UNIT 1: CONCEPTUAL FRAMEWORK OF PERFORMANCE

MANAGEMENT

I. LABOR as a Primary Social Economic Force

II. PRODUCTIVITY STANDARDS as a matter of Management
Prerogative

Limits to Management Prerogative

(1) Good faith - So long as a company’s management
prerogatives are exercised in good faith for the advancement
of the employer’s interest and not for the purpose of
defeating or circumventing the rights of the employees under
special laws or under valid agreements, this Court will
uphold them…Even as the law is solicitous of the welfare of
the employees, it must also protect the right of an employer
to exercise what are clearly management prerogatives. The
free will of management to conduct its own business affairs
to achieve its purpose cannot be denied. [Ernesto G.
Ymbong vs. ABS-CBN Broadcasting Corp., G.R. No. 184885
(2012)]
(2) Without grave abuse of discretion - But, like other rights,
there are limits thereto. The managerial prerogative to
transfer personnel must be exercised without grave abuse
of discretion, bearing in mind the basic elements of justice
and fair play. Having the right should not be confused with
the manner in which the right is exercised. [Tinio vs. CA, G.R.
No. 171764 (2007)]
(3) Law – In one case, a pharmaceutical company defended
its termination of rank and file employees during a
bargaining deadlock, as an exercise of management
prerogative. This was after the Labor Secretary had
assumed jurisdiction over the dispute and enjoined the
parties from “any acts which might exacerbate the
situation.”
The Court disagreed with the company’s defense, stating that
the privilege is not absolute but subject to limitations
imposed by law. In this case, it is limited by Sec. 236(g),
which gives the Secretary the power to assume jurisdiction
and
 resolve labor disputes involving industries
indispensable to national interest.
The company’s management prerogatives are not
being unjustly curtailed but duly tempered by the
limitations set by law, taking into account its special
character and the particular circumstances in the case
at bench. [Metrolab Industries, Inc. v. Roldan-
Confesor, G.R. No. 108855 (2013)]
(4) Collective Bargaining – The CBA provisions agreed upon
by the Company and the Union delimit the free exercise
of management prerogative. The parties in a CBA may
establish such stipulations, clauses, terms and conditions
as they may deem convenient provided these are not
contrary to law, morals, good customs, public order or
public policy. Where the CBA is clear and unambiguous,
it becomes the law between the parties and compliance
therewith is mandated by the express policy of the law.
[Goya v. Goya, Inc., Employees Union-FFW, G.R. No.
170054 (2013)]

(5) Equity and/or Substantial Justice – The Court

recognized the inherent right of the employer to
discipline its employees but it should still ensure that
the employer exercises the prerogative to discipline
humanely and considerately, and that the sanction
imposed is commensurate to the offense involved and
to the degree of the infraction. The discipline exacted
by the employer should further consider the employee’s
length of service and the number of infractions during
his employment. [Dongon v. Rapid Movers and
Forwarders Co., Inc., G.R. No. 163431 (2013)]

III. Meaning of PERFORMANCE MANAGEMENT SYSTEM

A performance management system is a continuous process that

tracks the performance of employees in a manner that is consistent
and measurable. The system relies on a combination of technologies
and methodologies to ensure people across the organization are
aligned with – and contributing to – the strategic objectives of the
business. (That there is Goal Congruence)

The system is collaborative, with managers and employees working

together to set expectations, identify employee goals, define
performance measurement, share employee performance reviews
and appraisals, and provide feedback.
 

When properly defined and consistently applied, a performance

management system increases overall workforce productivity.
Employees are more invested in their work and turnover is
minimized while revenue per employee is maximized.

Why Is a Performance Management Cycle Important?.

Generally, there are two primary purpose of performance

management: EVALUATIVE AND DEVELOPMENTAL.

Specifically, this is enumerated below:

1. Builds Strong Relationship

One of the objectives for implementing a performance management

cycle is to get the employees to see the bigger picture of their
goals. Being part of the planning process and being constantly given
feedback improve engagement. This can help build trust and foster
a stronger relationship between employees and management.

2. Keep Employees Engaged

According to an article by Gallup, employees whose managers held

them accountable for their work are 2.5 times more likely to be
engaged. This aspect is particularly significant in a world where
employees demand better and more frequent feedback from their
employers.

