Supply Chain Management: Elements & Goals

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Lesson Transcript
Instructor: Shawn Grimsley
Supply chains and their efficient management may mean the difference between success and failure for a business. In this lesson, you'll learn about the elements of the supply chain and the key goals businesses seek in managing their supply chains.

Supply Chain Management Defined

Meet Ingrid. She's a VP for an auto manufacturing firm and is responsible for supply chain management, or SCM. Supply chain management involves the management and integration of flows of goods, services and information into the company to create the goods and services that will then flow out of the company to its customers. But what exactly is the supply chain?

Supply Chain Elements

A supply chain consists of all the activities relating to the flow of goods, services and information that come into and out of a company from creation of goods and services through distribution to end users. Let's look at a quick example.

The supply chain necessary for manufacturing a car is complex. We'll simplify the chain to more easily illustrate the concept. A simple automobile supply chain may include:

  • Procurement and transportation of raw materials and components to the company
  • Producing the vehicle from raw materials and components
  • Distribution of finished automobile to retail dealerships
  • Delivery of automobile from dealership to consumer

All supply chains consist of four essential elements that we can glean from our example above. These elements include:

  1. Purchasing the resources necessary to make the company's goods and services
  2. Production of the goods and services from the resources acquired
  3. Managing the inventory of material necessary for product and the inventory of finished goods and services
  4. Transportation & distribution of the resources necessary for production and distribution of goods and services to wholesalers, retailers or through direct sales to customers

It's important to note that information flows are also critical to supply chain management. Information allows Ingrid and her partners in the supply chain to respond quickly and effectively to changes in circumstance, because information increases the visibility of the supply chain.

For example, information about a shortage of a crucial raw material down the chain can allow Ingrid to seek alternatives to keep production flowing. Likewise, a downward or upward trend in sales from retailers will help manage inventory. If sales are increasing, Ingrid will know to keep more inventory on hand and speed up production. On the other hand, if sales are decreasing, Ingrid will want to keep inventory levels lower and even slow down production. In this manner, Ingrid helps her company be efficient with its resources while still keeping customers satisfied.

Supply Chain Elements & Strategy

Ingrid's job of managing the supply chain is important for strategic success of her company. Ingrid's goals in managing the supply include:

  • Managing quality
  • Satisfying customers
  • Maintaining competitiveness

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