Objectives and Functions of Supply Chain Management

Ashish M. Shaji

08 Jan, 2021

Supply Chain Management refers to handling of the entire production flow of goods and services to maximize quality, customer experience and profitability. It involves right from the raw components to delivering the final product to customers.  In this article we shall take a look at the objectives and functions of Supply Chain Management.

Objectives of Supply Chain Management

We have discussed some of the important objectives of SCM below.

• To maximize overall value generated

The higher the SCM profitability, the higher is the success for supply chain. The Supply chain profitability is the difference between the amount paid by the customer to purchase a product and the cost incurred by an organization to produce and supply the product to the customer.

• Cost quality improvement

This is another essential objective of SCM. It looks to achieve cost quality balance and optimization.

• To look for sources of Cost and Revenue

Customer is the only source of revenue. Therefore there should be appropriate management of the flow of information, product or funds. It is a key to the success of supply chain.

• Shortening the time to order

SCM aims to reduce the time required for ordering and fulfilling the same.

• Delivery optimization

The SCM aims to meet the demands of the customer for guaranteed delivery of high quality and low cost with less lead time.

• Demand fulfilment

Managing the demand and supply is a key yet challenging task for a company or management personnel. Its objective is to fulfil customer demand through efficient resources.

• Flexibility

SCM aims for flexibility. A Well managed supply chain provides flexible planning and better control mechanism.

• Better Distribution

SCM aims to ensure improved distribution. It can maximize the distribution side efficiency. Marketer or distributor can achieve optimized level distribution by using all resources that are available properly.

• Cost Reduction

It’s another objective of SCM to reduce the system wide cost of a company to meet service level requirement.

There are several other sub-objectives that can be derived from these long term objectives.

• Inventory reduction with the value chain;
• Reduction of warehousing costs;
• Acceleration of cash to cash cycle;
• Reduction in throughput times;
• Improvement in delivery reliability;
• Safeguarding the just-in-time supply.

Importance of Supply Chain Management

You all would know that SCM is an integral part of business and it’s essential to company’s success and customer satisfaction. In this segment we shall look at the importance or the significance of SCM.

• Boosts Customer Service

Customers expect the right product to be delivered and they expect it to be available at the right location. They expect right delivery time and also right after sale support. Customers expect products to be serviced quickly. Therefore considering all of this, the significance of SCM is critically high.

• Reduces operating costs

Retailers depend on supply chains to deliver expensive products in order to avoid holding costly inventories in stores any longer than it’s required. Manufacturers rely on supply chain to deliver reliably deliver materials to avoid material shortages.

• Improves financial position

Firms value supply chain managers as they help in controlling and reducing supply chain costs. It not only saves costs but also dramatically increases firm’s profits. Firms’ appreciate the added value SCM contributes to the speed of product flow to customers.

• Momentum

SCM streamlines everything, from product flow to any unexpected natural disasters. With effective SCM, organizations can diagnose any sort of problem easily.

• Integrated and co-operative logistics

SCM is the necessity of foundation for all societies. Effective supply chain meets the requirements of producers and consumers. It takes an integrated approach towards management.

Functions of Supply Chain Management

The functions of SCM include the following:

• Purchasing

The first function of SCM is purchasing. During manufacturing process, raw materials are needed. It is essential that these materials are procured and delivered on time. Then only the production can begin. In order to make this happen, coordination with suppliers and delivery companies is needed to avoid delays.

• Operations

Forecasting and demand planning is needed before materials are procured as the demand market shall dictate how many units are to be produced and how much material is needed for production.  This function in SCM is vital as organizations accurately forecast demand to avoid having too little or too much inventory that would lead to revenue losses. Therefore, forecasting and demand planning should be tied in with inventory management, production and shipping.

• Logistics

Logistics is a part of SCM that co-ordinates all planning aspects, purchasing, production, and transportation aspects to ensure that products reach the end consumer without hindrances. It is essential to have co-ordination with multiple departments so that products are quickly shipped to customers. 

• Resource Management

Resource management^[1] ensures that right resources are allocated to the right activities and that too in an optimized way. It ensures that optimized production schedule is created to maximize operations efficiency.

• Information workflow

Sharing information and distribution is that what keeps all other functions of supply chain management on track. If this information workflow and communication is poor, it can hurt the entire chain.

Future of Supply Chain Management

Technology development goes hand in hand in the future of SCM. Whether its allowing supply chain teams to add or improve their current processes, newly created technologies have become essential as we move forward. At least for the foreseeable future, there is a need for supply chain teams to have hands on approach to various processes.

Therefore it’s vital that supply chain teams understand the importance of incorporating technology and not being intimidated by it.

Conclusion

Read our article:Detailed Analysis of Strategic Cost Management