Supply Chain management
14 min read Last modified on:March 10th, 2024

 What is supply chain management?

In business, supply chain is a system that includes organizations, people, activities, information and resources that lead to providing a product or service to the consumer. In very simple terms, it can be said that when a company’s products are in the sales phase, until they reach the end consumer, they must go through various stages, which are called the supply chain. In other words, it can be said that the supply chain consists of organizations and resources in the company that are involved in the stages of supplying products to customers.

In large organizations, the supply chain of products may have the ability to return and re-enter the supply chain at any point that can be recycled. Supply Chain Management, creating coordination in production, inventory, location and transportation among participants in a supply chain with the aim of achieving the best combination of responsiveness and efficiency for success in the market.

A simple diagram of the supply chain

Fig (1): A simple diagram of the supply chain

In fact, it can be said that supply chain management is obtaining timely and accurate information from the supply chain, which allows manufacturers, traders and distributors to offer only products that can be sold in that period of time.

Supply chain management consists of three general processes and five main components as follows:

3 main processes of supply chain management

    1. Information management
    2. Logistics management
    3. Relationship management

5 main components of supply chain management

    1. Planning
    2. Resources (supply of raw materials) Construction
    3. Distribution and dispatch
    4. Support
    5. Final evaluation

Following is a brief description of the main components of supply chain management (SCM).

1- Planning

One of the duties of managers, which will be mentioned in future sections, is planning. Business managers must design the supply chain and then determine which criteria they will use to make it useful and effective.

2- Resources (suppliers)

Businesses must choose the right suppliers to provide their primary goods and the services needed to produce their products. In addition to choosing these sources after signing the contract, other matters including the following must be done:

  • Commodity order
  • Receive goods according to the quality specified in the contract
  • Inventory management
  • Approval of supplier payment authorization

3- Manufacturing

The third stage is the manufacture and production of the products demanded by the customer. At this stage, the products produced by the factory must go through the following steps:

  • Designing
  • Production of products
  • Product testing (in accordance with the quality specified in the demand)
  • Packing
  • Delivery

Organizations and companies evaluate the level of quality and the level of production and productivity of workers to ensure the production of products according to the standards accepted by the market.

components of supply chain management

4- Distribution and shipment of goods

This section includes the steps of receiving the order from the customer, determining the delivery time, sending the goods, setting up the invoice and receiving the fee. The sending and distribution stage is also known as logistic, which will be discussed further. The manufacturer may entrust parts of the distribution and delivery process to specialized organizations in this field, or the company itself may do the related work directly.

5- Support

In some cases, the product provided may have a problem and does not conform to the consumer’s original order, in which case it is necessary to return it to the warehouse for inspection. In addition to responding to customers, companies in this field must deal with their complaints. Therefore, the supplier needs a responsive and flexible support system to accept defective and unwanted products.

6- Final assessment

Greater supply chain efficiency requires monitoring information and ensuring compliance with all regulations. Processes in this phase include finance, human resources, information technology, portfolio management, product design, sales, and quality assurance.

Benefits of supply chain management

Effective application of supply chain management creates three main advantages for the organization. Below is a brief description of these benefits:

Save costs

By integrating suppliers and using technology, businesses and organizations can reduce their operating costs to respond more dynamically to customer needs.

For example, demand-based management prevents organizations from overproduction, which not only reduces physical labor and raw material costs, but also reduces inventory management costs and transportation costs.

Increase income

While organizations use the latest technologies to get closer to user demand and respond faster, it is likely that products remain available to customers for purchase. When production is streamlined enough, more labor and raw materials can be devoted to developing new items to offer to customers and expanding the product mix.

Asset exploitation

By implementing effective supply chain management, organizations can use their capital assets, such as production transportation equipment, more effectively. Instead of needlessly wearing out production tools and equipment, organizations can have sufficient production based on demand.

Supply chain management allows organizations to ensure that products are easily available to customers, delivered to customers easily, product quality problems are reduced, and ultimately improves value between the customer and the organization. be made

Supply chain History

In order to increase the competitive power of large manufacturing companies, in the 60s and 70s, they tried to standardize and improve internal processes to supply quality products to the market at low costs and with higher quality. In this period of time, the thinking that was formed among the organizations focused on the following:

  • Reinforcement of engineering principles
  • Strong design
  • Coherent and coordinated production operations

Employing and focusing on the above matters seems to be mandatory and prerequisite for achieving an effective role in the market and acquiring customers.
Over time, in the 80s, organizations and managers interested in solving other customer demands focused.

