Supply Chain Management (SCM) can be defined or expressed as the range of activities that are carried to maintain the flow of goods and services from vendors to its clients. This was the simplest way of putting the meaning together while anyone asks, is one of the most important operational aspects of every business today.
- Why Supply Chain Management is Important?
- Understanding Supply Chain
- SCM Concepts and How to Manage Supply Chain
- Importance of Supply Chain Management
- How Supply Chain Works and Main Function Of Supply Chain Management
- The Basics of Supply Chain Management Processes
- Four Elements of Supply Chain Management
- Careers in Supply Chain Management
- The Future of Supply Chain Management
Why Supply Chain Management is Important?
To explain further, Supply Chain Management circumscribes a broader range of activities that are inclined towards planning, controlling and executing a thorough process of acquiring raw/processed item and then distributing it to its users. This includes a chain of process or rather can be called stages that are connected and interdependent to maintain a balance between the demand and supply in a business.
SCM includes a broader area right from demand planning, production, sourcing, inventory management, transportation, and storage. Not to forget, returns of excess and defective products. The expansive complex of SCM is today fueled with most modern and advanced technologies simplifying operations and giving a steady hand to humans in progressing throughout the business goal.
Successful businesses rarely deny to the unmatchable benefits that can be leveraged through Supply Chain Management. Having a clear and focused idea of your inventory, the rate of demand and the future predictions can save you big times at managing the shelf life of your inventory while maintaining a steady flow of supply and demand.
The importance of keeping a close track of your supply chain can be well seen while making any hard and fast decision regarding the production line up, current inventory status, procurement and delivery of products. Having the right idea about your inventory and the current state of demand allows you to understand customer behavior and therefore take better decisions. Well, the first advantage comes in terms of fluent production at a lower cost of operation.
Now, it also makes it easier to catch the problems in the total supply chain and brings more transparency into the demand line up. That being said, with the evolution of eCommerce Logistics and market fluctuations across the globe, it is more crucial for businesses to focus on the steady flow of their supply and logistics transportation.
Understanding Supply Chain
A SCM involves layers or stages involving the entire life cycle of finished products right from the start until the item is delivered to its end users. Moving of the raw materials, maintaining the supply of raw material into the production line up, storing of the finished product, managing the inventory and then distributing the products to the customers.
The demand for the product in the market is all that drives the supply chain of a business. Imagine a business as a vehicle, the demand for the product/output keeps it running while you need to maintain the steady flow of fuel and deliver the product/passenger to its customer/destination. Now throughout the process of taking the order and then running up your business to supply to the demand are all interlinked together. The need for supply doesn’t come once while addressing a current consignment (demand).
So, for a particular business, the chain starts with noting down the demand and then extracting the raw material and preparing to process for the end product. In the process, the first supply comes into the picture where a business needs parts, spare parts and other necessary materials that are required to keep the production line up working. Here the business and the supplier remains interdependent upon the suppliers. The manufacturing stage requires certain extra materials like spare parts, additional materials, and other overheads.
On proceeding further, once the good is manufactured, the next stage of a supply chain is storge. Company warehouses or private warehouses is a common way of managing your end products before finally sending it to its end users. This adds up to a total of three stages of supply for addressing a particular demand.
Now to make it more cost-efficient and maintain an effective flow right from the point of origin till the product is shipped out, supply chain management comes into the picture. Now that you have the basic blueprint of the supply chain, let’s move ahead to understand more on Supply Chain Management.
SCM Concepts and How to Manage Supply Chain
The concept of Supply Chain Management was not too far until the global business started growing and business started on understanding the need for marking a command on to their customer service. As trade flourished and business started growing across the globe, demand started to rise high. That being said, enterprises started to look for more resources to keep the business up and running to meet the demand. Either this or the market rivalry pull you down. This consequently resulted in emerging suppliers that also resulted in making the supply market more demanding and the loop continues to grow since 1990.
