What is Supply Chain Management?
Do you manage your own business from start to finish? Then you are familiar with supply chain management.
Supply chain management (SCM) involves managing the interconnected network of suppliers needed to transform raw materials into finished products or services. Properly managing its supply chain allows a business to optimize its production cycle, reduce costs, and achieve faster production cycles.
You must hire a supply chain expert for a manufacturing company or a service provider. With a more complex network, you have access to more opportunities to purchase raw materials or offer proposals. However, the more complicated the supply chain management system becomes, the more costs it will bring to your business. After all, the supply chain can limit a significant percentage of the company’s available funds, which may lead to cash flow problems.
Although good supply chain management is efficient, it has many short-term and long-term benefits. Not only will cash flow improve along with cost reductions, but you can also increase efficiency and gain more control over your business processes. Good supply chain management can increase your organization’s overall performance and provide growth opportunities.
Supply Chain Management Overview
1. What is Supply Chain Management?
2. How does supply chain management work?
3. Key Benefits of Effective Supply Chain Management
4. Five Essential Components of a Supply Chain Management System
5. Examples of Supply Chain Management
1. What is Supply Chain Management?
Supply chain management is the management of the entire supply chain of a good or service. This process involves coordinating and streamlining all activities from sourcing raw materials to converting raw materials into finished products and delivering them to the end consumer.
With good supply chain management, you can maximize the value your customers receive while giving your business a competitive advantage.
Supply chain management requires monitoring two main components:
- The physical flow includes the manufacturing, storing, and transporting of goods and materials.
- The information flow includes managing data and software used to manage goods and materials.
2. How does supply chain management work?
When your business relies on a multi-stage supply chain to deliver products or services to end buyers, examining the chain, each link, and how they work together is crucial. If one link breaks, delivery of an order will be halted, which is detrimental to your brand and bottom line. Additionally, if you select links incorrectly in your chain, you will be exposed to costly returns. If any part of your chain is not optimized, you may lose profitability at any stage.
Supply chain management focuses on optimizing the entire chain. The supply chain manager is often responsible for developing a strategy encompassing all supply chain stages. He will ensure that customers get the products they want in the correct quantity, on time, and at the right price. At the same time, he must make the business as profitable as possible.
The supply chain stages include labor, energy, fuel, security, safety protocols, vehicles, manufacturing plants, raw materials, equipment, technology, and more. All of these cost money. Supply chain managers must keep costs down while maintaining quality and speed of delivery. They often implement a system for centralized monitoring of the various stages of supply, from production and shipping to distribution. Then, each stage of this process is constantly analyzed to reduce costs while improving efficiency, quality, and productivity.
3. Key Benefits of Effective Supply Chain Management
Good SCM practices can lead to both short-term improvements and long-term growth. Organizations that take SCM seriously can enjoy eight significant benefits.
Optimized Information Flow
According to an Oracle study, less than 25% of companies have automated information flow throughout their supply chain. For many of these companies, disparate data and poor communication between software systems reduce efficiency and limit sales.
However, with an efficient SCM, information can flow throughout the network. Every link can share and analyze current data, allowing you to make informed decisions for your business.
Better Quality Control
Poor quality control costs your business because repairs and replacements can quickly add up. As costs increase at each stage, companies involved in the final stages can face significant costs.
With an effective SCM, you have greater control over the quality of your company’s products and services. A company can reduce losses and improve revenue by establishing quality metrics, identifying supplier issues, and tracking complaint resolution.
Increase Productivity
In any industry, logistics problems can lead to serious productivity issues. These problems cause production delays, transportation problems, and lost sales.
When your company prioritizes SCM, you can access data about the goods and materials needed to run your business. Since your data flow is automatically linked to your transportation and logistics networks, you can identify and address logistics issues before they become problems. As a result, overall efficiency increases, leading to a more productive team and happier customers.
Forecasting Future Demand
Forecasting and planning will be challenging if you can’t predict customer demand for the coming week or month. Your team may be forced to operate on limited or outdated information, causing artificial inflation or stagnation throughout the supply chain.
When your network has good information flow, your suppliers, retailers, and raw material providers can access accurate, real-time demand data. Your team can look for patterns in the data and use their findings to predict future demand more accurately.
Reduce Overhead Costs
If you’re unsure how demand will change in the coming weeks or months, your company is probably managing inventory inefficiently. Overstocking inventory can take up valuable space and lead to unnecessary overhead costs.
When you follow SCM best practices, you can reduce overhead costs and generate more revenue. For example, you can make warehousing more efficient, automate your storage system, or use more efficient inventory management software.