3. Reduce Turnover Rat

High employee turnover is always a nightmare situation for

employers. It costs employers to hire a new person, and the vacant
space can also lead to a potential loss of revenue. Adopting a
performance management cycle plan will help because there will be
defined goals, regular feedback, support for career development,
rewards and incentives, and a career path within the organization.
All of this will give employees the idea of an organization that cares.

4. Help Detects and Fix Problems Faster

The monitoring aspect of the performance management cycle helps
organizations find problems faster and potentially solve them. The
problem may be an underperforming employee, an overbearing
manager, or the unrealistic nature of a set goal. If left unsolved, it
can affect the productivity of an employee or a team. The
performance appraisal cycle can help nip the problem sooner rather
than later.

5. Improves Performance

Businesses with laid out objectives and plans always set themselves
up to achieve them. The performance appraisal cycle allows
organizations to plan, monitor, and review their set goals and
achieve them. Employees have to take regular feedback and
continuously improve themselves to keep up with their objectives.
Doing this helps them stay in line with the organizational goal,
which improves performance.

IV. How is Performance Management linked to the organization’s

missions and goals.

Goal congruence is defined as the consistency or agreement of

individual goals with company goals

V. Distinguish performance management from performance

appraisal.

Performance Appraisal is not the only thing performed in

Performance Management.

As to Process: Performance Appraisal is a top down assessment

while Performance Management is a joint process

As to Frequency: Performance Appraisal is done periodically while

the other is a continuous process

As to Focus: Performance Appraisal is based on quantitative

measures while Performance Management involves both
quantitative and qualitative metrics of evaluations

As to Ownership: Performance Appraisal is owned by the HR

Performance Management is done by the Line Managers.
VI. Examine the components of performance management cycle and
determine the possible exposures to errors and biases.

1. Performance Planning: Performance planning is the first crucial

component of any performance management process which forms
the basis of performance appraisals.

Performance planning is jointly done by the appraisee and

also the reviewee in the beginning of a performance session.
During this period, the employees decide upon the targets
and the key performance areas which can be performed over
a year within the performance budget., which is finalized after
a mutual agreement between the reporting officer and the
employee.

2.Performance Appraisal and Reviewing: The appraisals are

normally performed twice in a year in an organization in the form of
mid reviews and annual reviews which is held in the end of the
financial year.

In this process, the appraisee first offers the self filled up ratings in
the self appraisal form and also describes his/her achievements
over a period of time in quantifiable terms. After the self appraisal,
the final ratings are provided by the appraiser for the quantifiable
and measurable achievements of the employee being appraised.

The entire process of review seeks an active participation of both

the employee and the appraiser for analyzing the causes of
loopholes in the performance and how it can be overcome. This has
been discussed in the performance feedback section.

3. Feedback on the Performance followed by personal counseling

and performance facilitation: Feedback and counseling is given a lot
of importance in the performance management process.

This is the stage in which the employee acquires awareness

from the appraiser about the areas of improvements and also
information on whether the employee is contributing the
expected levels of performance or not.

The employee receives an open and a very transparent

feedback and along with this the training and development
needs of the employee is also identified.

The appraiser adopts all the possible steps to ensure that the
employee meets the expected outcomes for an organization
 through effective personal counseling and guidance,
mentoring and representing the employee in training
programmes which develop the competencies and improve
the overall productivity.

4.Rewarding good performance: This is a very vital component as it

will determine the work motivation of an employee. During this
stage, an employee is publicly recognized for good performance and
is rewarded.

This stage is very sensitive for an employee as this may have

a direct influence on the self esteem and achievement
orientation. Any contributions duly recognized by an
organization helps an employee in coping up with the failures
successfully and satisfies the need for affection.

5. Performance Improvement Plans: In this stage, fresh set of goals

are established for an employee and new deadline is provided for
accomplishing those objectives.

The employee is clearly communicated about the areas in

which the employee is expected to improve and a stipulated
deadline is also assigned within which the employee must
show this improvement. This plan is jointly developed by the
appraisee and the appraiser and is mutually approved.