The concept of Supply Chain Management was clear right from its incursion that demands upstream and downstream management of the material flow, final products, and information among four major entities, namely the supplier, company, resellers, and end-users. The basic principle upon which SCM depends include,
- Segregating customers based on their product needs and then making the supply chain stages adapted to each group maintaining the business flow.
- It’s a great weapon to strategically place the logistics network for the most profitable group of customers gaining more traction.
- Demand planning results in the best when merged with active predictive analytics.
- Listening to market signals carefully to utilize profitable opportunities for managing the supply of raw materials is a skill that is needed.
- The threat of supplier has to be reduced keeping the options wide and acceptable. This will indeed result in giving opportunities to bargain and therefore keep the overall supply cost at its minimum.
- Gathering and storing relevant and up to date information about the current state of inventory, customer demand, upcoming marketing surge is highly crucial, playing a major role in decision making.
- Deliver the right product while having a return policy for the customers. This is a much-needed policy to be kept for managing the supply chain of any eCommerce business.
Supply chain management cannot be the job of any single person in the organization. Many hands and minds are needed to work in steady synchronism throughout the process to develop an adequate sense to manage the supply and logistics needs. Though addressing all the segments more efficiently could have never been possible with advanced analytical and technological support.
Importance of Supply Chain Management
It has been since 1990 that business leaders have confronted to the need and significance of Supply Chain Management, as being an integral part of the business. Among the most noted and easily derived importance that SCM serves to include,
Boosting your customer service level
- Business maintaining a proper SCM structure delivers the quality product with correct assortment. Believe me, people trust a brand who delivers as promised.
- Efficient knowledge of your supply chain helps in managing the logistics well enough. This makes it deliver the product to the customer right on time.
- It is not unlikely that all the products that are being delivered will be perfect. Sometimes it happens that faulty products or extra items need to be returned as packaged back to the seller. Efficient SCM ensures your after-sale support and helps in retaining your customers.
Reducing Operations cost
- Holding costs for suppliers has always been an issue as it increases the overhead investment into the business and also reduces the chances of clearing the current stock while aiming for fresher ones. So, efficient supply and demand chain management ensures that the flow of goods and items are properly carried without the chances of getting stagnant. This results in a reduced overall operational cost.
- Selecting the right supplier and managing to drive in quality resources reduces the production cost. As spare parts and raw materials supplied to the business is of the best quality, chances of overheads are reduced. Also, an efficient and productive supply chain ensures that the raw materials are supplied to the production line up at times of high demand, therefore, engaging in better production performance.
- Efficient supply chain, therefore, improves the overall financial position of the business. Saving at least a dollar in any bulk packaging shipments can result in a huge income of profit in the overall.
Improving the overall operational performance
- When the supply of raw material is fast and is done right on time, the performance of the operation increases. Effective supply chain management ensures that the flow of input and output of a business is steady and not much hindrance is forged into the process.
- Also, as the overheads get reduced, more amount of finished products can be made from the same amount of raw material and supplied to the customers. This results in better customer retention and therefore increase in the brand value.
The benefits and perks that can be leveraged from a successfully incorporated Supply Chain Management structure are not yet over. Proper implementation of human resource and technology at every stage of the product life cycle makes it easier to enhance the business’s approach towards delivering better quality products.
How Supply Chain Works and Main Function Of Supply Chain Management
The functionality of any business’s supply chain can be best explained through understanding their product life cycle right from the supply of raw material to the distribution of end products. Though the scenario may vary based on the industry, the basic concept remains the same. Let’s take an example of any garment like Zara to draw a picture of all the important stages of the Supply chain.
For Zara, the initial steps start with procuring the raw materials or fabrics (only in 4 different colors) that are cut and designed in-house. This is the first stage of supply. All the suppliers are near the fast and efficient delivery of raw materials.
The designed and tailored clothes are then rolled out to the manufacturing unit where the apparels are ironed, tagged and packed. Overnight trucks and logistics support to deliver the products within the country and freights are assigned to ship the consignments across other countries. This explains the third stage of the supply chain when the end products reach to various retails outlets and then to the end-users.
