A supply chain is the mix of companies that move goods from the initial manufacturer to the end consumer. Supply chain management refers to a collaborative approach among channel members to deliver value to consumers. Relative to traditionally independent activities, SCM offers information accuracy, cost-effectiveness, shared risk and improved profitability.
Without supply chain management, manufacturers, wholesalers and retailers each perform activities like forecasting and business projections independently. With SCM, resellers shared inventory and demand data through a process known as electronic data integration. EDI allows buyers and suppliers to sync computer inventory systems, which allows for more automated inventory processes. Because suppliers have access to reseller inventory and demand data, they can better plan production or storage levels to meet the near-term needs of resellers.
By collaborating, each member of a supply chain or distribution channel achieves cost-efficiencies. Producers only make the goods necessary to meet near-term demand, which allows them to avoid wasted production and to better plan resource allocation. Similarly, wholesalers can manage space, people and transportation systems effectively. Retailers benefit from just-in-time inventory control, which helps them guard against excess holding costs and wasted product that expires or perishes.
A natural result of the partnerships that develop through SCM is shared risk. Retailers rely on a small number of trusted suppliers, while suppliers focus on optimizing a smaller number of preferred buyers. While trusting partners brings on some new risk, it also causes each channel member to take a vested interest in the success of other members. Retailers, for instance, have a reason to support the ongoing business success and sustainability of suppliers that contribute to a quality, high-value offering to its consumers.
When optimized, supply chain management gets the right products in the hands of a company's top buyers at the appropriate time. This optimization allows for high levels of customer satisfaction, which contributes to strong revenue. Combined with the cost-effectiveness benefits of SCM, high revenue leads to strong profit as well. By optimizing the channel's cost structure and consistently delivering value to consumers, the members of the distribution channel also gain stability in their operations.
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.