6.Potential Appraisal: Potential appraisal forms a basis for both

lateral and vertical movement of employees. By
implementing competency mapping and various assessment
techniques, potential appraisal is performed. Potential appraisal
provides crucial inputs for succession planning and job rotation.

VII. Discuss the different approaches to the measurement of

productivity and efficiency.

In laymans, Performance is the execution of an action but in

Business Context means maximizing the amount of output energy
form a system. It is therefore improving all the factors that
increases the profit. But in the Public Sector, it means being able to
deliver prompt services.

PRODUCTIVITY VS. EFFICIENCY

Productivity is Output/Input.
It does not define the volume of the input. It shows the output
obtained in relation to the input employed.

Efficiency is about getting the most out of your resources. It means

your business is able to produce more with less money and less
waste. It also means you can operate day-to-day without making
costly errors.

2 kinds of Efficiency

Technical Effeciency- Maximum output from a set of input Allocative

Efficiency
Allocative Efficiency- optimal combination of inputs

Allocative efficiency – or doing the right things (providing highest

value health services for available resources) Technical efficiency –
or doing the things right (how resources are used during service
provision)

Efficiency refers to the amount of effort and resources people put

into work, while productivity is all about the amount of work done
over a certain period of time.

VIII. Explain the scope and significance of financial performance

analysis.
IX. Assess the different areas of financial performance analysis such
as the working capital, financial structure, profitability and
others.

X. Apply the different tools and techniques in financial performance

analysis such ratio, common-size and trend analysis in assessing
performance.

While we defined productivity as being the output per unit of

time, efficiency, on the other hand, is the best possible output for
each unit of time. That is, doing things RIGHT. By doing things
right, you achieve your peak level of efficiency and productivity.

As an example of efficiency, consider two people who teach courses

online. The first teacher produces a course in two weeks but has
many mistakes in the videos they recorded. 

The other teacher produces 10/12 lessons in two weeks, but his
work doesn’t require the hours of editing that his counterpart’s work
does.

Although the first teacher may be considered to be more

productive, the second teacher is clearly the most efficient between
the two because it’ll take him less time to choose an online course
platformand launch their course because he has less mistakes in the
video recording process

While productivity calculates quantity, efficiency is more about

measuring quality. 

It’s possible to calculate a high productivity number for each

employee in your company, but, on its own, that number does not
give you insights as to the quality of work that you are getting from
each employee. 

As previously stated, an employee could seem quite productive, but

actually be producing low-quality outputs. 

You need a benchmark for comparing the productivity numbers. 

You can compare your current productivity with the standard level
of effort required to achieve the same output. 

Divide the standard hours of labor by the amount of time worked,

then multiply that figure by 100. The higher the final number is, the
more effective the employees are.

Reason #1: Quantity vs Quality

As previously stated, efficiency is quality and productivity is

quantity. This is the biggest difference between the two and both
are necessary for the success of any business. While productivity
focuses on bulk output, efficiency measures how much of that
output works as intended.

So businesses need both productivity, which is performance, and

efficiency, which is a measure of how well you perform.

Reason #2: Underlying Costs

It’s also important to note that efficiency takes into account

underlying costs, which is something that productivity does not.
Consider the writing example above, Anna wrote 10,000 words in
that week while Sandra wrote only 7,000. 

So while Anna wins the productivity award, the writing was so

messy it doubled the production cost. Meanwhile, Sandra’s work
was perfect at half the cost of Anna’s. Instead of simply getting the
words on the page ASAP, her careful and methodical work saved the
writing agency money.
However, where productivity and efficiency are concerned, one may
take precedence over the other at certain times, depending on the
company’s lifecycle. 

For instance, with a startup, they are more focused on productivity

(as opposed to efficiency) at the beginning simply because they
need to build something. As the company grows, they may then
begin to focus more and more on efficiency.

I dealt with this myself when I started my first website.  Right when
I started it, I purchased a tool I love called Thrive Architect to help
me build all of my website pages.  At the time, it was great because
I made pages look just how I wanted. 

However, over time I realized that doing things like this could add
extra code and slow a website down, so I had to change to the
efficiency model and hired someone to code things manually and
they designed the pages faster (and with less problems) than I
could code them up myself.  

Reason #3: Raw Measure vs Refined Measure

Productivity is the raw measure, while efficiency is the refined one. 

