raw materials purchased.

4. Inventory

If an order for raw materials has arrived, then the raw material will be sent to the factory for quality inspection. If the quality of raw materials and quantities meet the standards, the raw materials will be stored in a warehouse. This stage is called inventory.

5. Production

When the raw materials have been checked and stored, they will be processed together with the supporting materials into finished materials ordered by the customer.

After completion of production, the raw materials that have become finished materials will be stored in the warehouse again. Later the product will be sent to the customer.

6. Shipping

This stage is the last part of supply chain management. At this stage, the products stored in the warehouse will be sent to the customer according to the requested delivery date. The courier will ensure that the product reaches the customer perfectly.

Supply Chain Management Strategy

In SCM development, there are two main strategies that are often used. The first strategy is to build relationships with suppliers. It is very important to build a good partnership with this supplier to realize a successful supply chain. A good company will limit the number of suppliers where only those with superiority can work with them.

The second strategy is to increase customer response to stay competitive. Furthermore, we can focus on the supply chain to improve customer service. To be able to improve customer service, one of them is by increasing the frequency of faster product delivery where customers will be satisfied with the timeliness.

By understanding supply chain management well and implementing it, a company is expected to get maximum profit.