What Is Supply Chain Management? What You Need to Know

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A supply chain management professional smiling on the phone while holding a packing box in one hand.

Supply chain management (SCM) delivers streamlined efficiency to companies and organizations in today’s increasingly complex business world. This efficiency can yield a host of impactful dividends, such as faster business practices, reduced waste, and the mitigation of potential challenges. While supply chains can be intricate, their complexities can be confidently navigated through well-defined management strategies and the smart application of technological innovation.

Supply chains are ubiquitous in the business world, and they impact numerous facets of business, including elements that are not physically tangible, like data. Regardless of the form they take, these chains must be consistently cohesive. All it takes is one weak point to cause disruption, including a mishap that may rise to a global level. The dozens of cargo ships stuck off the Southern California coast in 2021, for instance, offer a stark example of supply chain disruption. The ramifications of this traffic jam could be felt in numerous nuanced ways, such as product delays and increased prices.

As businesses grow and supply chain strategies become more sophisticated through the use of big data, finding the answer to the question of what supply chain management is has become more critical than ever. Corporate America will need managers who are well versed in technology and how it applies to both online and brick-and-mortar establishments. Those equipped with a Master of Business Administration (MBA) degree may find themselves in high demand now and in the future.

Benefits of Supply Chain Management

The supply chain marks the journey of a company’s product or service from start to finish. It begins with processes involving gathering raw materials, connecting with manufacturers and vendors, and mining key data sources. It ends when a product is available at stores or is accessible to end-users, or when a service is provided to clientele.

Supply chain movement is primarily tracked online in today’s business world. Yet many parts of the chain are far from digital. These moving parts can include venues such as farms or mines that produce materials, or methods of transportation like boats, trains, or delivery trucks. Elements such as assembly lines and warehouses are critical components to an effective supply chain as well.

Savvy management of the supply chain can be advantageous for a company. Ultimately, when managed effectively, the benefits of supply chain management can not only help organizations achieve their growth and stability goals, but can also allow them to build a strong reputation for reliability within their industry.

1. Higher Efficiency

Effectively tracking a supply chain’s links and their corresponding responsibilities is crucial for a business seeking to achieve optimal business efficiency.

This optimization can take on several forms, from identifying and minimizing wasteful elements in the supply chain, to the proper and accurate allocation of goods to a given market. This efficiency can pay dividends for a company’s bottom line as well as its relationship with customers.

2. Quality Assurance

A company’s products can feature components built by other manufacturers, which may not adhere to the same set of regulatory requirements imposed by the company. As such, it’s imperative for a company to implement a quality control system that assures quality through each step of a product’s supply chain journey. Without such a system in place, quality may suffer.

Poor product quality within the supply chain can yield negative ramifications which can ultimately lead to increases in business cost. When techniques like quality management systems are incorporated in an effective SCM strategy, these ramifications can be kept at a minimum.

3. Reduced Costs

When done well, SCM can substantially reduce a company’s overhead cost, particularly when it comes to a company’s inventory. According to the Council of Supply Chain Management Professionals (CSCMP), the economic effects of SCM include decreasing costs in purchasing and production, which naturally decrease the total cost of the supply chain process as a whole.

CSCMP also points out that reducing costs in the supply chain ties into the overarching goal of a company meeting its customer service goals at the lowest cost possible. This can allow a company to be more competitive in the market. Additionally, these reduced costs can also boost a company’s financial performance in many ways, leading to increased profit leverage and cash flow.

4. Increased Cooperation Levels

The level of communication necessary for optimal supply chain management used to be an arduous task in a lot of cases. Even the smallest hiccup, like a delayed message, could turn into a large, expensive issue. Modern technology has rectified this quite a bit. However, that doesn’t mean the need for effective communication has lessened.

Since international communication is an integral part of what supply chain management is, it can help improve relationships between many participating bodies. The Academy for International Modern Studies (AIMS) points out in its article titled “Key 7 Advantages and Benefits of Supply Chain Management” that exemplary supply chain communication is the cornerstone of successful business relationships.

If communication between a business and manufacturer, vendor, or other components of a supply chain remain poor, confusion and misinterpretation could ensue, which could bring its own ramifications.  The potential damage caused by poor communication could be mitigated using modern technology, as it allows all parties to engage in instantaneous communication with each other, regardless of how far apart they may be.

Why Effective Supply Chains Matter

Ignoring SCM in the decision-making process can have dire consequences for a company. For example, supply chain issues played a key role in propelling the foodborne illness outbreaks at several Chipotle locations between 2015 and 2018. While these incidents eventually led to reforms in its SCM, Chipotle hurt its reputation as a quality, health-conscious fast food restaurant. It also hurt it economically — in 2020, Chipotle agreed to pay $25 million in fines for its role in some of the foodborne illness incidents.

Implementing and adhering to effective SCM practices can yield a host of benefits for businesses. These can include better efficiency, reduced delays, better-connected networks and ultimately, better profitability. By tracking processes and measuring accountability at key steps along the supply chain route, businesses can bring added quality and efficiency to their operations, while also identifying and responding to potential issues more rapidly. These elements can ultimately deliver positive dividends for a company.

Become a Business Leader

Effective supply chain management is integral to the economic success of businesses worldwide. SCM facilitates the proper transportation of products, assures their quality, and encourages communication between any associated parties.

If you want to be a leader in the supply chain process, earning an advanced degree is an excellent way to gain the necessary skills and knowledge. Ohio University’s Online Master of Business Administration program and its Operations and Supply Chain Management concentration can help you build the expertise for success in SCM.

Explore Ohio University’s MBA curriculum, and begin your journey toward business leadership today.

Recommended Readings

Careers in Operations Management: What You Need to Know

How the Bullwhip Effect Impacts the Supply Chain

What You Need to Know About Supply Chain Management

Sources:

AIMS, “Advantages and Benefits of Supply Chain Management”

Business Insider, “A Record 111 Container Ships are Floating Off California’s Busiest Ports, Despite Biden’s 24/7 Schedule and Looming Fines”

CNBC, “Supply Chain Chaos is Already Hitting Global Growth. And It’s About to Get Worse”

Council of Supply Chain Management Professionals, “The Importance of Supply Chain Management”

Food Safety News, “Chipotle Agrees to Pay $25 Million Federal Fine for Role in Some Outbreaks”

Harvard Business Review, “Building a Transparent Supply Chain”

Houston Chronicle, “The Advantages of Supply Chain Management Systems”

IBM, “What Is Supply Chain Management?”

Indeed Career Guide, “What is Supply Chain Management and Why is it Important?”

Strategic Solutions, “Chipotle Revamping Supply Chain Operations to Combat Food Safety Issues”

U.S. Department of Justice, “Chipotle Mexican Grill Agrees to Pay $25 Million Fine and Enter a Deferred Prosecution Agreement to Resolve Charges Related to Foodborne Illness Outbreaks”

Wall Street Journal, “Why Container Ships Can’t Sail Around the California Ports Bottleneck”