Raw productivity shows you how much was accomplished while

efficiency reflects the amount of productivity that generates profit,
and it should always be used as an input during productivity
planning. 

Ironically, this means that it also becomes an output – or else it’s

Anna and Sandra all over again. 
Productivity is simply output, but efficiency includes built-in quality
control. 

While efficiency may not help in speeding up productivity, it does

ensure that what you produce will fit your requirements and needs
the first time. This saves you tons of time, money, and other
resources you might otherwise spend on fixing it. 

In short: Productivity + Efficiency = True Productivity 

A good “hack” for companies to complement the efforts of workers,

whether they are productive or efficient, is to utilize their own
customer base to spread the word about what the brand is creating
or offering. 

For instance, I recently implemented a loyalty program for my own

customers and the effects of this have compounded the impact of 
my work and the work of all of my employees.  If you pair
something like this with solid efficiency and productivity, it can lift
the company’s bottom line. 

Productivity vs Efficiency: Conclusion

The bottom line is that both productivity and efficiency matter. 

It’s clear that the two have to be inextricably linked in order for a
business to achieve true productivity. If they exist separately, this
can sometimes have devastating effects. That’s why I advise most
companies I consult with to utilize different communication tools to
help in the process.  

In most businesses, particularly those in traditional manufacturing,

having productivity without efficiency is a sure way to kill the
business. It’s only when you have the two that you can experience
true productivity and success.

The best way to achieve this is to intentionally couple productivity

with efficiency. Don’t just assume that by having one it means that
you automatically have the other.
FINANCIAL PERFORMANCE (STATEMENT) ANALYSIS- What is the
financial position, performance of the firm at a given point time.

Financial Position at a given point in time

Financial Performance at a given period of time

Financial Performance Analysis

SELECTION
RELATION
EVALUATION- Drawing of inferences and conclusions

Financial Performance Analysis

What Is Financial Performance Analysis?

Financial performance analysis describes the methods that those

examining the affairs of a business use to evaluate and assess its
financial activity.

Financial performance refers to the overall financial health of the

business. All businesses take financial assets, which come in many
forms, and use them to support business activity, which generates
revenue and ultimately, profits.

In its simplest definition, financial performance can refer to the

effectiveness in which the business generates profits, but it also
refers to much more. It is a reflection of all the elements that
contribute to profitability, separately as line items, and holistically
as a collective dynamic.

How Is Financial Performance Analysis Performed? 

Businesses produce various financial statements which can be used

to assess financial performance. Because there are many different
facets to a business’s financial operations, there are also several
different types of financial statements. 
Each type presents the details for a specific aspect of the business
and its finances. Information is extracted from these statements to
conduct a financial performance analysis:

Balance sheet—shows what a company owns and what it owes,

both at a specific point in time. In accounting terms, this is
expressed as equity, liability, and assets. The balance sheet
provides a snapshot of the company’s value or worth for the
point in time at which it is produced. Generally, that is either
monthly, quarterly, or annually.




Income statement—focuses on how much revenue was earned

by the business in a given period. Statements list the total
amount of sales revenue generated by the business for the
period minus the costs associated with those earnings.




Cash flow statement—focuses on the exchange of money

between the business, its customers, and its vendors. The
statement only examines the ability of the business to generate
cash. Cash flow statements will list all manner of financial
activities that impact cash, such as accounts receivable,
accounts payable, inventory, unearned revenue, and net income.

What Is a Financial Performance Analysis Looking For?

A financial performance analysis is an evaluation of one or more

aspects of the business’s finances. Different stakeholders, such as
management, investors, regulators, and lenders, will assess the
financial performance of a business from varying vantage points and
with distinct objectives. 

There is no one measure of financial performance. Generally, a

financial performance analysis looks at one or more of several
distinct aspects of the business’s finances:

Liquidity refers to cash and other assets that the business can easily
convert to cash in order to meet its day-to-day obligations, such as
purchasing, salaries, and utilities.
Similar to liquidity, solvency refers to the business’s ability to meet
its debt obligations over time.

Operating efficiency is an indicator of the business’s ability to

manage the costs of running the business in relation to the sales
and profits that it generates.

Profitability, otherwise known as the bottom line, refers to the

business’s ability to generate a profit on its business activity.

