Most companies have supply chains that are far from simple, making their management challenging and complex. Yet, in order to run a successful business and grow operations to meet your goals, effective supply chain management is crucial. In addition to streamlining the complex network of activities to get a product from a supplier to a customer, good supply chain management can streamline efficiency, reduce costs and improve customer satisfaction.
Consider this your comprehensive guide to supply chain management.
What is Supply Chain Management?
Supply chain management, or SCM, is how a business handles the entire flow of producing its goods or services – from the very beginning to the very end. The supply chain begins with the sourcing of raw materials and then moves on to production, logistics and then, finally, the delivery of the goods to the customer or end user.
The supply chain is a complex network of partners and suppliers, all of whom play an important role in creating and executing a good or service. Communication is paramount in SCM to manage material movement, manage inventory, arrange transportation and even return unwanted or defective products. When the supply chain is managed effectively, the result is the seamless flow of goods and services. When it’s not, inefficiencies can sap business productivity, leading to problems throughout the supply chain and eroding trust with customers.
The five stages of the supply chain management process are:
- Plan: This involves forecasting demand and managing the resources that are required to meet consumer needs.
- Source: This stage involves identifying and selecting suitable suppliers to provide the required goods and services through processes like requests for quotes and contract negotiations.
- Create: The manufacturing or production stage where the actual product is created, or assembled.
- Delivery: This stage involves coordinating any customer orders, scheduling pickups or deliveries, picking and packing products, managing transportation and logistics to deliver to customers, and then invoicing and receiving payment for the goods or products.
- Return: Handling product returns, repairs, recycling or proper disposal of defective, damaged or unwanted products.
All the stages are important in their own way and must work together with each other throughout the process.
Importance of SCM
Good supply chain management can result in competitive advantages for any business, notably in getting products to market and into the hands of customers faster. Utilizing good supply chain management software can also lead to reduced costs for your business, which can help improve overhead and the overall bottom line. Finally, working with trusted partners throughout the supply chain can also help your business adapt more quickly and seamlessly to any market changes and fluctuating consumer demands.
Efficiency and Cost Reduction
A good supply chain management system can help businesses enhance their overall efficiency and reduce costs. Various strategies like bulk purchasing, optimized logistics and lean manufacturing are commonly used by supply chain professionals to eliminate waste and streamline efficiencies throughout the process.
Improved Customer Satisfaction
If you don’t have customers, you don’t have a business. That’s why it’s so important to keep customers happy with the products or services that you’re providing. Supply chain management can help, especially when it comes to fast delivery. Studies indicate that if a product isn’t delivered within two days of an expected delivery date, nearly 70 percent of customers say that they’re unlikely to do business again with that firm in the future. A streamlined supply chain can help ensure that deliveries are on time and even work to improve order cycle time to keep your customers happy.
In addition to streamlining delivery times, supply chain management can also help ensure quality goods or services and that customer expectations are met, if not exceeded. One way to do this is by tending to quality control. Regular audits of vendors and supply chain partners can help ensure that consistent levels of product quality are being met and identify areas where improvement is necessary if they aren’t.
Risk Mitigation
Supplier failures. Transportation delays. Logistics issues. Demand planning complexity. Economic issues.
These are all examples of risks that supply chains often face. Good management can help businesses better adapt to various internal and external threats and mitigate risk faster. Various supply chain strategies – such as contingency planning and diversification of supply chain risks – can help. Contingency planning is a strategy where businesses work to analyze any potential disruptions that could potentially impact their business – and then create a plan to meet any of these challenges head-on, should they occur. Diversification involves being flexible enough to avoid or minimize any risk. Some examples of diversification in supply chain management include working with different suppliers or expanding distribution networks.
Key Components of SCM
Good supply chain management means that all of the various steps – and the suppliers, manufacturers, providers, and transportation firms – involved are working together in lock-step. However, there are various key components that businesses must follow to get there. Here’s an overview of some of these key components and the impact they have on the overall performance of the supply chain:
Planning and Forecasting
Planning and forecasting is important because it helps decision-makers make the best possible choices for their business. Proper planning can also help avoid any disruptions. Two strategies to assist with planning and forecasting include demand planning and capacity planning. Demand planning is a process that helps a business project future demand and then adjust and adapt output accordingly. Capacity planning involves creating a perfect balance between the demand-supply of goods and products, and involves a comprehensive assessment of the entire production process to determine if current and anticipated demand can be met both in the present and also into the future.
Sourcing and Procurement
Materials and service sourcing and procurement are also important components of the whole supply chain strategy – and various factors need to be taken into consideration when partnering with suppliers. Among the most important are cost, quality and reliability.
Manufacturing and Production
How efficient is your production process? How effective is your quality control? Manufacturing must be done to meet market demand. Ideally, it also helps create just the right amount of product to keep inventory in check and reduce storage costs. If you’re not monitoring inventory levels closely, you could end up creating too much or too little product. Create too much product, and your inventory days on hand are likely to get longer, which means it takes longer to sell and turn over. Too many products also increases the risk of obsolescence. Conversely, manufacturing too few products can lead to longer lead times and unhappy customers. Striking the perfect balance is important.
Logistics and Distribution
Logistics is one of the most important components of supply chain management. Logistics encompasses transportation, warehousing, inventory management and more. Simply put, logistics help ensure that goods and services run smoothly from the supplier to the manufacturer and then to the distributor and end user. If a thorough logistics and distribution plan is lacking, it’s likely to impact the entire supply chain, potentially delaying delivery times and resulting in unhappy customers.
Customer Service and Returns
Finally, you shouldn’t overlook the importance of customer service and returns. If a customer has a problem, there must be a prompt resolution. And if they receive a defective product or no longer need an item purchased or ordered, they must be able to return it easily. Good customer service and a convenient return policy are more than just the right thing to do for customers, they can also help your business. A good experience can result in enhanced customer loyalty and help build a positive brand reputation.
