What is Supply Chain Management (SCM)?

Robinhood Learn
Democratize finance for all. Our writers’ work has appeared in The Wall Street Journal, Forbes, the Chicago Tribune, Quartz, the San Francisco Chronicle, and more.

Supply chain management governs all of the business processes and logistics necessary to get a product manufactured and delivered to its end user as efficiently as possible.

🤔 Understanding supply chain management

Supply chain management (SCM) encompasses the networks required to both produce a product and deliver it to the end user. Supply chain management coordinates the manufacturing operations and logistics needed to source materials, manufacture, transport, and deliver a product to a customer or a retail store where a customer can purchase it. The primary objective of supply chain management is to meet customer demand by providing the right product at the right time for the lowest cost. The complexity of supply chains differs depending on a company’s goals, the types of products it produces, and the market demand for them. Supply chains for online retailers might focus on the speed of delivery times while supply chains for luxury products may be more concerned with dependability and risk management.


Let’s say the fictional Big Motor Company manufactures cars in the United States. Every step in its production of cars is part of its supply chain: Where does it buy its steel from? Rubber for the tires? Glass for the windshield? And can these suppliers meet the company’s needs in a timely fashion? If, one day, Big Motor Company switches to a supplier of steel that allows it to speed up production and lower costs that would be an improvement in its supply chain management. Such an improvement in supply chain management may make the company more profitable, may benefit consumers — or it may do both.


Supply chain management is like a restaurant meal coming together...

A restaurant is a compact supply chain. Raw materials are transformed into a dining experience. For this to happen, “research and development” are needed to create pleasing recipes. The right ingredients in the specified amounts are ordered and transported to the restaurant. Then chefs manufacture the meal, and the waiters deliver it to your table for you to enjoy. Each link in the chain is vital. Like supply chain management, the goal of restaurant management is to satisfy the customer in the most efficient and profitable way possible.

Ready to start investing?
Sign up for Robinhood and get your first stock on us.
Sign up for Robinhood
Certain limitations apply

The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory. Securities trading is offered through Robinhood Financial LLC.

Tell me more…

What is supply chain management?

Supply chain management (SCM) is the coordination of a network of processes and organizations involved in the transfer of a product from its origin to its end user. Supply chains can include research and development, raw materials, manufacturing, transportation, warehousing, wholesaling, retailing, and consumers.

Supply chain management handles the production planning, manufacturing, storage of goods, and movement of products by linking all the supply-chain partners required to bring products to consumers at the lowest cost and highest efficiency possible.

Effective supply chain management is responsible for anything you buy online making it to your door. All of the things that have to happen from the moment you click “order” until your package arrives are possible because of supply chain professionals.

Why is it important?

The ultimate objective of supply chain management is to meet the needs of the customer as efficiently as possible. An efficient supply chain can deliver the final product in the expected quantity, quality, and time at the lowest possible cost.

Today’s supply chain management professionals collaborate across global time zones to get products where they need to go in the most efficient and cost-effective way imaginable.

Glitches in the supply chain not only waste money in total production costs but also fail to meet customer demand, which directly affects a company’s bottom line.

How does supply chain management work?

Supply-chain processes can vary in complexity. They can be global, involving a series of supply chains, or in-house with very little outsourcing.

Each link in the supply chain must communicate effectively with the next link. While each organization in the supply chain may have its own internal management, supply chain management governs the overall logistics (masterminding) of how the physical materials and information flow along the supply chain.

The flow of physical materials moves toward the consumer along the supply chain. The flow of cash moves in the other direction, from the company to its suppliers. And the flow of information goes in both directions. Supply chain management also handles the reverse flow of returns (unwanted or defective products) from the customer back to the company.

Different market segments have supply chains with different demand management. How products are sourced, produced, delivered, and orders are fulfilled is dependent on the characteristics of the product and the demands of the market.

Markets that have steady demand from consumers and require ongoing inventory management, such as groceries, require strong supplier relationships that are ever-responsive to consumer demand.

Supply chains managing luxury products with an inconsistent demand by mass consumers — such as high-end watches — may be more focused on risk management and the quality of individual order fulfillment than inventory and delivery speed.

Efficient supply chain management means balancing the trade-offs between cost, quality, speed, and flexibility, depending on the demand characteristics of a marketplace.

A consumer-goods company’s supply chain is optimized for speed and convenience. If you want a toaster delivered today, you might get one through an online retailer’s speedy supply chain. But if you purchase a high-end motorcycle, you probably won’t expect it to show up at your door in two hours.

What are the steps?

Even though supply chain management can differ in complexity, the general order of the steps it manages are similar. A supply chain management strategy is developed. Raw materials or parts for products are sourced from a supplier and delivered to a manufacturer. The manufacturer produces the products. The products are then stored and transported to a wholesaler, or retailer, and eventually purchased by a customer.

What are the components?

The components involved in supply chain management can be broken into five basic categories. 1. Operations planning: Creating a supply chain management strategy 2. Procurement and sourcing: Getting the raw materials and parts necessary to manufacture the product 3. Conversion: Manufacturing the raw materials and parts into the finished product 4. Logistics: Coordinating the movement of all physical materials, products, and information from end-to-end across the supply chain 5. Reverse logistics: Managing the movement and disposal of product returns

Supply chain management is a broad and complex topic. Depending upon the company, the products, and the market, supply chain management can also involve the management of some or all of the following (and more):

  • Location: Strategizing locations close to the source of materials and components needed for production
  • Product design: Research and development
  • Materials inventory: Obtaining and warehousing raw materials based on cost and availability
  • Robotics: Used in both production and warehousing
  • Transportation management: Managing both in-house and third-party transportation and delivery
  • Inventory control: Supply and demand management
  • Strategic alliances: With vendors and/or other service providers
  • Invoicing: Vendors, service providers, customers
  • Information technology: Managing information systems
  • Enterprise resource planning (ERP): Managing business processes real-time with supply chain management software
  • Risk management: Dealing with possible failure points within the supply chain such as outdated technology and changing government regulations
  • Recycling: Reuse and/or disposal of returned products
  • After-sales service: Customer support
  • Global issues: Taxes and tariffs, politics and trade

Are logistics and supply chain management the same thing?

Logistics and supply chain management are separate, but related, concepts.

Logistics is an important part of supply chain management. It involves the operations management and coordination of the flow of products and information along the supply chain.

Supply chain management encompasses logistics and also the actual transformation of raw materials into products by product planning, sourcing materials, and manufacturing.

What is a supply chain manager's salary?

Supply chain managers play an essential role in an organization’s success across a variety of industries and have a lot to juggle. They usually have a bachelor’s degree in logistics, supply chain management, or business administration.

Today’s supply chain managers will also have to master and stay up to date with evolving supply chain management software and technology.

Supply chain managers’ salaries generally can range anywhere from $64K-$161K per year. The average salary of a supply chain manager as of 2021 is $102K per year, according to glassdoor.com.

Ready to start investing?
Sign up for Robinhood and get your first stock on us.Certain limitations apply

The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory. Securities trading is offered through Robinhood Financial LLC.


Related Articles

You May Also Like

The 3-minute newsletter with fresh takes on the financial news you need to start your day.
The 3-minute newsletter with fresh takes on the financial news you need to start your day.

© 2022 Robinhood. All rights reserved.

This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Robinhood does not guarantee its accuracy.

Robinhood Financial LLC (member SIPC), is a registered broker dealer. Robinhood Securities, LLC (member SIPC), provides brokerage clearing services. Robinhood Crypto, LLC provides crypto currency trading. All are subsidiaries of Robinhood Markets, Inc. (‘Robinhood’).