Concept of Supply Chain Management.

Supply chain is a group of network existing between different individuals both in service
and manufacturing organizations, although the complexity of chain may vary from
industry to industry and from firm to firm.

Supply chain management involves the integration of activities associated with the
flow of information and raw materials from the production site till they reach the end-
users (i.e., in the form of finished goods) by establishing effective supply chain
relationships.

Due to globalization, SCM has become a necessity especially for the firms who are
carrying out manufacturing activities to deliver products at low cost and at higher quality
that their competitors do.

The concept of supply chain management can be better understood with the
following definitions,

(a) "Supply chain integrates the key business processes of an organization from end-
user through original suppliers that provide products, services and information that add
value for customers and other stakeholders". — Stock & Lambert (2001)

(b) "A supply chain is a network of facilities and distribution options that are engaged in the
procurement of raw materials, transformation of these materials into intermediate and
finished products and finally distributing them among the ultimate customers". —
Mohanty & Deshmukh (2004)

Today, success of any business firm not only depends on their ability to manage
SCM operations in an efficient manner but also requires their close examination of all
the activities of SCM starting from procurement of raw materials till the final production
of finished goods.

Significance of Supply Chain Management (SCM). The significant role of Supply

Chain Management (SCM) is as follows,

(a) Gaining Competitive Advantage. Due to rapid changes occurring in the

competitive market situation, most of the businesses not only need to operate at low
cost but must also develop their core competencies to distinguish themselves from their
competitors. In order to achieve competitive advantage, the firms need to focus on
those resources that act as core competencies for the firm while the tasks in which a
firm is not proficient must be outsourced, so as to reduce both time and wastages
associated with the process.

(b) Adds Value to the Products. Today, SCM enable businesses not only to achieve
"productivity advantage" but also to have "value advantage", in which reduced cost
(cost minimization) can be achieved through productivity advantage while value
advantage is used to make differential products which helps the firms to achieve
'differential plus' advantage over their competitor's offerings. Due to simultaneous
actions for adding value and minimizing the cost of products, SCM plays an active role
in producing innovative products by adopting improved processes which in turn reduces
the time of product launch by shrinking the product life cycles.

(c) Builds Relationship. As global SCM is an aggregate network of different parties

belonging to different countries, SCM acts as a means for establishing effective
relationships between these parties.

(d) Helps in Integrating the Process. SCM is a process which involves all those
activities required for the conversion of raw materials into finished goods till they reach
the ultimate customer. In this process, the level of efficiency depends on the ability of
different parties in effectively carrying out the different activities of SCM.

(e) Helps in Achieving Economies of Scale SCM enables the firm to achieve
economies of scale by optimal utilization of resources (by different parties) and also by
the adoption of different innovative technologies which helps in producing improved and
quality products at a cost which the customers are willing to pay.