6 Must-Have Components of Supply Chain Management

components of supply chain management

There are two things that your supply chain needs in order to be effective. First, it should be able to deliver results on time , second, it should be cost-effective. How do you accomplish those two? Well, depending on your business and industry, it could be more or less difficult, but you always need to make sure that the following 6 components of supply chain management are working for you.

1. Planning

Planning, as it relates to SCM isn’t just about sitting down and thinking “this is what we’re going to do”. Yes, there’s that as well, but much more beside. Planning is not just one activity, it’s a whole specter of them and it starts with the decision whether to manufacture the components yourself or to buy them from a supplier. This decision needs to be weighed carefully.

But even when you opt for one or the other, there are still nuances for each choice. Will you manufacture domestically or internationally? Buy from a domestic or international supplier? Make goods to stock or to order?

2. Sourcing

You know what the worst kind of plan is? The one that is never executed. Even completely bad plans are better than that. So the next component of supply chain management that you need to take care of is sourcing.

This means identifying, evaluating and bringing suppliers that will provide you with goods and services and it depends heavily on your business needs. This is why you should carefully evaluate your material, service and financial requirements before before you even attempt to reach potential suppliers and start a formal bidding process.

3. Demand and Inventory

No SCM can survive without a well-maintained inventory. You need to have items, components, raw materials and such always at the ready if you are to deliver products on time. Without a proper inventory, you won’t be able to manufacture, let alone sell your products.

Your inventory will first and foremost depend on the actual demand. If the demand is high, your inventory should be high as well, if it is low, cut the inventory. How do you bring the two together? By bringing in demand planning at the early stages of your product development process. Accurate forecasting is the key here.

4. Production

There’s not much¬† to say about this element of SCM that you already don’t know. At the end of the day, if you don’t produce something, you can’t sell it. It’s simple as that. In a way, this is the central component of supply chain management. Everything before leads directly to it and everything following picks up after it.

5. Warehouse and Transportation

Warehousing and transportation are another two important components of supply chain management. First, you need somewhere to store your product, which is where the warehouse comes in and y second, you need to be able to transport and deliver goods from point A to point B or from your manufacturing centre or warehouse to the store and the customer.

We already touched a bit on the warehouse part when we talked about inventory, so let’s turn our attention for a moment to transportation instead. On time transportation is incredible important for an uninterrupted business process, but beside fast, it should also be safe. The customer wants to get his order in one piece after all.

6. Return of Goods

The three words that no business owner wants to hear is “return of goods”. Yet sometimes you can’t escape from them. Well, since it’s like that, why not make what seems like a defeat in something that can work for you and at least increase your reputation with the customers?

Not all of your products will be in pristine condition and some may, for one reason or other, reach the buyer in a defective state. Of course, they will want to return those. Unfortunately, I’ve seen plenty of companies that make return of their goods a complete nightmarish process. That’s not how you should do things. How do you think the customer will feel when they not only receive damaged goods, but now they can’t return them either?

Admit your mistake, apologize for the inconvenience and accept the return.  Of course, you should have clear rules for what can be returned and what not and how your returned goods should be managed.


There you have it. With these six components of supply chain management, you will be able to accomplish those two main task of an SCM that we talked about at the beginning of this article – deliver results on time and be cost-effective.

Do you have any thoughts or questions about this? Let me know in the comments below and don’t forget to sign up for free for Purchase Order Plus.

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