Explain how supply chain management decisions affect strategy?

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gsenviro | College Teacher | (Level 1) Educator Emeritus

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Supply chain management (SCM) is the active management of a supply chain (all the activities included in generating a product or service) with the aim of achieving maximum net value, enhancing customer satisfaction, leveraging the assets at disposal, etc. The supply chain includes raw material procurement and storage, inventory, process, finished goods all the way to the consumer end. SCM activities include product development, sourcing, production, logistics and the information system needed to coordinate the above. 

SCM decisions are generally classified into three categories and depending on the frequency of each, the effects are different.

Supply chain strategy or design: the structure of the supply chain, over the next few years, is decided. This will decide the chain configuration, resource allocation, processes to be used, location and capacity of production and warehouse facilities, modes of transportation systems, etc.

Supply chain planning: planning can take anywhere from a financial quarter to a year and decisions (based on anticipated demand and conditions) include which region to be supplied by which production/warehouse facility, inventory size, timing and quantum of marketing, etc.

Supply chain operation: decisions are taken on a daily or weekly basis and pertain to particular orders. Decisions include setting deadlines, allocating inventory, shipping, delivering and replenishing the inventory, etc. 

As can be seen, the decisions affect the strategy on a very broad time scale, from days to years, and affect the business strategy related to production, marketing, inventory, operation, etc., thus covering the entire spectrum of strategy.

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