The optimization of a product’s creation and flow from raw material sourcing to production, distribution, and delivery to the final client is known as supply chain management (SCM).
Demand planning, procurement, production, inventory management and storage, transportation — or logistics — and returning surplus or defective products are all part of SCM. To function, supply chain management requires a combination of corporate strategy, specialized tools, and teamwork.
Because it’s such a big, complicated project, everyone involved — from suppliers to manufacturers and beyond — needs to communicate and collaborate to generate efficiency, manage risk, and respond to change rapidly.
Furthermore, supply chain sustainability, which encompasses environmental, social, and legal issues as well as sustainable procurement, and the closely related concept of corporate social responsibility, which assesses a company’s impact on the environment and social well-being, are major concerns for today’s businesses.
Benefits of supply chain management
Supply chain management provides a lot of advantages, including increased earnings, a stronger brand image, and a competitive advantage. The following are some of them:
1. Reduced Prices
Organizations can reduce operating expenses by responding more dynamically to customer needs by integrating suppliers and leveraging technology. Managing based on demand, for example, prevents firms from overproducing, which saves money on labor and raw materials, as well as inventory management and transportation.
2. Increased Profits
When businesses employ technology to stay closer to customer demand and respond more rapidly (like Walmart does in keeping shelves supplied), products are more likely to remain available for purchase. Labor and materials can be allocated to inventing new things to give the client and expanding the product mix when manufacturing is streamlined to create just enough. Outside of the area of products, this could imply providing clients with additional services.
3. Utilization of Resources
Organizations can make the best use of capital assets, such as production or transportation equipment, through good supply chain management. Rather than putting unnecessary wear and tear on production equipment, businesses can create according to demand.
Supply chain management enables businesses to deliver items more rapidly, assure product availability, decrease quality issues, and navigate returns with ease, resulting in increased value for both the company and its consumers.
Five stages of supply chain management
The five steps or areas of supply chain management are as follows:
Plan. Organizations establish strategic strategies to meet customer demand for goods and avoid a bullwhip impact using supply chain analytics and materials management features in ERP systems.
Source. Organizations assess and select vendors who can provide materials in a timely and efficient manner by agreements. Collaboration in the supply chain begins at this point and is crucial throughout the supply chain management process.
Make. Products are made at this level. It entails planning the production, testing, ensuring that compliance standards are met, packing, storage, and distribution. Multiple machines are likely to be involved, especially in larger businesses, which are increasingly utilizing technologies like IoT and AI to improve efficiency.
Deliver. The delivery stage is concerned with logistics and focuses on getting finished goods to customers via whatever means are necessary. More emphasis is being placed on doorstep delivery as the Amazon effect has expanded, particularly as a result of COVID-19. Supply chain leaders are now expected to collaborate more closely with customer service. At this point, inventory management and warehouse management solutions are very important.
Return. All product returns, including defective products and products that will no longer be supported, are included in the return stage. Other stages’ aspects, like inventory and transportation management, are also included in this stage.
Examples of Supply Chain Management
A supply chain, in its most basic form, consists of a corporation, its suppliers, and its customers. Raw material producer, manufacturer, distributor, retailer, and retail client are only a few examples.
- Most supply networks are much more layered and intricate. This is why case studies of failed supply chain management, such as when risk is not managed and disruption occurs, maybe so instructive.
- COVID-19-related food shortages are a good example of supply chain management gone wrong. Several factors affected the food supply system.
- Many restaurants and schools, for example, shuttered to accommodate stay-at-home orders, causing products intended for institutional settings to become obsolete. Instead, an increasing number of people were eating at home, which posed several challenges, including differing packaging requirements. The meat industry has experienced supply chain management challenges as a result of outbreaks of COVID-19 in slaughterhouses.
- Walmart and Proctor & Gamble (P&G) began integrating their supply chains in the late 1980s, long before cutting-edge technologies like blockchain came on the market and facilitated information exchange. The two organizations would be able to save money by sharing information. When particular P&G goods ran low, Walmart’s POS system alerted its distribution centers to ship new products to the stores. When the distribution center’s threshold was reached, an automatic alert was sent to the P&G distribution center, instructing them to ship more stock.
- This continuous loop of communication aids in the balance of manufacturing so that inventory may meet demand without becoming excessive, and billing and payment can be automated.
The role of supply chain management software
- In today’s supply chains, technology is crucial, and ERP companies offer modules that focus on key SCM operations. There are also vendors of business software that specialize in SCM.
- The increasingly global character of today’s supply chains, as well as the rise of e-commerce, which focuses on virtually instantaneous small delivery to customers, are providing issues, notably in the areas of logistics and demand planning. A variety of tactics, such as lean manufacturing, as well as newer approaches, such as demand-driven material requirements planning, could be beneficial.
- Technologies are also being utilized to help solve current concerns, such as supply chain risk and disruption, as well as supply chain sustainability, using big data, predictive analytics, IoT technology, supply chain analytics, robotics, and autonomous vehicles.
