5 Basic Components of Supply Chain Management

What is Supply Chain Management?

We often hear the term ‘supply chain management’ in the business world. If your business offers products or services to customers, you might be familiar with the term.

Supply chain refers to the entire system or network of individuals, resources, and organisations involved in producing and delivering a product or service. This system might be complex, which is why supply chain management is an integral part of many businesses.

Supply chain management (SCM) is the process of managing and coordinating the flow of goods and services. It starts from the manufacturing of raw materials to the transporting of finished products to the end consumer.

Supply chains can be simple or complex, depending on how many stages the processing and production of products take. The more stages there are between these two points—the source and the destination, the more critical SCM is. At any stage, good communication is imperative to ensure the smooth flow of operations.

SCM entails many steps in the supply chain management process, as well as different supply chain management techniques. It also involves different departments that work together to ensure products reach their customers safely and timely.

What are the five basic components of supply chain management? And how can a business ensure all these components work together to meet the goals of the organisation? Let’s find out below.

The 5 Components of Supply Chain Management

No matter how small or wide a supply chain is, there are five basic supply chain components that are always visible within supply chain processes. A business needs to consider these components to ensure efficiency, profitability, and sustainability.

So, what are the five basic components of supply chain management?


Planning encompasses the process of defining a strategy, setting goals and objectives, and identifying required actions to achieve them. It is a continuous process that involves considering the future and creating a vision of what you want to achieve.

Supply chain planning is not just about creating an idealised plan. It is a critical process that aims to level both inventory and operational resources. When done right, this component can help you operate your supply chain at maximum efficiency.

Parts of supply chain planning are source planning and demand planning. Source planning allows you to control supply, while demand planning allows you to manage demand. Both of these elements allow businesses to have a better grasp of cash flow and meet the needs of customers.

One of the questions that require an answer is whether you will manufacture goods yourself or will purchase ready-made products. No matter what you decide, source planning should be carefully considered.


Once careful planning is performed, the next basic component of the supply chain is sourcing.

Sourcing is the process of identifying vendors or suppliers from whom you will procure raw materials, goods, or services.

The purpose of this component is to meet the actual or planned demand in the most efficient manner. That is why this process also involves supply chain management techniques like evaluating and qualifying vendors to ensure they meet the standards of the business.

Typically, organisations have sourcing agents. Their responsibility is to procure raw materials, parts, and sub-components that go into a product. They also obtain services like engineering and design work to create better-finished products.

Sourcing is crucial to any supply chain. It is at this stage that a business can save the most. And it all depends on choosing the right vendor.

When dealing with vendors, always set clear expectations to ensure you receive quality goods at an ideal price and on time. During a negotiation, consider delivery lead times and order lead times, among other elements.


Any business wants to sell its products to customers for profit. But what happens if the warehouse runs out of stock? Profit stops.

Inventory plays an important role in supply chain management. Its main function is to provide the business with an ongoing supply of materials or goods.

Inventory balances the demand and supply spaces. By considering certain factors, an organisation should strive to find a balance between too much and too little.

Ensuring that your business remains fully stocked is critical to sustained success. One way to do so is to find several suppliers who can meet your demands and needs, so you can secure adequate raw materials or products.

Inventory management involves tracking goods or materials from vendors to warehouses to a point of sale.

The recent global crisis was an eye-opener for businesses. We have witnessed severe shortages and out-of-stock situations. This has proven the importance of inventory management in any supply chain.

Production and Transportation

The next steps in the supply chain management process are production and transportation.

Production is the process of making finished products. The materials in the warehouse are used to make goods in a manufacturing facility. The production process may involve assembling, bundling, packaging, or staging, among others.

The production process requires continuous improvement. A business follows certain standards to make sure quality goods are produced. The right volume of products should also be considered to prevent excess and unsold inventory.

Transportation is the process of moving these products from one place to another. It refers to the delivery of goods from one business to another business or the end consumer. Goods can be shipped via land, sea, or air.

Together, these two supply chain components connect multiple companies across a broad geographic area or even worldwide.

Without production, a business won’t have anything to sell. And without transportation or delivery, the products won’t reach the customers.

Return of Goods

Once a finished product passes quality standards, a business includes it in the batches of goods to be sold. However, there are times when a customer receives a faulty item.
In this case, what happens?

A critical component of supply chain management, return of goods refers to the process of receiving goods back from the customer. It involves guidelines and protocol to handle special cases, such as defective items, products that are near or past the expiry dates, errors in orders, damages, and similar issues.

The return of goods is related to the refund process. In most cases, a refund is provided to the customer after the ordered product is returned.

Customer satisfaction is critical to any business as it leads to brand loyalty and long-term relationships. An efficient process of returning goods that have issues results in higher customer satisfaction. Remember, satisfied customers are happy customers.

Let Cario Help with Your Supply Chain Today!

A key aspect of modern businesses, supply chain management has become a pivotal part of the operations of many companies. The purpose of supply chain management is to increase efficiency, reduce costs, and improve customer experience by managing the parts of the supply chain.

The bigger a company is, the more complex and expensive the supply chain is. But supply chain management does not have to be stressful!

As the leading freight management software in Australia, Cario is developed to make freight simpler and smarter for all companies. It is a modern, powerful tool that simplifies how your business performs the components of supply chain management.

Cario lets you digitise your processes, so you can minimise cost while enjoying all the benefits of automation.

Get control of your supply chain back to your hands. Contact us now to learn more about how Cario can help.