Components of supply chain management for

success (with examples)

by Sohini Banerjee | Jan 30, 2024 | Logistics

There are several components of supply chain management that’s important for
businesses to achieve success. Read on to understand how each element of SCM
works and the role they play in overall business efficiency.

Table of Contents
• Components of supply chain management
• Planning stage with examples
• The role of sourcing
• Efficiency in inventory management
• Production processes
• Packaging, Transportation and Delivery
• Returns management in SCM
The mobile phone you have bought online, the grocery you buy from your local store,
the textile you procure to manufacture garments in your factory, there’s an entire
ecosystem of goods procurement and transportation that has gone into it. And at the
core of it all, lies the successful execution of an efficient supply chain operation. We
take a look at the components of supply chain management that goes into enabling
businesses to manage the entire system of delivering customers the right product in
time.

What are the components of supply chain

management?
Supply chain is a key component of every business, its activities impacting all
verticals of the business, from sourcing and procurement, to production, inventory,
and logistics.
Also read: Components of logistics management
We take a look at the components of SCM, share examples and try to understand
how they drive efficiency and success in business.
1. Planning SCM at strategic and tactical level
At the core of supply chain operations lies planning – both at the strategic and
tactical levels.
At the strategic level, planning involves having a deep understanding of market
trends, customer preferences, and competition to forecast demand in the long and
short run. At the tactical level, planning would involve identifying and
monitoring vendor, supplier, distributor performances, signing contracts, renewal of
contracts, to maintain production schedules and customer deliveries.
As a primary component of supply chain management, planning involves the
following main functions:
 • Demand forecasting – i.e., predict future demand by analysing historical
data, using tools, and studying market trends
• Production planning – i.e., planning for procurement, scheduling production,
and monitoring inventory to keep holding costs in check, manage lead time,
and minimise production costs.
• Vendor, supplier, distributor relationships – i.e., drawing contracts,
monitoring performance, negotiating rates, etc.
• Logistics and transportation – i.e., fleet management, route optimisation,
order processing, returns management in SCM, etc.
Example of Planning as a component of SCM
For an electronics manufacturing company making mid-range smartphones, planning
would involve:
• Forecast demand for handset sales, study new market entry, competition, and
any other seen/unseen contingencies
• Procuring raw material for production (push or pull method), maintaining
safety stock, placing reorders in time
• Building handsets, quality checks, maintenance and repairs, managing
production capacity and labour availability
Also read: Understanding production logistics in manufacturing processes
2. Sourcing goods and services from trusted suppliers
If planning required identifying potential vendors and suppliers and arranging for
procurement, then the next element of supply chain management – that is, sourcing
is the actual execution of it.
Sourcing involves finalising suppliers/vendors based on multiple parameters and
procuring the goods and services for manufacturing. This is a key step as any delay
or damage in receiving goods/services will impact the overall production schedule.
Sourcing requires finding vendors who can deliver as per production schedule or
demand in the most cost-effective and efficient manner.
Businesses as such need to:
• Establish a foolproof procurement strategy
• Revisit the strategy periodically to identify gaps and improve the procurement
process to keep it aligned to overall business goals
• Monitor vendor performance and supplier relationships, to ensure all SLAs are
being adhered to
• Check product quality/quantity on delivery, manage inventory, make
payments
• Reorder as per demand, economic order quantity or any other method being
followed, allowing required lead time to vendors
Procurement and logistics in SCM are more than purchase and transportation.
Efficiency in one can directly impact the other.
3. Managing inventory in-house and by vendors (VMI)
Of the various components of supply chain management, inventory
management and control is the next important element.
As a business, it is one thing to procure quality goods in time. However, ensuring
that they are stored safely as per standard guidelines, is another.