Next, to this, the last stage that needs to be kept in mind is the after-sales service to the customers. This might include a return of excess or defective products that are then shipped back to Zara’s in-house team. This was the last stage of the supply chain and the cycle continues.
Now at every stage, the information and data for the supplies, use of resources and shipment of packages to different customers plays an important role in understanding the behavior of the supply and demand that the business has at any given time. The major functions that are played by supply chain management are,
The crux part of your supply chain would be the integration process which is meant to coordinate and communicate to support efficient workflow and derive timely results. This function includes the involvement of vivid technology platform or software that facilitates communication among the entire chain of entities involved in the supply chain. The goal is to keep constant communication and keep updated data on procurements, utilization, and deliveries of consignments.
Supply chain plays a key role in the overall business operations that happen day-to-day in the business. The daily supplies and production rates are all dependent on supply chain efficiency. Also, these functions deal with having a clear knowledge of the inventory and understand the current marketing fluctuations to order or stock up the inventory for further operations.
Making critical decisions on raw material procurement, taking down orders, or managing purchases becomes more difficult if you do not have a clear idea of the current data on the supply chain scenario. Supply chain management plays its next function here. It readily supports decision making and facilities better management of procurements, purchases, and deliveries.
Businesses that need to maintain a business relationship with their wholesalers, retailers, and customers need to manage their logistics. The last broader function that SCM plays is in managing logistics and distribution.
Today advanced analytical software or intelligent platforms are doing most of the job of data keeping and managing a humongous part of the business operations. You just need to sit back and keep an eye on the reports that this software prepares and plan accordingly.
The Basics of Supply Chain Management Processes
So, here we are. We have learned about the supply chain, how it works, its functions and have proved its significance in running an efficient business operation. Now, a simple brush up on the basics of supply chain management. As stated by Lambert and Cooper, any successful supply chain management process involves changing over from managing a single individual process to integrating management into the entire supply chain process. The basic key process of a supply chain include,
- Customer-relationship management
- Demand-management style
- Customer-service management
- Manufacturing-flow management
- Fulfilling orders
- Product development and commercialization
- Supplier-relationship management
- Returns management
Now every process is unique in its terms but plays a combined role in integrating supply chain management into the supply chain of the business. Therefore to sum up the basic stages that are involved in a supply chain management process, the model includes,
Building up an efficient chain of operations that includes a fast flow of resources into the business, manage suppliers, manufacture the products, deliver them at the right time to the customers and also managing the return policies. However, it all starts with enterprise resource planning and comprehending the threats of suppliers and buyers in the market (Porter’s Five Force analysis).
Managing Supplier Relationships
With the evolution of supply chain management, another popular term came into reference, i.e. Supplier relationship management (SRM). SRM can be defined as a systematic approach towards managing, driving and maintaining constant terms with the suppliers. This depends on the market of operation. Accessing the suppliers, their contribution to the business as a stakeholder, and developing a sound strategy to maximize on the supplier’s performance.
The definition of SRM varies from business to business and across multiple industries based on the requirement and availability of suppliers. The typical objective of implementing SRM into the business operation is to maintain a streamlined business process between you and the supplier. This results in a mutually beneficial relationship with the supplier who is at the forefront of supplying fast, less expensive and quality products to the business.
Four Elements of Supply Chain Management
The sequence of processes that constitutes the supply chain needs to be included in the altogether while planning for supply chain management to give the optimum result. It is important to manufacture the product and distribute it to the customer. The more a product stays in the warehouse, more are the chances of losing the shelf life of the good. So, never fail to pay attention to the four crucial elements of supply chain management that includes,
Integration of the framework into the supply chain process
Long term success is always a prior goal for every business. And the only best way to achieve it is through effective planning way ahead. Similarly, the first major element of a successful supply chain management is planning for the integration of the new measures into the business and successfully integrating them. This must be justified with an efficient flow of communication and collaboration between all the entities involved in the entire supply chain of the enterprise.