Are There Different Types of Financial Performance Analysis?

Financial performance analysis can be conducted in different ways:

Horizontal Analysis

A horizontal analysis examines the same elements of the business’s

finances—such as subsidiary ledgers or statements (or specific
items within either)—across two or more time periods. The
horizontal analysis is intended to identify significant changes,
patterns, or trends across time.

For example, a horizontal analysis of the costs of goods sold

(COGS) may help a business identify if patterns in the price of
goods is affecting its profits. Similarly, a horizontal analysis of
payroll costs may determine if the business is paying too much, or
too little, to support its workforce.

Vertical Analysis

In contrast, a vertical analysis looks at multiple items in the same

statement or ledger for one reporting period, to identify correlations
between one aspect of the business and another. These are often
calculated as ratios or percentages, which illustrate proportionality
of one financial activity to another.

For example, a vertical analysis might calculate COGS as a

percentage of total sales revenue, to determine if costs are having a
significant effect on profit. A business might also calculate the sales
of various items as a percentage of total sales to determine which
products are driving revenue.

A horizontal or vertical analysis can employ either a ratio analysis or

a trend analysis. A ratio analysis compares one item in a statement
to another in the form of a fraction. The fraction reveals a
proportion or percentage, which can be analyzed on its own or
compared against other similar ratios to reveal further insight. The
ratio can be compared to the same ratio for a different reporting
period, or it can be compared to the ratio for other businesses or an
industry standard.

A trend analysis compares information, including ratios or individual

line items, over a period of time. This reveals trend lines in the
business.

What Metrics are Used to Conduct a Financial Performance Analysis?

All of the above financial performance analyses utilize various

metrics to make their assessment. These metrics are also referred
to as key performance indicators (KPIs). Some of the most common
include:

Gross profit margin measures revenue minus COGS in proportion

to total revenue.




Net profit margin calculates revenue after subtracting all costs

for the business, including COGS, plus operating expenses,
interest, and taxes, in proportion to total revenue.




Working capital measures the business’s available liquidity, or

assets that can be easily converted to cash. It is derived by
subtracting current liabilities from current assets.




The current ratio measures assets in proportion to liabilities. This

helps measure the business’s solvency, or its ability to repay
debts. It is instead expressed as a fraction, with current assets
divided by current liabilities.




The quick ratio is also known as an acid test ratio. It also

measures liquidity, but only considers highly liquid current
assets, such as cash, marketable securities, and accounts
 receivables. This calculation filters out some current assets, like
inventory, which are not as easily converted to cash.




Inventory turnover measures how frequently the business sells

its inventory. It is expressed mathematically by subtracting the
average inventory for the reporting period from the total cost of
sales.




Total asset turnover measures how efficiently a company uses

its assets to generate revenue. It is calculated as a fraction, by
dividing total revenue by the average total value of assets for
the period.




Return on equity (ROE) measures how well the business is

converting shareholder’s equity into profits. It is calculated by
dividing net profit by average equity.




Similarly, return on assets (ROA) assesses how well the

company is converting its assets into profits. It is calculated by
dividing net profits by average assets instead of average equity.




Operating cash flow measures how much cash the business has
as a result of its operations. It is calculated using one of two
ways: the indirect method and the direct method.

There are many other metrics that can be used to assess financial
performance. They vary depending on the type of business and the
industry in which it operates.

Types of Financial Ratios

There are five basic financial statement ratios: liquidity, leverage,
efficiency, profitability, and market value ratios. Commonly used
financial ratios include the current ratio, quick ratio, earnings per
share, debt-to-assets ratio, return on equity, cash ratio, and
interest coverage ratio. These are considered financial ratios
because they use information from financial statements. These are
discussed in depth below.

What Are Liquidity Ratios? 

Liquidity ratios are an important class of financial metrics used to

determine a debtor's ability to pay off current debt obligations
without raising external capital. Liquidity ratios measure a
company's ability to pay debt obligations and its margin of safety
through the calculation of metrics including the current ratio, quick
ratio, and operating cash flow ratio.

The Current Ratio 

The current ratio measures a company's ability to pay off its

current liabilities (payable within one year) with its total current
assets such as cash, accounts receivable, and inventories. The
higher the ratio, the better the company's liquidity position

What Is a Leverage Ratio? 

