At Logistics Bureau, we like to create blog posts that delve deep into strategic and operational issues, explore what’s happening in the supply chain world, and share insights that inform even the most seasoned practitioners and business leaders.
Sometimes, though, we also like to remember that not all our readers have been in the supply chain game for years, and that when you’re just starting to learn the business, it can be a confusing and complex environment.
What is Supply Chain Management in Simple Words?
Supply chain management is the management process of the entire journey of a product, encompassing the whole supply chain from procurement of raw materials to the final product reaching the consumer. For example, imagine a chocolate bar: it doesn’t make its way onto supermarket shelves on its own, does it?
It all starts with getting the ingredients, which involves sourcing cocoa beans from farmers, sugar from processors, and milk from dairy farms to make the bar. This is stage one of the supply chain, which is called Procurement or Sourcing.
Next, we need to consider how we’re going to go about transporting these ingredients to the factory whilst keeping them fresh (the freshness aspect makes retail supply chain management a little different from some other supply chains that are less time-dependent). This is usually referred to as Inbound Logistics.
Once you’ve transported the ingredients to your unit, you then need to think about making or assembling the product — in this case, that means converting these materials into chocolate bars in the factory. This is Manufacturing.
Next, storage. Where will the finished chocolate bars live until they’re sent out to the consumer? Typically, this is in warehouses that are designed to stay at the right temperature. This is called Warehousing, or Inventory Management.
Now, the final thing that we need to think about is Distribution, which means delivering the bars to stores where customers can buy them. In modern supply chains, some of these stages can be combined into the same facility — a well designed distribution centre may be able to handle both inventory management and distribution.
So, the five steps of supply chain management are:
- Procurement
- Inbound Logistics
- Manufacturing
- Warehousing
- Distribution
In conclusion, supply chain management is about making sure that the right product reaches the right place at the right time, in the most efficient and cost-effective way possible. By optimising these processes, businesses can gain a competitive advantage in their industry, as well as increasing their profitability too.
Supply chain management also touches on sustainability and social responsibility, as companies strive to make their supply chains more environmentally friendly and ethically sound. In essence, SCM is about creating a seamless and responsive supply network that adapts to changing market demands and customer expectations.
Supply Chain vs Logistics vs Distribution
Even professionals who already work in supply chain roles can find themselves wondering if they’re using the right terminology, and people often get these terms confused (we’re partially to blame, as you may see people use them interchangeably).
So, to save you from being permanently confused about supply chain jargon, here are some brief definitions of terms that are often misunderstood. Understanding these distinctions is crucial for effectively managing supply chain processes, which include procurement, manufacturing, and distribution.
Distribution
Usually means the outbound (customer-facing) side of the business, dealing with the warehousing and transport of goods to customers. Distribution makes up part of the supply chain, ensuring that products are available to meet customer demand. OK, that one’s easy.
Logistics
This is a bit broader. It’s really about managing the flow of products right from the point of supply to the customer, often involving a global supply chain. And it’s more often focused upon the physical movement and handling of the product.
Supply Chain
Then Supply Chain is even broader. How so? Well, this definition from The Council of Supply Chain Management Professionals is a good one: “Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities.” Supply chain management works by optimising logistics processes and enhancing efficiency in activities such as procurement and inventory management.
Importantly, supply chain management also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. It generally includes managing external organisations too, like suppliers and transport companies.
If you wanted a hierarchy of these terms, as in an organisational structure, it would go like this: the Distribution Manager works for the Logistics Manager, who works for the Supply Chain Manager. Realistically, though (except in the case of very large companies), you would not expect to see all three of these managers in a company, as the roles can actually overlap a fair bit.
What are the Benefits of Effective Supply Chain Management?
The main goals are to:
- Keep costs down whilst maintaining quality
- Make sure products are available when customers want them
- Reduce waste and inefficiency
- Handle unexpected problems (like delayed shipments or shortage of materials)
- Keep everyone in the chain working together smoothly
Supply chain professionals play a crucial role in optimising and streamlining these processes to achieve these goals.
A real-world example would be how Apple manages its iPhone production: they coordinate with dozens of suppliers across multiple countries, arrange assembly in factories, manage global shipping, and ensure phones reach stores just when customers want to buy them.
The better a company manages its supply chain, the more likely you are to find what you want, when you want it, at a price you’re willing to pay.
Conclusion
When it comes to supply chain management, lots of people find the jargon confusing. Maybe you found that:
- You didn’t understand the topic
- The terminology went right over your head
- You were embarrassed that you did not understand
- You knew you needed to know more about the topic
You might be a university student, a Managing Director, CEO, or Transport Manager. Lots of business people and students want to gain a better knowledge of supply chain management and how it ‘fits’ in business today.
If any of that resonated, don’t worry about it. Most people in business have gaps in their supply chain knowledge. That’s completely normal. Supply chain is broad, it touches everything, and nobody learns it all at once.
The main thing is that you now have a clearer picture of what supply chain management actually means, how it differs from logistics and distribution, and why it matters to a business. That’s a decent foundation to build on.
