Supply Chain Management (SCM)

SCM is larger in scope than both physical distribution and marketing logistics. It encompasses materials management task as well. Supply chain actually refers to the whole business chain, encompassing procurement of inputs, in-bound logistics, conversion of inputs into products, physical distribution/ marketing logistics and channel functions, which finally take the end product to the ultimate consumers Essentially, SCM can be viewed as the combination of materials management and end product distribution, which constitute the two vital components of the business process and form the key tasks at the front and back ends of the process, respectively.

It can be seen that the supply chain is in effect the firm’s value chain. Value is actually spread through the firm’s supply chain. A firm can optimize its total customer value by managing activities in the supply chain in an integrated manner, treating them as one continuous chain. The supply chain constitutes a value delivery network. That is why it is often said that firms compete in the marketplace using their supply chains as the weapon, not their products and brands. Superiority in supply chain is thus a major competitive advantage. A firm with the better supply chain wins in the market. We have discussed the value chain concept in detail in the two chapters on Industry Analysis, and Competitive Advantage.

Taking note of the advantage in dealing together materials management and physical distribution of end products, which constitute the two major functions at either end or which form a virtual chain permeating the business from end-to-end, many experts have preferred to combine the two subjects and deal them as SCM.

The SCM approach, no doubt, has some merits. It facilitates the integrated handling of the functions of the business, especially the procurement function and the logistics functions at the front and the back ends of the business. As a result, it comes handy in value creation! value addition.

The approach, however, has a strong demerit as well. It gives prominence to materials management and treats the customer requirements of logistics as an appendix to the business cycle. The requirements from the side of the customer/market get diluted in such an approach. Moreover, in the nature of things, the focus as well as requirements of materials management and physical distribution of end products is somewhat different from each other. Perhaps all things considered, the two subjects should be studied independently, rather than as one unified subject.

In this text, we shall in any case avoid the SCM approach. Mer all, in a marketing text there is no scope for discussing materials management. We shall confine ourselves to distribution of end products. We shall, however, make a slight deviation from the traditional way of handling the subject. Instead of treating it merely as a physical distribution task, we shall treat it as marketing logistics.