Table of Contents 1. What do we understand by the term ‘Supply Chain Management’? 2. Which are the important components of Supply Chain Management? 3. Strategies needed to implement a successful Supply Chain Management. 4. How to optimize Supply chain management? 5. FAQs |
What do we understand by the term “supply chain management”?
Supply chain management is a commercial term, which means a series of processes put in place starting from the procurement of raw materials to making the finished product available to customers hassle-free and fast in the most cost-effective way.
Supply chain management is an integral part of every small and large business. Without a proper connection to the supply chain in place, there are a lot of problems for the manufacturer and retailer. A manufacturer will not be able to procure the best raw materials at the best price available if he does not have a proper supply chain management system in place. Similarly, a retailer will not be able to buy the best available products on the market from manufacturers at a cost that is best suited to him. In between come processes like marketing, distribution, and wholesalers, who facilitate a product’s ability to reach the right places at the right time.
In creating a competitive infrastructure, the most important aspects are to design, plan, execute, control, and monitor supply chain activities to yield value from it. It is an integrated and multi-method approach, bringing many processes together that are interlinked with one another. Some features of good supply chain management are sustainability, risk management, transparency, economy, and so on.
Which are the important components of supply chain management?
- Planning and control: it is the primary and one of the most important stages of SCM. Proper planning in the initial stage not only helps give a fair idea of how to do things but also helps us execute things better and more efficiently. It helps us give a fair idea of the costs involved, the manpower needed, and the time to be taken. Control over all the decisions and processes is equally important to reduce the chances of errors and ensure accountability for each job to be done.
- Information: In today’s world, being informed about the latest trends and changes is very important to stay updated and take the necessary decisions that are good for the business. With a rapidly changing environment, staying informed helps you arrive at quick decisions.
- Source: Suppliers play a very crucial role in supply chain management systems. Products and services sold to the end user are created with the help of different sets of raw materials. It is therefore necessary that suitable quality raw materials be procured at cost-effective rates. It is crucial that a company procure good-quality resources so it can create good-quality products and maintain its reputation in the market. This necessitates a strong role for suppliers in the supply chain management system.
- Inventory: For a highly effective supply chain management system, it is essential that an inventory be kept and thoroughly maintained. An inventory is the ready list of items, raw materials, and other essentials required for the product or service. Businesses have now started to pay more attention to this component simply because of its impact on the supply chain.
- Production: Production is one of the most important aspects of this system. It is only possible when all the other components of the supply chain are working in tandem with each other. For the process of production to start, it is essential that proper planning and supply of goods, as well as the inventory, are well maintained.
- Location: Any business that wants to survive as well as flourish needs a location that is profitable for the business. Hence, a suitable location that is well connected and very close to the source of essential resources for production is vital to a business’ prosperity. The requirement and availability of manpower must also be considered while setting up a business unit.
- Transportation: Transportation is vital in terms of carrying raw materials to the manufacturing unit and delivering the final product to the market. At each stage, timely transportation of goods is mandatory to sustain a smooth business process. Any business that pays attention to this component and takes good care of it will benefit from the timely production and transportation of its goods.
- Return of Goods: Among the various components that create a strong supply chain is the facility for the return of faulty or malfunctioning goods, along with a highly responsive consumer grievance redress unit. No one is infallible. Even a machine may malfunction once in a million times, if not more. As a part of a strong business process, one may expect the return of goods under various circumstances. Even the best quality control processes may have unavoidable momentary lapses. In the case of such lapses, inevitably followed by consumer complaints, a business must instinctively recall the product(s) and issue an apology. This not only creates a good customer bond but also maintains goodwill in the long run. All of these components are interrelated; that is, the proper functioning of one component will help the other component function better as well.
Strategies needed to implement successful supply chain management
- To use a margin on important components to be on the safe side, like having more stock than usual requirements, keeping more time on hand to handle unexpected delays that may arrive, or having enough capacity to control high demand phases in the business This concept is known as the “buffer” strategy, which in turn leads to the success of supply chain management.
- As procurement directors realise that relying on a single source for products is risky, they are diversifying their manufacturing and sourcing networks.Diversifying your network (also called multi-sourcing) starts with looking out for other options in the same category without compromising the quality, like forging relationships with additional suppliers or a supplier that has capabilities in multiple locations.
- Investing in demand forecasting helps improve a business’s SCM. Demand forecasting is the process of using data and not gut feelings to gauge the demand for materials ahead of time, so you don’t come up short when it matters most. Accurate demand forecasting improves lead times, cuts costs, and improves customer satisfaction. There are numerous methods to predict demand, like surveying customers, monitoring social media, reviewing historical data and trends, or soliciting advice from a consultant.
- Standardizing your processes makes SCM more consistent and dependable. This is especially true for organisations whose suppliers and manufacturers are scattered across the world.
How do I optimize supply chain management?
The goal of supply-chain optimization (SCO) is to make sure that a manufacturing and distribution supply chain works as well as it can. This includes
- Optimal placement of inventory within the supply chain
- Minimizing operating costs, including manufacturing costs, transportation costs, and distribution costs
- Application of mathematical modelling techniques using computer software is considered to be part of supply chain engineering.
- Aiming to maximise the profitable operation of the manufacturing and distribution supply chain. For example, maximising gross margin return on inventory invested (GMROII).
- Using tools such as Demand Optimization, Forecasting, and Customer Satisfaction to reduce costs, errors, and achieve better results.
FAQs
Q1. What is supply chain management?
Supply chain management is a commercial term, which means a series of processes put in place starting from the procurement of raw materials to making the finished product available to customers hassle-free and fast in the most cost-effective way.
Q2. What are the features of good supply chain management?
Some features of good supply chain management are sustainability, risk management, transparency, economy, and so on.
Q3. Which are the important components of supply chain management?
Planning and control, information, source, inventory, production, location, transportation, and the return of goods are some of the most important parts of supply chain management.
Q4. Why is optimization important in the supply chain?
Optimization is important as it will not only reduce cost and errors but will also help run the processes effectively and yield better results.
