What is Supply Chain Management?

“Supply-chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management. It also includes coordination and collaboration with channel partners, which may be suppliers, intermediaries, third-party service providers, or customers.”. This is how the Council of Supply Chain Management Professionals (CSCMP) defines supply chain. Sounds so ‘textbooky, right? So, let us forget this definition for a while and try to decipher Supply Chain Management through a simple example.

Think about a wallet you use every day. How does a company, be it Gucci, Hentley or any other wallet manufacturers make fashionable wallets from a pile of raw leather? Obviously, there are technologies and manufacturing processes involved in this conversion but let’s think beyond this manufacturing process. To make anything, we’ll need some raw material (after all we mere humans can’t create matter, but thankfully have the ability to change any material to some other more appealing or useful form, First law of Thermodynamics people!). So, to fabricate a wallet, fine leather suited for your purpose will do the trick. You’d also need this leather to be delivered at your factory where you’ve got an amazing craftsman whom you hired to transform this leather into a fashionable wallet. Once your craftsman has performed his magic, you’d have a wallet ready for your customer. Now the next problem is reaching your customer who is a thousand kilometers away from you. So, you decide to send the parcel through any of the trusted courier partners, it can be DHL, FedEx, UPS or any other logistic partner which you find better for their service. After a few days, you’ll get a notification on your phone of the payment done by your customer and a note on how satisfied he/she is with the wallet you sold. Now your customer is happy and so are you! If we picturize the above story into a flow chart it’d look something like in the above picture.

Through the above flow diagram, we’ve elucidated the supply chain of wallet. All these processes, from the purchase of raw material to delivery of wallet to the end user, constitute the supply chain of the wallet. Do not get carried away by the simplicity of this example because, in a real business scenario, each supply chain is far too complex and diverse due to the multiple factors and variables at play. However, we can understand the crux of the supply chain through this simple example. Supply chain can thus be defined as the network of entities that are connected to each other through various transactions over the course of delivering a product or service to the customer. These entities include people, processes, organizations, resources, and technologies which operate and interact (both internal and external to the organization) to satisfy the demand of the customers. And the planning and management of these entities to optimize the cost and lead time in delivering the intended product or service to the customer is called Supply Chain Management.

Hope this has given you an idea on what supply chain management is and we’ll discuss a little about the history of Supply Chain management in next article. Cheers and goodbye for now!