Transportation Optimization
Transportation costs have increased significantly over the past decade. According to Lojistic, since 2010, UPS and FedEx air freight costs have increased by 80%, while ground freight costs have increased by more than 75%. In 2019 alone, transportation costs increased by almost 8%. If your business does not take preventive measures, these rising costs can significantly affect sales and revenue.
With a smart strategy, your business can identify the proper logistics companies and streamline transportation processes. As a result, you can improve your company’s margins while reducing customer costs and cultivating more loyal customers.
Strengthen Risk Mitigation
If you don’t have much data, predicting what might happen is difficult. As a result, your business may be unprepared for a significant failure or overinvest in solutions to a problem that will never happen.
With good SCM, you have access to a steady stream of data that you can use to understand your environment better. You can more easily identify risks, which allows you to implement cost-effective backup plans. Since you can act proactively, you can address risks while controlling costs.
Improved Cash Flow
Developing a smart strategy will benefit your company. Building a reliable supplier network, reducing supply disruptions, and reducing transportation costs means you can improve your company’s cash flow. Ultimately, this means less stress on your business and more capacity to plan for the future.
4. The Five Essential Components of a Supply Chain Management System
Supply chain management can be broken down into five main components. It all starts with developing a strategy that outlines how you get from raw materials to finished products and back (if necessary due to returns). Once you have a plan, you must execute it throughout sourcing, manufacturing, delivery, and returns. Here’s a closer look at how each of these components works:
Planning
Before you take any action, you need a plan that outlines the entire supply chain process from start to finish. It’s important to consider all costs from upfront to support. For example, will you need boxes to ship your products? What about pallets for boxes, forklifts for moving pallets, and forklift drivers for operating machinery? Don’t skimp on any detail. Plus, measure key performance indicators to ensure your supply chain works efficiently for your business and your customers.
Sourcing
The first step after planning is to procure the raw materials needed to make your product or service. You need to find a supplier who can provide the materials you need (in quantity and quality) at a competitive price within your budget. Supply chain managers must then manage supplier relationships, place orders as required, manage inventory levels, pay suppliers, and monitor quality.
Manufacturing
Once you have a source for raw materials, you need an entity to make your product or service. This process includes manufacturing, quality control, and packaging. Finding a reliable partner that meets your quality standards in the quantities you need and at a competitive price is essential.
Delivery
Once the product or service is ready, the next step is to deliver it to the end user. The inventory may be moved to a warehouse where it will be stored until the customer places an order, shipped to a retail store, or delivered directly to the customer. This part of the process involves managing customer orders, scheduling deliveries, invoicing buyers, shipping, and organizing shipping methods.
Returns
Finally, things don’t always go according to plan, so be prepared. Supply chains need a system in place to support customers who need to return products. This process should also be easy to shop for.
5. Examples of Supply Chain Management
Amazon
When looking for a supply chain management model, it’s almost impossible not to think of Amazon. As the largest online retailer in the United States, the company has a scientific approach to supply chain management. The company consistently shows its customers a wide range of products when ordering. What’s the secret to this? Amazon combines sophisticated technology, an extensive warehouse network, a large shipping fleet, and multi-layered inventory management. In addition, it outsources inventory management for less popular products. Amazon’s third-party sales account for half of the company’s total sales. Amazon has minimized supply costs, making it difficult for other companies that don’t have such advanced supply chain management strategies to compete.
Walmart
Walmart is another company with an advanced and highly optimized supply chain management system. With more than 11,500 stores in 28 countries, Walmart is obsessed with reducing supply chain costs, helping customers save money, and living better. One key to Walmart’s success is eliminating links in the supply chain. Founder Sam Walton started by buying and shipping in bulk in 1962.
Walmart has continued this path by working directly with manufacturers, which has evolved into a vendor-managed inventory (VMI) supply chain. In VMI, manufacturers manage their products in Walmart’s warehouses. It also focuses on strategic sourcing to find suppliers’ best possible electronic prices. Even in 1989, Walmart’s distribution costs were less than half those of those of its competitors. The company has only continued to optimize, improve, and expand over the years.
conclusion
Good supply chain management prepares you for the challenges ahead and helps boost your company’s profitability. Whether in the service or manufacturing industry, having an effective supply chain strategy can lead to reduced costs, greater efficiency, and increased profitability for your business. Since a strong supply chain can also help your business grow in the long term, developing a flexible system can provide benefits for years or decades.
Source
https://www.fiverr.com/resources/guides/business/supply-chain-management-scm