Benefits of SCM
Effective supply chain management has a lot of benefits, which underscores why it’s important for businesses to take this seriously. Here’s an overview of some of the key benefits associated with good supply chain management:
- It can save your business money and improve its bottom line.
- It can streamline efficiency throughout the business.
- It can create competitive advantages over your competition by being able to better predict customer demand.
- It can lead to significant improvements in cash flow and reduce overhead costs.
- It can help your business meet any sustainability goals that it has established, whether it’s a societal goal or an environmental goal.
In addition to these benefits, good supply chain management is simply good for the health and growth of your company. It can help lead to better resource allocation and more efficient overall operations, which can propel your business forward and help it meet its short and long-term goals.
Future of Supply Chain Management
Like anything, supply chain management continues to evolve as technology improves – and various emerging technologies are impacting supply chain management now, and poised to impact it even more into the future. These technologies that are impacting the future of supply chain management include:
- AI: Artificial intelligence is poised to become a major disruptive technology in just about every industry. The most significant way AI is poised to impact supply chain management is when it comes to planning, forecasting and overall optimization. AI systems learn from historical data and make predictions accordingly. If such a system can learn the historical data of your business, it can serve a key role in helping to make future predictions so your supply chain runs smoother and more efficiently.
- Blockchain: Blockchain can help businesses improve transparency and traceability – two key factors involved in good supply chain management. Additionally, this technology can help companies reduce costs and improve trust thanks to the verifiable data it can help facilitate.
Aside from these two technologies, there’s also a drive around ethics and sustainability in modern supply chains too. Ethics refers to fairness and safety, while sustainability is all about integrating environmentally responsible practices into supply chain models to do right by the environment and reduce a company’s carbon footprint.
Impact of Technology on SCM
Technology transforms everything, and supply chain management is no exception. In addition to emerging technologies like blockchain and AI, existing technologies like the Internet of Things (IoT) and predictive analysis have been utilized for years in supply chain management processes and systems. They come with several notable benefits, including increased visibility and real-time decision-making.
Supply Chain Sustainability
Sustainability has become one of the most popular initiatives for companies in recent years – and there are ways to make your supply chain performance more sustainable as well. The challenge for environmentally-conscious companies is to maintain standardized supply chain processes without impacting the environment. This could range from sustainable material sourcing to avoiding pollution and deforestation. It may also include the use of sustainable packaging. It may even go as far as ensuring that any suppliers or partners acknowledge a code of conduct or similar agreement that states the products they produce do minimal harm to the environment as part of any carbon reduction goals.
Globalization and SCM
Supply chain management work isn’t just national – it’s global. At least it is if companies want to reach new customers throughout the world. A global network can make supply chains much more complex, which can pose its fair share of challenges to properly managing networks. The increased market reach understandably leads to much more complex logistics.
Aside from managing more complex logistics, there are a number of other challenges that companies must navigate when it comes to supply chains. Factors such as cultural understanding in other countries, compliance with international standards and regulations, import and export fees, and more all play a major role in going global.
FAQs About SCM
Here’s a look at some of the more frequently asked questions we receive about supply chain management.
What is the definition of Supply Chain Management?
Supply chain management is how a business handles the entire flow of producing its goods or services – from the beginning to the end. Modern supply chain management often begins with sourcing raw materials and then moves on to production and logistics and ends with the delivery of the goods to the customer.
How does SCM contribute to cost reduction and efficiency?
When the supply chain is managed effectively, the result is the seamless flow of goods and services. Good supply chain management can help businesses get competitive advantage, enhance their overall efficiency and reduce costs.
What are the key components of an effective SCM strategy?
Key components of a supply chain management strategy include planning and forecasting, sourcing and procurement, manufacturing and production, and logistics and distribution. Another important component is customer service and returns. For the supply chain to operate effectively and efficiently, all of the various components must flow well.
How can technology impact the future of SCM?
Technology only gets better over time – and we’re in a period right now where it’s accelerating at a rapid pace. Technologies such as artificial intelligence and blockchain are poised to be major disruptors in many industries and processes – and supply chain management is certainly among those that they’ll impact. When utilized correctly, the benefits of incorporating such technologies into the modern supply chain, are sure to outweigh any of the negatives.
What role does sustainability play in SCM?
Every business these days seemingly has a sustainability plan or a plan to reduce carbon emissions. While many people think that sustainability is achieved by one big thing, it’s often many little things that add up over time. Focusing on the supply chain can help significantly improve a company in this area. From more strategic material sourcing to the use of sustainable packaging, there are many ways to make your supply chain more environmentally friendly.
How does globalization affect supply chain management?
Going global with your business opens up its reach to new customers all over the world – and the payoff is usually more sales, business growth and larger profits. But globalization is not without its challenges, as usually a more complex supply chain network must be managed. Other key challenges to going global include language and cultural barriers, complying with international laws and standards, import and export fees, transportation logistics and more.
What are the main challenges to implementing SCM?
Competition is fierce and customers are arguably more demanding and less patient than ever. It really puts the pressure on effective supply chain management practices. Some of the biggest challenges to implementing SCM include factors such as demand forecasting, costs, supplier partnerships, managing delays and more.
Optimize Your Supply Chain with ShipCalm
Good supply chain management is important. ShipCalm is here to help. When you partner with ShipCalm on supply chain management needs, you can rest assured that you’re working with a credible partner who will help diagnose inefficiencies or bottlenecks in your process to improve efficiency, reduce costs and enhance overall customer satisfaction.
Contact us today for help with streamlining your supply chain and to drive further business growth.