A leverage ratio is any one of several financial measurements that

look at how much  capital comes in the form of debt (loans) or
assesses the ability of a company to meet its financial obligations.
The leverage ratio category is important because companies rely on
a mixture of equity and debt to finance their operations, and
knowing the amount of debt held by a company is useful in
evaluating whether it can pay off its debts as they come
due. Several common leverage ratios are discussed below.

Debt-to-Equity Ratio=Total Shareholders’ EquityTotal Liabilities

For example, United Parcel Service's long-term debt for the quarter

ending December 2019 was $21.8 billion. United Parcel Service's
total stockholders' equity for the ending December 2019 was $3.3
billion. The company's D/E for the quarter was 8.62. That is
considered high.3

A high debt/equity ratio generally indicates that a company has

been aggressive in financing its growth with debt. This can result in
volatile earnings as a result of the additional interest expense. If
the company's interest expense grows too high, it may increase the
company's chances of a default or bankruptcy.
Efficiency Ratios

Efficiency Ratios are a measure of how well a company is managing

its routine affairs. Conceptually, these ratios analyze how well a
company utilizes its assets & how well it manages its liabilities.

What are Profitability Ratios?

Profitability ratios are financial metrics used by analysts and

investors to measure and evaluate the ability of a company to
generate income (profit) relative to revenue, balance sheet assets,
operating costs, and shareholders’ equity during a specific period of
time. They show how well a company utilizes its assets to produce
profit and value to shareholders.

#1 Gross Profit Margin

Gross profit margin – compares gross profit to sales revenue. This

shows how much a business is earning, taking into account the
needed costs to produce its goods and services. A high gross profit
margin ratio reflects a higher efficiency of core operations, meaning
it can still cover operating expenses, fixed costs, dividends, and
depreciation, while also providing net earnings to the business. On
the other hand, a low profit margin indicates a high cost of goods
sold, which can be attributed to adverse purchasing policies, low
selling prices, low sales, stiff market competition, or wrong sales
promotion policies.

Formula

Accounts Receivables Turnover = Revenue/Average Accounts

Receivable

Interpretation

Higher accounts receivable turnover is better for any company.

Suppose for any company, the accounts receivable turnover is too
low. In that case, it indicates that a company is having difficulty
collecting from its customers or being too generous with granting
credit

What are Market Value Ratios?

Market value ratios are used to evaluate the current share price
of a publicly-held company's stock. These ratios are employed by
current and potential investors to determine whether a
company's shares are over-priced or under-priced. The most
common market value ratios are noted below.

Book Value Per Share

The book value per share is calculated as the aggregate amount

of stockholders' equity, divided by the number of shares
outstanding. This measure is used as a benchmark to see if the
market value per share is higher or lower, which can be used as
the basis for decisions to buy or sell shares.

A. Discuss the different approaches to the measurement of

productivity and efficiency.
B. Explain the scope and significance of financial performance
analysis.
C. Assess the different areas of financial performance analysis such
as the working capital, financial structure, profitability and
others.
D. Apply the different tools and techniques in financial performance
analysis such ratio, common-size and trend analysis in assessing
performance.
E. Discuss the concepts, objectives and components of supply chain
management.
F. Define customer relationship management and describe its
different parts and objectives.
G. Describe the technological aspect of customer relationship
management.
H. Identify the advantages and disadvantages of customer
relationship management.

Analyze customer profitability and discuss its relevance in

performance management system

SUPPLY CHAIN MANAGEMENT

What Is Supply Chain Management (SCM)? 

Supply chain management is the management of the flow of goods

and services and includes all processes that transform raw materials
into final products. It involves the active streamlining of a
business's supply-side activities to maximize customer value and
gain a competitive advantage in the marketplace.

KEY TAKEAWAYS

 Supply chain management (SCM) is the centralized

management of the flow of goods and services and includes all
processes that transform raw materials into final products.
 By managing the supply chain, companies can cut excess
costs and deliver products to the consumer faster and more
efficiently.
 Good supply chain management keeps companies out of the
headlines and away from expensive recalls and lawsuits. 
 The five most critical elements of SCM are developing a
strategy, sourcing raw materials, production, distribution, and
returns.
 A supply chain manager is tasked with controlling and
reducing costs and avoiding supply shortages.