After that, in the 1990s, the managers knew that to continue being in the market, only improving the internal processes and making those processes more flexible is not enough. It was during this period when the void and lack of other supply processes showed up and it was with such an attitude that Fisher came into action as the inventor and initiator of the topic of supply chain management.

In order to choose a strategy, he also says that companies need to differentiate between new products and basic products in order to improve their performance, and new and innovative products that have been produced need a reactive supply chain strategy. Since then, the supply chain has entered the field of business, and in recent years, with the development of information technology, the supply chain is progressing every day.

Objectives of supply chain management

As it was mentioned in the previous part, the creation of the supply chain was formed with the following goals:

  • Reducing costs in providing the same services
  • Increasing the responsibility of companies that produce and provide products
  • Increasing the response speed of organizations to customers

Factors affecting the supply chain

Supply chain management in cumulative manufacturing focuses on gathering targeted customer demands. The purpose of gathering targeted customer demand in real time is to store inventory efficiently. This collection and storage is often done through an integrated information system.

In this way, the organization collects the demands affecting the adjustment and development of the operational plans of the customers in real time, then according to the collected information, it stores the items needed by the customer.

The supply chain management system includes all the activities of distribution planning, manufacturing, detailed planning, inventory control, coordination of supply with multiple distribution channels, correct information flow about demand, investment, inventory capacity, detailed planning of transportation and… It does it seamlessly.

Continuous storage

The idea of this supply chain management model is based on replenishing consumed inventory through continuous work. Therefore, in this strategy, there should be a strong connection between the order execution process and the production process. The continuous storage model is a useful model for environments with constant demand patterns.

Made to order

This supply chain management model is based on assembling immediately after receiving the order. This model requires inventory management and delivery of necessary supplies in the supply chain. Project managers can solve this need by using multipurpose devices to produce goods. This model has several advantages, among which we can mention the customer’s perception of the product he needs or the quick receipt of the product by the customer.

Channel assembly

The Channel Assembly model of supply chain management comes with a slight adjustment to the make-to-order basis. In this model, products are distributed in the channel and collected and assembled at the same time. Computer companies that purchase and assemble various computer parts in the distribution chain are an example of this model. Therefore, the customer’s order is collected and delivered to him by the said company only to be placed in a computer device.

Green supply chain

Scientists consider the green supply chain to be a modern and valid management model for organizations, which takes steps to preserve the environment and optimize energy consumption. A green supply chain is a set of processes that are used in all of the following steps to minimize the harmful effects on the environment and energy consumption:

  • Design process
  • Production Process
  • Final product preparation and distribution process
  • The process of educating customers and consumption
  • Recycling process after product consumption

A simple diagram of the green supply chain

Fig (2). A simple diagram of the green supply chain

As shown in Figure (2), in order to achieve a green supply chain, various components are needed, each of which is explained below:

  • Green raw materials
  • Using quality raw materials and renewable energy sources
  • Green production

Green production: or clean production with a focus on minimizing pollution to the environment in the production process.

green consumption: Using products and services along with educating customers with the aim of biological compatibility with the environment.

Green recycling: Reusing used products or recycling them in different ways.

Roles in supply chain management

An executive role in supply chain is the Chief Procurement Officer (CPO), which focuses on sourcing, procurement and supply chain management for a business. This manager is focused on costs and is also responsible for controlling them in this role and is constantly looking for ways to reduce costs. Another task of this department is to control the compliance of the company’s purchasing procedures with internal and external guidelines and laws.

Chief Logistics Manager

A Chief Logistics Officer (CLO) manages the movement of goods or services that a company provides so that they are carried out properly. One of the duties of this person is to ensure that the correct products reach the end consumers within the specified time frame.