- IoT can help with transparency and traceability to help increase food quality and safety by employing sensors to monitor the temperature of perishable food while it’s in transit, to name a couple of instances. Furthermore, analytics can assist in determining where smart lockers should be placed in densely populated areas to reduce the number of single-item deliveries and greenhouse gas emissions.
More about supply chain management
Making good supply chain management a strategic focus is one of the finest ways for firms to provide excellent customer service. Supply chain management monitors the procedures that connect suppliers to work efficiently together to deliver a product from production to the hands of the customer while taking supply and demand into mind.
What is the significance of supply chain management?
Supply chain management is critical for any firm since it can provide several benefits; yet, inadequate supply chain management can result in costly delays, quality difficulties, or a negative reputation. In some circumstances, if suppliers or processes aren’t compliant, inadequate supply chain management might lead to legal concerns. Technology advancements have opened enormous possibilities for supply chain management, allowing supply chain managers to collaborate with supply chain members in real-time. SCM can be used to:
- Problems should be anticipated.
- Prices should be adjusted dynamically.
- Increase inventories and fulfill orders
- Objectives Of Supply Chain Management
Take a look below:
To Increase the Total Value Produced
Higher SCM profitability, higher success: The more profitable or excess the supply chain is, the more successful it is.
The difference between the amount paid by the customer to purchase a product and the cost incurred by the organization to make and deliver the product to the client on time is known as supply chain profitability.
Profit equals the difference between the amount paid by the client and the overall cost of the business.
To Look for Revenue and Cost Sources
There is only one revenue source, which is the client.
A cornerstone to supply chain success is proper management of the movement of information, goods, or finances.
Whenever the material or product is depleted, it is replenished.
Replenishment is the process of restoring a stock or supply to its previous level or condition.
Management or marketers may consider refilling materials or products as needed.
Cost-Effectiveness Improvement
Achieving cost-quality balance and optimization is another essential goal of supply chain management.
Quick Shipping
A marketer or distributor can offer items or materials to the market more quickly with efficient supply chain management.
Optimization of Delivery
To meet consumer demand for on-time, high-quality, low-cost delivery with a short lead time.
Efficiency
At all points throughout the supply chain, supply chain management promotes efficiency.
Performance at the highest level
SCM aids in achieving world-class results.
Increased Awareness
SCM can assist in increasing supply chain knowledge and efficiency.
Fulfillment of Demand
Demand and supply management is a critical and difficult duty for corporate or management professionals. Supply chain management is critical in meeting consumer demand by utilizing effective resources.
Inventory Management
Optimizing pre-production and post-production inventory levels is also beneficial.
Inventory refers to the influx and outflow of goods for manufacturing purposes.
Characteristics of the Business
A thorough examination of a company’s micro and macro supply chain management can lead to a better understanding of its characteristics.
Flexibility
A well-managed supply chain allows for more flexible planning and greater control.
Optimization of Transportation Costs
Reduced or minimized transportation costs: Supply chain management aids in the reduction or minimization of transportation costs.
Efficacy
More labor, equipment, and space efficiency: Supply chain management is a godsend for greater efficiency and efficacy.
Improved Distribution
Improved distribution: Supply chain management can improve the distribution side’s efficiency. By correctly employing all available resources, a marketer or distributor can reach an ideal degree of distribution.
Cost-cutting
Cost reduction: SCM aids in the reduction of the company’s system-wide costs to meet service level requirements.
Manufacturing, fixed assets, inventories, and transportation are some of the company’s expenses.
Response time in hours, days, weeks, and months
Make a better choice
SCM aids top and middle management in making better decisions. It can be utilized as a competitive advantage strategic management tool.
Components of Supply chain management
Planning
One of the most crucial stages is this one. Before the start of the complete supply chain, it is critical to finalize and implement the strategy. Checking demand for the product or service, as well as viability, costing, profit, and personnel, are all important. It will be very impossible for the company to attain effective and long-term benefits without a clear plan or strategy in place. As a result, this phase must be given sufficient attention. Only once the plans have been finalized and all pros and disadvantages have been considered can one proceed. Every organization needs a strategy that is based on a plan, blueprint, or roadmap. Planning aids in the identification of market demand and supply patterns, which aids in the development of a successful supply chain management system.
Information
Today’s world is dominated by a never-ending influx of data. A business must be up to date on all of the newest information regarding the various parts of its production to be successful. The supply and demand trends for a given product can be better understood if the information is appropriate and timely shared throughout the organization. In a knowledge-based international economy, information is critical, and ignorance of any part of the business could spell disaster for the company’s chances.
Final Thoughts
Supply chain management can be utilized to improve overall business performance and achieve a competitive advantage if a firm or manager recognizes its importance and benefits. Most importantly, all of this can be accomplished without jeopardizing the required degree of client service.