1. Before understanding the concept of supply management, let us understand what a supply chain is. According to Stock and Lambert, 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
As is clear from the above definition, a supply chain is a dynamic process in which various parties, such as suppliers and distributors, are involved in delivering products and services to fulfill customer requirements. Thus, in the absence of a supply chain, there would be disruptions in the flow of products and information.
As a supply chain plays an important role in the business of an organization, it is of utmost importance for the organization to effectively manage the activities involved in its supply chain. Supply management is an integrated process of administering the flow of information, material, and services through various stages of production with the aim of smooth delivery of the product in the market. According to Thomas and Griffin (1996), supply management is the management of material and information flows both in and between facilities such as vendors, manufacturing and assembly plants, and distribution centers.
Supply management involves a number of supply chain activities such as product development, sourcing, production, and information system management. Among these activities, managing information systems is the most important activity because all parties in a supply chain are connected through information flow. Without the provision of accurate and timely information, the entire supply chain system may collapse. Let us discuss the need and objectives of SCM.
The following are some of the important functions of supply management:
• To create value for customers: Supply management aims at creating customer value by establishing a market-driven customer service strategy on the basis of customer requirements. Creating customer value helps an organisation in retaining its existing customers and attracting new ones.
• To increase organizational responsiveness towards change: Organisations need to adapt to many changes with respect to the dynamic business environment, such as the advent of new technologies and changes in government policies. Effective supply management helps the organisation quickly respond to these changes.
• To reduce business risks: Many a time an organisation encounters various disruptions in its business network, such as natural disasters, cataclysmic weather, labor strikes, and supplier failures. These disruptions affect the smooth flow of products and services from the organisation to the market, which may lead to major negative consequences for the organisation in the market. A sound supply management network enables the organisation to reduce such risks by establishing backup plans.
• To enhance cost efficiencies: supply management helps in achieving cost efficiencies by reducing inventory carrying costs, minimizing labor expenses, cutting expenditures or freight spends, etc. In order to enhance their cost efficiency, organisations adopt various measures such as using contracts or a bid/proposal to obtain economic resources at the lowest possible cost.