Supply Chain Management: Definition and Functions

Supply Chain Management: Definition and Functions

Supply Chain Management – There are people who may be familiar with the term supply chain, but others may not be familiar with it.  

Supply chain management (SCM) is a concept used by big corporations to manage production and distribution processes.

Not only big companies but also small companies need to implement the SCM concept to support companies’ efforts to be a successful company. 

A company’s supply chain is the process of converting raw materials into semi-finished or finished products, then shipping them to customers.

For businesses to grow and succeed, they need to take good care of their supply chain. Then, what is SCM? Let’s find out about it in this article.


Definitions of Supply Chain Management

Simply put, the concept of SCM is a strategy covering production activities, delivery, to product distribution from companies to customers.

The concept is based on how supply chain managers can improve productivity, quality, and performance.

Then, what is the difference between supply chain and supply chain management? 

The supply chain and SCM are closely related. A supply chain is a relationship or network between a company and its suppliers, while a supply chain management process manages a company’s relationships with its suppliers and customers.

With SCM, the supply chain is planned in such a way that it can be carried out efficiently and effectively.

Purpose of Supply Management

SCM is closely linked to production activities and distribution. Therefore, SCM aims to improve coordination activities between supply and demand. 

In the next strategy, SCM will address issues related to procurement, customer relations, supplier management, and outsourcing. It is certain that business will be competitive if those issues can be resolved.

Functions of Supply Chain Management

SCM has several functions to reduce cost and time-saving in delivering products to customers. Aside from that, SCM also has three other functions, there are;

1. Physical functions

One of SCM’s physical functions is the production process. It is a step where raw materials change into finished products and production costs. 

2. Mediation function

Not only does raw material supply require relationships with suppliers, but also product delivery to customers requires distributors. Those are examples of SCM function as a mediation. 

3. Cost function

With good supply chain management, companies can easily monitor and even revisit product design, market research, and operational costs.

Process in Supply Chain Management

Various components of SCM include planning, sourcing, inventory management, production, transportation, delivery, and pick-up products, here is the explanation 

1. Planning stage

As part of this step, data and information about the supply chain is collected; this step also helps to improve the efficiency of SCM flow.

By taking this step, companies can also minimize the risk associated with production and delivery. 

2. Source and inventory

One of SCM’s strategies is to become a bridge between companies and suppliers. By using this strategy companies will generate a good product for customers.

As a result, companies should select suppliers carefully, identifying which sources are credible and which ones aren’t.

3. Transportation and delivery

The right transportation used to move or deliver raw materials and finished products also need to be taken into account and determined by companies. 

Therefore, the supply chain manager needs to be able to well-manage the distribution network so that the process will run smoothly. 

4. Return

Companies should accept complaints from customers when they are dissatisfied with the product or complain. 

Therefore, we need to create strategies to serve customers who have issues with our products.

Examples of SCM

In order to have an in-depth understanding of the implementation of the SCM system, below is the two examples of SCM;

1. SCM in service industries

The company, for example, has a health-related focus, such as a clinic, which prescribes and administers treatments, drugs, inpatient facilities, and food ingredients in its kitchen.

In terms of strategy planning, we can find out how companies make decisions about providing those services. For instance, whether the services are provided directly through clinics or online. 

2. SCM in products industries

The benefits of SCM can be seen clearly in companies that produce products, as we will produce a modern drink with the help of SCM.

Supply chain teams in this industry need to plan on how the drink taste, how it will be packaged, and where it will be distributed.

After that, companies can contact the supplier to provide raw materials, but, they need to make sure that the supplier is credible. 

As for production, it will focus on how companies change the raw materials into popular drinks that are recommended by their customers. 

Then, companies also need to determine their distribution, the way to deliver the products as well as the mechanism and information for returning the products.

A well-planned SCM strategy ensures a company’s longevity, and even allows it to grow and further meet SCM’s goals. 

While the information above may seem trivial, when we dig deeper into this SCM, we discover that it offers many benefits to businesses and can be an important factor in business success. It has been proven that many companies can survive and thrive by implementing this SCM.

Optimize Your Supply Chain Strategy with LOKASI Intelligence

Today, the SCM team can use technology to assist them in tailoring the right and efficient strategy. One of the technology is LOKASI Intelligence.

LOKASI is a GIS software that integrates big data spatial, spatial analysis, and location intelligence.

This platform has several features that can help SCM in creating its strategy, for instance, site profiling.

Users can use this feature to determine whether a targeted location can be accessed by trucks or motorcycles.

In addition, there is also a road distance measurement that can be used to measure the distance between each business POI and others POI data.

The result will show the network route from the nearest distance to the farthest distance, then companies can use the analysis to determine the most efficient road distance to improve their business strategy. 

Learn more about LOKASI intelligence by contacting or WhatsApp at 087779077750.

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