What Are the Four Elements of Supply Chain Management?

by Ron Price; Updated September 26, 2017

Introduction

According to the Council of Supply Chain Management Professionals, Supply Chain Management (SCM) encompasses “the planning and management of all activities involved in sourcing and procurement, conversion and logistics.” In other words, SCM includes the purchasing, operations, distribution and integration processes that ensure the efficient production and delivery of goods and services to end-customers.

Purchasing

The purchasing function, which typically only sources and buys the materials required for the production or manufacturing of products, manages the activities and operations related to the supply of inputs (goods, materials and services) under SCM.

A supply chain has three primary participants: the producer, the producer’s suppliers, and the customers. In SCM, the purchasing function identifies, qualifies and manages a company’s suppliers.

Operations

The operations function in a supply chain includes demand planning, forecasting, production, and, in some types of businesses, inventory management.

Demand Planning

Demand planning improves the effectiveness and efficiencies of production and inventory management and provides a forecast of the materials, components and services needed in future time frames for the purchasing function. Demand planning is typically an iterative process that combines sales and production forecasts that provide informed guidance on future sales, revenues, inventory levels and perhaps even profitability of the company.

Forecasting

Within the operations functions of SCM, forecasting is an integral part of demand planning. Forecasting product demand is the driver for nearly all activities in most businesses, especially operations. A sound and realistic forecast can provide the foundation for accurate demand planning.

Production

Of course, demand planning produces a plan for what the manufacturing or operations activities of a company is to produce or perform. This plan drives the labor, materials, processing, and shipping requirements of the company. Often, the production planning based on demand planning is developed through resource planning software, such as materials requirements planning (MRP), capacity requirements planning (CRP), or SCM.

Distribution

This portion of SCM involves the planning, logistics and delivery of products from a warehouse or production facility to wholesalers, retailers or end-customers directly. The distribution function within the SCM model is often expanded to include packaging, inventory and warehousing, as well as in-bound shipments of goods and supplies in some cases.

Integration

Supply Chain Integration (SCI) is the application of technology to facilitate the close coordination of the SCM functions, which allows all parties in the supply chain to see the details of their actions and interactions. SCI also provides for the analysis historical transactions as a part of demand, inventory and logistics planning. The key component of SCI is information and how it is collected, stored and used.

About the Author

Ron Price, MBA, has extensive senior level experience in business, information technology, and education. Under his pen name Ron Gilster, Price has written over 40 books for several leading publishers on a topics ranging from business and finance to IT certifications to real estate.