How Supply Chain Management (SCM) Works 

Supply chain management (SCM) represents an effort by suppliers
to develop and implement supply chains that are as efficient and
economical as possible. Supply chains cover everything from
production to product development to the information systems
needed to direct these undertakings.

Typically, SCM attempts to centrally control or link the production,

shipment, and distribution of a product. By managing the supply
chain, companies can cut excess costs and deliver products to the
consumer faster. This is done by keeping tighter control of internal
inventories, internal production, distribution, sales, and
the inventories of company vendors.
SCM is based on the idea that nearly every product that comes to
market results from the efforts of various organizations that make
up a supply chain. Although supply chains have existed for ages,
most companies have only recently paid attention to them as a
value-add to their operations.

5 Parts of SCM 

The supply chain manager tries to minimize shortages and keep

costs down. The job is not only about logistics and purchasing
inventory. According to Salary.com, supply chain managers
“oversee and manage overall supply chain and logistic operations
to maximize efficiency and minimize the cost of organization's
supply chain."

Productivity and efficiency improvements can go straight to the

bottom line of a company. Good supply chain management keeps
companies out of the headlines and away from expensive recalls
and lawsuits. In SCM, the supply chain manager coordinates
the logistics of all aspects of the supply chain which consists of the
following five parts.

Planning 

To get the best results from SCM, the process usually begins with
planning to match supply with customer and manufacturing
demands. Firms must predict what their future needs will be and
act accordingly. This relates to raw materials needed during each
stage of manufacturing, equipment capacity and limitations, and
staffing needs along the SCM process. Large entities often rely
on ERP system modules to aggregate information and compile
plans.

Sourcing 
Efficient SCM processes rely very heavily on strong relationships
with suppliers. Sourcing entails working with vendors  to supply the
raw materials needed throughout the manufacturing process. A
company may be able to plan and work with a supplier to source
goods in advance. However, different industries will have different
sourcing requirements. In general, SCM sourcing includes ensuring:

 the raw materials meet the manufacturing specification

needed for the production of goods.
 the prices paid for the goods are in line with market
expectations.
 the vendor has the flexibility to deliver emergency materials
due to unforeseen events.
 the vendor has a proven record of delivering goods on time
and in good quality.

Supply chain management is especially critical when manufacturers

are working with perishable goods. When sourcing goods, firms
should be mindful of lead time and how well a supplier can comply
with those needs.

Manufacturing 

At the heart of the supply chain management process, the company

transforms raw materials by using machinery, labor, or other
external forces to make something new. This final product is the
ultimate goal of the manufacturing process, though it is not the final
stage of supply chain management.

The manufacturing process may be further divided into sub-tasks

such as assembly, testing, inspection, or packaging. During the
manufacturing process, a firm must be mindful of waste or other
controllable factors that may cause deviations from original plans.
For example, if a company is using more raw materials than
planned and sourced for due to a lack of employee training, the firm
must rectify the issue or revisit the earlier stages in SCM.

Delivering 

Once products are made and sales are finalized, a company must
get the products into the hands of its customers. The distribution 
process is often seen as a brand image contributor, as up until this
point, the customer has not yet interacted with the product. In
strong SCM processes, a company has robust logistic capabilities
and delivery channels to ensure timely, safe, and inexpensive
delivery of products.
This includes having a backup or diversified distribution methods
should one method of transportation temporarily be unusable. For
example, how might a company's delivery process be impacted by
record snowfall in distribution center areas?

Returning 

The supply chain management process concludes with support for

the product and customer returns. Its bad enough that a customer
needs to return a product, and its even worse if its due to an error
on the company's part. This return process is often called reverse
logistics, and the company must ensure it has the capabilities to
receive returned products and correctly assign refunds for returns
received. Whether a company is performing a product recall or a
customer is simply not satisfied with the product, the transaction
with the customer must be remedied.

Many consider customer returns as an interaction between the

customer and the company. However, a very important part of
customer returns is the intercompany communication to identify
defective products, expired products, or non-conforming goods.
Without addressing the underlying cause of a customer return, the
supply chain management process will have failed, and future
returns will likely persist.

