What is Supply Chain Management?

By Dr Sue Grinsted

1 of 5 Articles on Supply Chain Management for SMEs

The overall aim of supply chain management is to reduce the total cost of moving materials and products from suppliers to customers at every step in the chain, from the origins of the raw material to the point of final destruction or recycling of the product. “Total” cost does not just mean the cost of transport. It also means that we need to consider the costs of holding inventory, placing orders, maintaining relationships with suppliers and of providing customer service among others. We also want to improve the level of logistic-related customer service such as delivery on time and in full.

Logistics or Supply Chain?

You might argue that this is just logistics, so what is different about supply chain management? Although logistics has been in continuous development for thousands of years, supply chain management has been evolving mostly since the 1980s. In my opinion, one event stands out.

In 1978, A.T.Kearney (1) published the results of an investigation that showed that similar quality products were ending up on the retail shelf with very different prices. With great difficulty, the researchers extracted the costs of transport and storage along the supply chains of each product and found that these costs could be very different. One chain could be much more efficient than another, giving considerable commercial advantage to the products involved.

There were two important conclusions from this work. Firstly, these logistic-related costs were typically hidden in overheads. Logistics was considered to be a “necessary evil” rather than a source of competitive advantage so these costs were generally overlooked. The first and most important step for any company interested in supply chain management is to separate out carefully all logistic-related costs. Only then can you analyse the costs and know where to make improvements.

The second conclusion was that companies who produce similar products are no longer in direct competition with one another. The key issue is the efficiency of all the companies involved in each supply chain. To what extent are your suppliers and distributors adding value – or are they just adding cost? The competition now is supply chain against supply chain.

Article 2 > Why Supply Chain Management is important for SMEs?