Supply Chain Management (SCM): How It Works, Importance, Example

What Is Supply Chain Management (SCM)?

By Keith Noonan – Updated Nov 9, 2025 at 12:49 PM

Key Points

Effective supply chain management ensures timely, cost-effective delivery of products.
Disruptions in the supply chain can lead to significant economic impacts, including inflation.
Strategic diversity in supply sourcing can mitigate risks but increase management complexity.

In today’s fast-moving, highly interconnected economy, effective supply chain management can be the difference between success and failure for many businesses. Even a small part of a manufacturing and distribution chain breaking down will mean that goods and services are delayed or never even have the chance to make it to consumers. And having a great product or service alone often isn’t enough to win in competitive markets. Businesses have to be able to manufacture and deliver their goods and services in a cost-effective manner.

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Freight barge passing under bridge. — Image Source: Getty Images.

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Net Profit Margin

A profitability ratio, calculated as (Net Profit / Revenue) × 100, indicating the portion of revenue turned into profit.

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Through data gathering and analytics, businesses can get a better idea of what works and then make their supply chains more efficient. Lack of raw materials, rising energy costs, and political unrest are some common disruptors of supply chains, and monitoring developments along these lines can help businesses prepare for and avoid potential problems. Effective supply chain management may also involve considering factors such as the seasonal availability of items and differences across business regions.

Effective supply chain management also involves keeping up with customer demand. Having insight into how demand trends might fluctuate and structuring the business around these shifts can be essential for taking advantage of market opportunities and ensuring that production doesn’t come up short.

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About the Author

Keith Noonan is a contributing writer at The Motley Fool covering technology, consumer goods, and other sectors. He holds a bachelor’s degree in English from Boston College.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.