What Is Supply Chain Management (SCM)?

Supply chain management (SCM) is the optimization of a product's creation and flow from raw material sourcing to production, logistics and delivery to the final customer. 

SCM encompasses the integrated planning and execution of processes required to manage the movement of materials, information and financial capital in activities that broadly include demand planning, sourcing, production, inventory management and storage, transportation -- or logistics -- and returning excess or defective products. Supply chain management relies on both business strategy, specialized software and collaboration to work.

Because it is such a large and complex undertaking, each partner – from suppliers to manufacturers and beyond – must coordinate and collaborate in order to build efficiencies, manage danger, and adjust rapidly to change.

Furthermore, supply chain sustainability (which includes financial, social, and legal issues as well as sustainable procurement) and the closely related principle of corporate social responsibility (which assesses a company's impact on the environment and social well-being) are major concerns for today's businesses.

Benefits of supply chain management

Supply chain management creates a number of benefits that translate to higher profits, better brand image and greater competitive advantage. These include the following:

Five stages of supply chain management

The five stages or fields of supply chain management are as follows:

Plan. Using supply chain analytics and materials management features in ERP systems, organizations create strategic plans to meet customer demand for product and avoid a bullwhip effect.

Source. Organizations identify and select vendors that can supply materials in a streamlined and efficient way according to agreements. Supply chain collaboration starts at this stage and is important throughout the supply chain management process.

Make. In this stage, products are manufactured. It includes scheduling the production, testing, ensuring compliance requirements are followed, packing, storage and release. Multiple machines are likely to be involved, especially for larger companies, and these increasingly use technologies such as IoT and AI to work more efficiently.

Deliver. The delivery stage pertains to logistics and focuses on getting finished goods to consumers, in whatever manner of transportation is needed. As the Amazon effect has grown, especially as a result COVID-19, more focus is on doorstep delivery. Greater emphasis is now also on supply chain leaders working more closely with customer service. Inventory management and warehouse management systems are especially crucial at this stage.

Return. All product returns, including faulty products and products that will no longer be funded, are included in the return stage. This stage often incorporates elements from previous stages, such as inventory and transportation management.