Supply chain operations
Not along a planned framework would contribute to a successful supply chain management. Efficient day to day operations proves to be the backbone of the entire system. Today modern operations are more addressed towards the changing market scenarios and business have found a way to keep up their business operations through lean management. All together they add up to the second important element of supply chain management.
Deciding on the suppliers/sources
Obviously, your business operations and planning would not work without the proper flow of production. Managing the suppliers is another major entity that deals with confronting the suppliers and ensuring that the best of materials, raw products, and goods are constantly supplied to the business to ensure proper running of the business.
Distributing the business commodities
The next major element of a successful supply chain management is distribution. After a product ends up on the shelves of the shops or outlets, the final distribution to the end users estimates the demand for the product in the market. An adaptable and efficient distribution network ensures that the products are not kept stagnant in the warehouse thereby reducing the overall operational cost.
Supply Chain Risk Management
Risk is associated with every sector of business and forms an unexpected and inevitable occurring that can pull down any business from its current state of success. It is crucial to address risk keeping at higher priority as they can turn the game within a moment. Supply chain involves all major functions in business thereby encompassing a range of risks and challenges. Here is a list of 10 major challenges that today hinders the progress of any successful chain management.
- Changing the political scenario and government
- Economic Instability
- Extreme Weather Event
- Environmental Risks
- Cyber Attacks
- Data Integrity and Quality
- Inconsistency of the Suppliers
- Loss of transportation
- Unsatisfaction and retention of the customers
Now the question is how to minimize supply chain risks?
Based on many expert reports and worldwide surveys, the potential ways of mitigating the risks or at least keep the management aware and prepared for any unexpected challenges down the road.
- Knowing your potential suppliers in the market.
- Make sure that the right resources and materials are supplied to you.
- Pay for what exactly you have received.
- Prevent or resolve disputes with your suppliers effectively. They might come in handy at times of need.
A Better Way to Manage Supply Chain & Manufacturing Operations
In regards to locating a better alternative for managing the supply chain, it is essential to start adopting a plan that is demand-driven and based on a robust business model. With real-time insights and demand assessment, the entire view and effectual responses to risks can be mitigated and ensured at the same time. The potential threats of suppliers running out of business, political disturbances, natural disasters, and manufacturing fluctuations can be curbed with proper adjustment done for pricing and promotion strategies.
The following step to the aforementioned would be adapting to an agile supply chain that connects with quick planning and collaborative integration of the same. With the executives having a broader understanding of the market demand, and the possible risks, they will be proficient in familiarizing themselves with the current market opportunities in the supply chain.
Careers in Supply Chain Management
With the rising demand for supply chain management and its associative robust functionality with the logistics industry, the growth is even more prospective from the career angle. Based on current statistics of career opportunities in supply chain management, almost 68% of the fresher and experienced candidates are playing important designated roles in various sects of the logistics industry.
To attain a career in SCM, the basic educational qualification that is required is a bachelor’s degree. For higher positions, employers will seek a professional or master’s degree.
The candidates who have just passed out or in their last year of graduation can also opt for having a career iin this field by enrolling for internship opportunities and would have a first-hand experience of the field. Apart from these, there are also degree programs in logistics and supply chain management.
The Future of Supply Chain Management
Digitization is one of the foremost things that come in the discussion while predicting the future of supply chain management. With artificial intelligence and more advanced technologies to be introduced in SCM for the coming future, the overall structure of this industry is going to be even faster-paced, vigorously competitive, and an omnichannel business environment.
The dynamics of the supply chain management is going to be revolutionized with such technologies coming in that focuses on maintaining data accuracy, transparency, and flexibility. Manual errors, delay processes and faulty in supply chain ledgers are no more in the present or future pages of this industry. Potential market risks are being combated in proficient ways and the linear equations of a wide-spreading circular supply chain is an indeed prospective visualization for the future.