What is Supply Chain Management? - Definition & Importance

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  • 0:05 What's Supply Chain…
  • 1:18 How a Supply Chain Works
  • 2:46 Why Is SCM Important?
  • 3:31 Lesson Summary
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Lesson Transcript
Kimberly Winston

Kimberly has a MBA in Logistics & Supply Chain Management

Expert Contributor
Sean Harrington

Sean has two master's degrees from the University of Arkansas in Operations Management and Engineering. He has ten years of teaching experience.

Supply chain management plays a large role in the world we live in. In this lesson, you'll learn what supply chain management is and discuss the importance of supply chain management to business.

What's Supply Chain Management?

At some point in your life someone has asked you this very important question: 'What's for dinner?' There must be a million possible answers to that question. Pizza? Tacos? Lamb chops? No matter what your answer is, none of these foods will just appear out of nowhere. They have to first move from their original raw state into the packaged products you buy in the store. In other words, they have to go along a supply chain.

In fact, everything you've ever purchased has been available to you because it was a part of a supply chain. A supply chain is the network of businesses and people that work together to move raw materials into finished goods and eventually to the end-user. The supply chain is directly or indirectly responsible for fulfilling your needs.

Supply chain management (SCM) is the active integration and coordination of all supply chain activities to provide you, the customer, with the best value. Providing you with the best value means providing you with a quality product for a reasonable price. Companies are able to provide customer value by coordinating the efforts of every activity involved in their supply chains internally as well as externally among supply chain members.

How a Supply Chain Works

Believe it or not, the supply chain starts with you. Let's imagine, for instance, that you love shoes. Your desire to acquire shoes sets off a chain reaction. You either go to the store or shop online to get the shoes you want. The retailer obtains the shoes from the distributor. The distributor gets the shoes from the manufacturer. The manufacturer gets the raw material from someone else. So all these people, businesses, and processes are linked together. They are part of a supply chain that begins with you.

There is a constant flow of information, money, and products throughout the supply chain. This information, money, and products can be likened to the lubricant used to protect gears. Without the lubricant as protection, gears cease to function properly. The same is true for a supply chain; without information, money, or products acting as lubrication for its gears, a supply chain ceases to function properly.

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Additional Activities

Supply Chain Management Exercise

In this lesson, we learned the definition of a supply chain and of both the upstream and downstream flows involved. Additionally, we learned of both the importance and complexities of supply chain systems. Answer the following questions to demonstrate your mastery of this subject.

Section 1: What is Supply Chain Management?

  • Define what a supply chain is.
  • What are the different parties involved in a supply chain?
  • What are the different types of materials and products involved in a supply chain?
  • Define supply chain management.
  • Why is supply chain management important?
  • What is the benefit of an efficient supply chain management?

Section 2: How the Supply Chain Works

  • Where does a supply chain start?
  • What are the upstream and downstream flows within a supply chain?
  • Where does information fall in the supply chain system flows?

Section 3: Why is Supply Chain Management Important?

  • Why do supply chain efficiencies reduce both consumer and manufacturing prices?
  • What are some of the driving factors for a manufacturer to improve its supply chain?

Section 4: Supply Chain Example Exercise

Consider a product you purchase through the internet and have delivered to your door. Answer the following questions regarding the supply chain in delivering the product to your door.

  • Does the company you order from manufacture the product for you or have finished products already in inventory?
  • What are some of the raw materials required to create the product you purchased?
  • How complex is the process to turn all of the raw materials into a finished product? Approximately how many organizations do you believe are involved in this process?
  • How do you believe the supply chain for purchasing this product was different 30 years ago? Could you even purchase this product or a similar one 30 years ago with supply chain limitations? Have improvements in technology and supply chain management reduce the total cost and/or improve the quality of the product? If so, how?

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