Many businesses fail to control and manage inventory intelligently, leading to losses
and delay in the value-chain. There are numerous instances of overstocking,
understocking, dead stock, wastage, damage and other instances of inventory
management misses. Not surprisingly, modern businesses prioritise inventory
management and use smart tools, data and advanced calculations (e.g.,
using inventory turnover ratio to calculate the time between inventory/stock and
sales conversions) to optimise.
In certain cases, businesses might collaborate and work with vendors to manage
inventory. This is usually the case with eCommerce businesses that require to
manage volumes of inventory and keep delivery timelines to the least. Vendor
Managed Inventory is usually adopted by B2B units where vendors have managed
control over stock levels and replenish stock based on sales to avoid stockout.
Example of inventory management and VMI as components of SCM
For a garments manufacturer, inventory needs to be managed before and after
production.
Now, when the manufacturer is taking B2B pre-orders, managing inventory is easier.
Based on the PO, the manufacturer procures fabric/textile from its vendors and starts
manufacturing. New fabric is received as per schedule and inventory is monitored
systematically with limited variations or misses. Once the order is complete, the
goods are transported in batches. Payments are received and the order is closed.
However, the scenario is times more complex when it’s a case of e-Commerce
fulfilment catering to a B2C audience ordering online. In this case, the manufacturer
has to plan production (Component 1) based on data, trends, and forecast. Based on
the frequency and type of online order, the manufacturer will have to:
• Reorder fabric/textile from the supplier
• Monitor inventory level in collaboration with vendors
• Rearrange warehouse layout to optimise stocking space
4. Production process efficiency
Achieving production process efficiency is critical to business success and must
align with the other elements of SCM. This can be achieved by adopting lean
manufacturing practices which streamline operations, minimise waste, and optimise
resources.
JIT or Just-in-Time inventory system is an example of this. Unlike the push and pull
method, it aligns production schedule with demand, ensuring the final product is
ready when there is demand for it. This naturally saves inventory space, reduces any
wastage, lead time and storage costs, and keeps the process efficient.
Let us elaborate with a B2B delivery example. In our previous example of the
garments manufacturer, keeping semi-stitched or half-stitched garments is an
example of JIT approach. Once the actual order is received, the final garment is
customised and completed as per the requirements, saving businesses time and
driving agility.
5. Packaging, Transportation and Delivery
When discussing the difference between logistics and SCM, the next component of
SCM is typically tagged as logistics tasks.
The order fulfilment process begins with order picking followed by packaging and
labelling. There are three distinct activities that play a vital role here –
• Order picking, that is ensuring the right products are selected from the
shelves, the data is updated, and the product after quality checks is sent for
packaging
• Packaging, ensuring that the right packing materials are being used for the
parcel, e.g., for apparel logistics, garments need to be packaged with
appropriate protection to ensure there’s no wear and tear during transit
• Labelling, that is, addressing the right package to the right recipient, following
the right instructions, messaging and documentation, e.g., tagging a package
as ‘fragile’ when containing ceramic or glass
Transportation and delivery on the other hand, is often managed by third-party
logistics service providers to reduce costs, cater to a wider audience base, and
ensure efficiency. This is an integral element of SCM as it impacts direct customer
experience. Poor delivery experience (i.e., delays, lack of updates, damaged
products, missing products) will automatically lead to negative customer experience.
When using third-party providers it’s therefore recommended to understand risks and
ways to mitigate risks for 3PL.
6. Returns management or Reverse Logistics
The last element of SCM is returns management – that is, what happens when a
customer decides to return a good.
One must understand that reverse logistics has become commonplace thanks to the
e-Commerce revolution. With buyers having the option to return a product within a
stipulated number of days, more buyers are encouraged to buy online and return
goods if not satisfied.
But there is more to the reverse logistics process than the simple idea of returning
goods. There are often refunds involved and goods once returned have to be sold to
avoid losses. There are also the cases of goods not being sold which raises the
additional question of disposal, repair or maintenance, or refurbishing or put back on
shelf.
Similarly, when manufacturers procure goods from suppliers, after quality checks if
products are not meeting the SLA/quality standards, goods are returned to the
suppliers. This naturally delays production and affects the entire cycle.
As such, what businesses need to establish is to develop a process that
makes returns management in SCM easy, quick and cost-effective.
Closing thoughts
Understanding the components of supply chain management is key to understanding
the role of every element in the overall process. Businesses can plan and make
better strategies that are aligned to the overall goals and bottom lines.
Businesses need to plan their supplier relations and understand how to choose and
work with suppliers, how to plan inventory, manage resources, and other aspects of
the organisation.