Business Functions

Supply Chain

In order to understand business functions, supply chain management (SCM) is critical. SCM is the oversight of materials, finances, and information when they move from the supplier to manufacturer to wholesaler to retailer and finally to the consumer through a predefined process.

It also involves coordination and integration of these processes within and among companies. In this article, we will look at supply chain management in detail.

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Supply Chain

SCM flows are divided into three main flows:

  • Product flow – the movement of goods from the supplier to the consumer along with returns and other service requirements.
  • Information flow – transmitting orders and updating the status of delivery.
  • Finances flow – includes payment schedules, credit terms, consignment, and also title ownership arrangements.
supply chain

                                                                          Source: Wikipedia

Many companies use sophisticated software systems and/or web-based application service providers for a comprehensive supply chain management service. Further, SCM software systems are of two types –

  • Planning applications – use advanced algorithms to determine the best way to fill an order.
  • Execution applications – track the physical status of goods, the management of materials, and also financial information involving all parties.

There are some applications which support sharing of data both outside and inside the organization. This shared data may reside in data warehouses or diverse database systems, at multiple sites. Further, these applications are capable of sharing the data ‘upstream’ with the suppliers or ‘downstream’ with the clients. Therefore, they can improve the time-to-market of products, increase cost-efficiency, and enable all parties to manage their resources better.

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Objectives of Supply Chain Management

  • An overall improvement in efficiency
  • Reduced costs
  • Improved agility and flexibility
  • Better customer service
  • Optimization of the value chain

The Importance of Supply Chain

A supply chain includes all efforts pertaining to the production and delivery of a product/service from suppliers to customers. SCM includes-

  • The management of demand and supply
  • Raw materials and parts sourcing
  • Manufacturing and/or assembly
  • Warehousing
  • Tracking inventory
  • Order Management
  • Distribution across multiple channels
  • Delivery to the customer

Supply Chain Management plays a crucial role in the success of the enterprise and customer satisfaction. The knowledge of SCM can also be leveraged to support disaster relief operations, medical missions, and handle similar emergencies.

Any business needs resources to trade. Further, it uses these resources to create products/services which the consumers are willing to pay for. This is known as the ‘transformation process’.

Production and Operations Management (POM) under SCM

Different methods of production are deployed by organizations at different stages of the overall process of production. Let’s look at the different types of production methods:

Job Method

Under the job method, a single worker or group of workers handle a complete task. These tasks/jobs can be small-scale or complex or can involve low or high technology. Further, the features of a good project control in a job method are:

  • Defining Objectives clearly – including dates, stages, and milestones
  • Clear decision-making process – including decisions pertaining to the task, labor, and other resources.

Low technology jobs: The skills and technology required for these jobs are easily available. Usually, this allows the organization to include specific customer requirements as the job progresses. Some examples are tailors, hairdressers, etc.

High technology jobs: These jobs involve greater complexity and hence, require skilled management. Project control or management is an important aspect of such jobs. Some examples are large construction projects, film production, etc.

Batch Method

With increased volumes, businesses usually seek to organize the production process by creating batches. The batch method requires the division of tasks in sub-parts or operations. Once this is done, each operation is completed for the entire batch before the next operation is started.

This allows organizations to achieve specialization of labor. Also, enterprises can plan carefully to ensure that the production equipment is not idle and keep a tight leash on capital expenditure. Therefore, the primary goals of the batch method are:

  • Concentration of skills
  • Achievement of maximum utilization of equipment

Most organizations use the batch method to organize the manufacturing process. Production of electronic instruments is a good example of the batch method.

However, the batch method has its own problems. There is always a chance of a poor workflow if batches are not of the optimal size or there is a difference in productivity by each operation in the process. Also, these methods usually have a significant number of completed batches waiting for their turn in the next operation.

Flow Methods

The problem of batch queuing is eliminated in the flow method. It is a method of production where a task is worked on continuously or the processing of a material is continuous and progressive. Further, the primary goals of the flow methods are:

  • Improved workflow
  • Better flow of materials
  • Lesser need for specific labor skills
  • Also, faster completion of work

Under the flow methods, as soon as the work on a particular stage is complete, it is passed to the next stage without waiting for the remaining tasks in the batch. Also, on arriving at the next stage, work on the next process is started immediately. Further, the flow stays smooth if each task takes the same time on each stage and there is no movement away from the production flow.

Requirements for Flow Methods to work well:

  • There should be a constant demand. If the demand is irregular or unpredictable, then the flow production line can end up with a substantial build-up of stocks and face storage difficulties. Some businesses work around this problem by keeping the flow line working even during quiet periods for the efficient production of output.
  • Standardized products and/or production tasks. Flow methods are not flexible and cannot deal with variations in the product effectively (barring a few minor variations).
  • Materials of standard quality and delivered on time. A flow production line works continuously. Therefore, it is important that the materials are homogenous and delivered on time. This also ensures that the production line does not come to a standstill and cost the company.
  • Careful definition of each operation in the production flow and detailed recording of the same.
  • Quality standards maintained at each stage. In the flow methods, the output from each stage continuously moves forward. Therefore, there is no scope for reworking sub-standard output at any stage. Hence, it is important that quality standards are maintained at each stage of the production flow.

Solved Question on Supply Chain

Q1. What are the objectives of Supply Chain Management?


The objectives of supply chain management are:

  • Greater efficiency
  • Lower costs
  • Enhanced flexibility and agility
  • Higher standards of customer service
  • Optimized value chain
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8 responses to “Financial Management”

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