SCM vs. Supply Chains 

A supply chain is the network of individuals, companies, resources,

activities, and technologies used to make and sell a product or
service. A supply chain starts with the delivery of raw materials
from a supplier to a manufacturer and ends with the delivery of the
finished product or service to the end consumer.

SCM oversees each touchpoint of a company's product or service,

from initial creation to the final sale. With so many places along the
supply chain that can add value through efficiencies or lose value
through increased expenses, proper SCM can increase revenues,
decrease costs, and impact a company's bottom line.

Types of Supply Chain Models 

Supply chain management does not look the same for all
companies. Each business has its own goals, constraints, and
strengths that shape what its SCM process looks like. In general,
there are often six different primary models a company can adopt to
guide its supply chain management processes.
 Continuous Flow Model: One of the more traditional supply
chain methods, this model is often best for mature industries. The
continuous flow model relies on a manufacturer producing the same
good over and over and expecting customer demand will little
variation.
 Agile Model: This model is best for companies with
unpredictable demand or customer-order products. This model
prioritizes flexibility, as a company may have a specific need at any
given moment and must be prepared to pivot accordingly.
 Fast Model: This model emphasizes the quick turnover of a
product with a short life cycle. Using a fast chain model, a company
strives to capitalize on a trend, quickly produce goods, and ensure
the product is fully sold before the trend ends.
 Flexible Model: The flexible model works best for companies
impacted by seasonality. Some companies may have much higher
demand requirements during peak season and low volume
requirements in others. A flexible model of supply chain
management makes sure production can easily be ramped up or
wound down.
 Efficient Model: For companies competing in industries with
very tight profit margins, a company may strive to get an
advantage by making their supply chain management process the
most efficient. This includes utilizing equipment and machinery in
the most ideal ways in addition to managing inventory and
processing orders most efficiently.
 Custom Model: If any model above doesn't suit a company's
needs, it can always turn towards a custom model. This is often the
case for highly specialized industries with high technical
requirements such as an automobile manufacturer.

Example of SCM 

Understanding the importance of SCM to its business, Walgreens

Boots Alliance Inc. decided to transform its supply chain by
investing in technology to streamline the entire process. For several
years the company has been investing and revamping its supply
chain management process. Walgreens was able to use big data to
help improve its forecasting capabilities and better manage the
sales and inventory management processes.2

This includes the 2019 addition of its first-ever Chief Supply Chain
Officer, Colin Nelson. His role is to boost customer satisfaction as
the company increases its digital presence. Beyond that, in 2021, it
announced it would be offering free two-hour, same-day delivery for
24,000 products in its stores.34

What Is a Supply Chain Management Example?

Supply chain management is the practice of coordinating the
various activities necessary to produce and deliver goods and
services to a business’s customers. Examples of supply chain
activities can include designing, farming, manufacturing, packaging,
or transporting.

Why Is Supply Chain Management Important?

Supply chain management is important because it can help achieve

several business objectives. For instance, controlling manufacturing
processes can improve product quality, reducing the risk of recalls
and lawsuits while helping to build a strong consumer brand. At the
same time, controls over shipping procedures can improve customer
service by avoiding costly shortages or periods of inventory
oversupply. Overall, supply chain management provides several
opportunities for companies to improve their profit margins and is
especially important for companies with large and international
operations.

How Are Ethics and Supply Chain Management Related?

Ethics has become an increasingly important aspect of supply chain

management, so much so that a set of principles called supply chain
ethics was born. Consumers and investors are invested in how
companies produce their products, treat their workforce, and
protect the environment. As a result, companies respond by
instituting measures to reduce waste, improve working conditions,
and lessen the impact on the environment.

What Are the 5 Elements of Supply Chain Management?

Supply chain management has five key elements—planning,

sourcing raw materials, manufacturing, delivery, and returns. The
planning phase refers to developing an overall strategy for the
supply chain, while the other four elements specialize in the key
requirements for executing that plan. Companies must develop
expertise in all five elements to have an efficient supply chain and
avoid expensive bottlenecks.

What Element of the Marketing Mix Deals With Supply Chain

Management?

Place is the marketing mix element that deals with supply chain
management as it involves the processes that take goods and
services from their raw beginnings to the ultimate destination—the
customer.