Supply chain manager

A supply chain manager collaborates with internal or external partners and suppliers to produce products, check inventory and sell products to domestic or foreign markets. The description of the duties of managers in the supply chain is the same as operational managers and they have a more focused approach in practice. Among the duties of this role are:

  • Development of policies
  • Control of daily affairs
  • The workflow
  • Monitoring the general process of workers

Risk and its management in the supply chain

One of the main duties of managers in manufacturing and distribution organizations is risk management in the supply chain. Today, all the supply chain risks have been fully identified and investigated to determine the intensity of the impact of the risks relative to each other, and after examining the results, they have been analyzed with various tactics, including the DeMetal method. According to this tactic, supply chain risks can be prioritized, in which case these risks are:

  • Environmental risks
  • Risks in the field of financial resources
  • Risks related to strategy
  • Risks related to information and communication technology
  • Risks related to equipment and their performance
  • Risks in the field of technology

According to the things mentioned about risk in supply chain management, it can be said that risks in this area can be divided into two parts: internal and external risks.

Supply chain risks in two internal and external sectors

Fig (3): Supply chain risks in two internal and external sectors

Duties of managers in the supply chain

The role of managers in the supply chain is a fundamental and undeniable role. In the previous section, brief explanations were given regarding risk management as one of the most important duties of managers. In addition to risk management, managers are also responsible for other duties, which include:

  • Sustainable supply chain management
  • Supply chain management
  • Logistics management

Below is a brief description of each of the mentioned cases.

Sustainable supply chain management

Sustainable supply chain management is considered throughout the supply chain from the preparation of raw materials to obtaining the final product, obtaining and monitoring information and creating coordination with the following three aspects:

  • Economical
  • Social
  • Environmental

Supply chain management

Supply chain management means the process of integrating supply chain management activities and information flows through improving the performance and coordinating the supply chain of production, supply, etc.

Logistics management

Logistics is a subset of supply chain management, and therefore e-logistics is a subset of electronic supply chain management, just like logistics. Electronic logistics means the transfer of goods and services by means of communication technology and the Internet. Logistics management includes all the following tasks:

  • Planning and implementation with minimum cost
  • Flow and accumulation of raw materials in the warehouse
  • Inventory of finished goods
  • Separation of usable and non-usable goods

Applying the SCOR model in the supply chain

The Supply-Chain Operations Reference Model, which is usually abbreviated as SCOR or SCOR, means the Supply Chain Operations Reference Model, which is considered as the first general framework for evaluating and improving supply chain performance management.

The SCORE model has gone through different stages since its inception. Two companies, AMR and PRTM, with the cooperation of many manufacturers and supply chain managers, prepared the initial design of the SCORE model. Some time later, in 1996, these two companies conducted research and published articles in the field of supply chain management under the title of Supply Chain Association.

The SCORE model is known as one of the reference models, a process in supply chain management in order to model the supply chain and improve performance in organizations.

This reference model has been formed in a specific structure in order to design, evaluate and compare the specific features of supply chain processes in different organizations. The existence of this specific structure has made organizations able to use better and superior techniques to improve the performance of various supply chain models.

Weaknesses and problems of supply chain in Iran

The reasons for the lack of development in the supply chain as well as logistics management should be analyzed in two parts of the basic problems governing the macro-space and ecosystem of this field in the country.

Paying attention to the basics of maturity in the definition and implementation of projects in this sector can prevent spending large and ineffective costs, and in the end lead to the creation of the necessary infrastructure for the development of the supply chain in the country.

One of the appropriate solutions to solve this issue is to create a dialogue and mutual trust between the industry and the university sector, which in the end leads to the training of more efficient specialists with multi-dimensional capabilities who are able to better understand the problems and needs of the industry. and have the ability to conclude improvement measures by carrying out real research projects according to the needs of the industry.

Suitable software for supply chain management

It is obvious that the optimization of the distribution path and the precise implementation of the supply chain is done by using the appropriate supply chain management software. In other words, you can achieve the following goals by optimizing the distribution path:

  • Increasing the volume of distributed goods
  • Increasing the number of employers/customers
  • Optimal use of infrastructure

In addition to the cases of food, by considering other factors such as transportation cost, fuel price, as well as manpower costs, routing optimization will be a strategic tool to reduce costs and increase business efficiency by using software in this field.

The supply chain management software market grew by 8.6% in 2019, and this shows the industry’s need for these software.

Among the software in this field are:

  • Cloud
  • E2Open
  • Logility
  • Perfect Commerce
  • Oracle SCM

Each of the above software has advantages and disadvantages that should be evaluated and used according to the goals of the organization.