Supply chain management (SCM) is a prominent 21st century business process utilized by many larger organizations. SCM involves the collaboration of members of the supply chain to deliver the best value to the end customer. This means optimizing the quality of your solution through ongoing improvements. It also means using transportation and logistics and efficient operations to reduce costs throughout the process.
Supply chain management has emerged quickly throughout the early part of the 21st century due to improvements in technology and computer software. SCM is managed through software solutions that allow business partners to share integrated data across the distribution channels. According to Thomas Wailgum in his CIO article "Supply Chain Management Definition and Solutions," SCM is about "improving the way your company finds the raw components it needs to make a product or service and deliver it to customers."
In its "Supply Chain Management" definition, TechTarget outlines the three common flows that make up SCM. They are product flow, information flow and finance flow. The product flow is the simplest component of SCM to comprehend. It is the movement of goods from original manufacturer through final delivery to the end customer. Suppliers and resellers should work closely to use logistics, warehousing and transportation to optimize the flow of goods for efficiency and cost savings. Customer returns are another important product flow consideration. More flexible return policies lead to more sales.
Information flow is critical to managing the flow of goods and the communication among supply chain partners. TechTarget notes that planning applications and execution applications are the two common types of SCM software. These software applications are used by SCM members to transmit and process orders, to manage materials and to monitor the flow of products through the distribution channel. The integration of supply chain partner computers is known as electronic data integration (EDI). This linking up increases just-in-time response to inventory replenishment needs.
The financial flow involves the payment process. It includes credit terms from supplier to reseller, payment schedules if invoices are paid in installments and other types of specific arrangements. In the most trusting relationships, vendors maintain accounts with preferred resellers that allow for more efficient order processing and automated payment setups. Automating the financial flow, or simplifying the process, improves efficiency of the entire movement of goods through the supply chain.
Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.