What is Supply Chain Management?

A supply chain is the set of entities that collectively manufactures a product and sells it to an endpoint (the ultimate customer). In this sense, supply chains are like value added chains. However, they include only players that add value in production and distribution. The concept of a supply chain is narrower than that of a value-added chain, but it is broader than the idea of marketing channels. These go from factory to buyer. A supply chain goes back to a more distant starting point-the suppliers of the factory that makes whatever is being sold-and the suppliers of the suppliers. Indeed, the beginning point of a supply chain is somewhat arbitrary, although it usually is considered to include only the immediate suppliers of the factory that produces finished goods. A supply chain is also distinctive in that it ends with the ultimate buyer, the customer of someone’s customer. The end of the supply chain is the last invoice.

In practice, much of what is called SCM does not go all the way forward to the last invoice, nor backward to the suppliers of suppliers of manufacturers.

A good working definition of SCM is that it is an organizing concept that starts with customer service and argues that this results from the cumulative efforts of the entire channel. Customer service cannot be interpreted as the sole responsibility of any single channel member. The guiding principle is to unify product flows and information flows up and down the production and distribution chain. Doing this requires

• A market orientation, focused on the last customer;
• Effective channel management, to enable smooth transfers of product and information; and
• Effective logistics.

An organizing concept, a statement of principles, a focus on end customers, channel management, and logistics—critics charge, with some fairness, that SCM needs a “more precise definition. Yet, SCM is not really a package of techniques, it is akin to a paradigm; that is, a set of common values, beliefs, and tools that unites a group of people engaged in related tasks. Any paradigm has subfields, and SCM is no exception. A number of concepts and techniques can be folded into SCM, and we will treat these as we encounter them. Let us begin with the roots of SCM in the grocery industry.