Question

What is supply chain management? How does it differ from logistics? Define and explain the different types of inventory costs that managers must consider in making replenishment decisions. How can these costs be determined in practice?

Answer 1

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Supply chain management:

The process of managing and planning the business activities such as sourcing, procuring, converting, transforming, and delivering the goods with a distribution system is known as supply chain management. The main objective of supply chain management is to maximize the value of business.Supply chain management systems link and coordinate the activities involved of suppliers, shippers, and order entry systems to automate the order entry process from start to finish consisting the process from the purchase, production, and moving of a product from a supplier to a purchasing firm.

Supply chain management is the broader concept which is more of controlling integrated network processes and meeting the requirements of customer through a quality product and service. On the other hand, logistic refers to the movement of goods and information from the point of origin to the point of consumption. Logistic is one part of supply chain which delivers product to the customer as per their wants. It determines the planning, scheduling, material handling, packaging which are an important aspects of supply chain and logistics.

Similarities :

Supply chain and logistics end user is the customer. The objective is to deliver the product in right quality, right quantity, at right place and reducing lead time.

Difference :

Supply chain is the broader concept which takes logistics into account in delivering the product to the customer on time. Logistic management is more consider as transportation management which is focused on short term goals. Supply chain focuses on long term goal by achieving customer satisfaction and maximizing profit.

The types of costs and forms of inventory for manufacturer

Types of cost for a manufacturer:

A manufacturer incurrs the following types of cost:

• Direct material cost: The direct material cost includes the cost of raw materials included in the process of production directly.
• Direct labor: It includes the cost of labor incurred directly for converting raw material into work in process or finished goods.
• Manufacturing overhead: It includes all the indirect and fixed costs allocated to the production for converting the raw materials into finished goods.

Forms of inventory for a manufacturer:

• Raw material inventory: It refers to the direct materials purchased by the company for the production of goods and services, and company has not assigned any cost to bring into the process of production.
• Work in process inventory: It refers to the units of product, which are in process of production at the end of a certain period. These are the partially completed goods.
• Finished goods inventory: These are the fully completed goods in which the manufacture has assigned all cost to make it ready for sale.

Control of inventories can be as easy or complicated as you need to do. It is obvious that an organisation should have a big image of the company's wellbeing. It can also challenge the assumptions about the strength of the organization 's sales by emphasizing the cost of goods sold and the last time different stock types are changed.