Importance of Supply Chain Management

In today's world, where competition between organizations is increasing, the way to leave other businesses behind is to increase the satisfaction of the customers who buy the products. This can only be achieved by delivering the product to the customer in the fastest and safest way. That is why, Supply Chain Management has gained importance for every organization, whether small or large. Supply Chain Management allows to actively manage supply chain activities to maximize customer value and satisfaction and gain a sustainable competitive advantage. It creates end-to-end visibility for organizations to monitor the flow of services and goods.

What is Supply Chain Management?

The supply chain includes all the activities, people, organizations, information, and resources required until a product is procured and transported to the customer. The purpose of the supply chain is to meet the demands of the end-user. Supply Chain Management is a business strategy that provides supply and demand management in all members and channels within the supply chain. It covers carriers and regulations that oversee the transportation of goods. It allows managing logistics and inventory levels to coordinate buyers and suppliers.

Supply Chain Management looks at the entire supply chain from supplier to consumer and helps to review key areas of people, processes, and systems to maximize the value of all activities.

What are the Key Components of the Supply Chain?

The Supply Chain Management business strategy basically has 5 components, and these 5 components, if implemented effectively, contribute to increasing the value of an organization in any industry.

  • Planning

Planning is the process by which supply chain managers plan ahead to use all resources efficiently to deliver value to customers and to meet customers' demands for products and services in order to achieve the organization's goals. Supply chain managers anticipate customer demands, create plans based on those forecasts, and determine how the plans will measure efficiency.

  • Sourcing

Sourcing involves selecting suppliers to provide the raw materials or services that make up the product, creating contracts governing suppliers, managing and monitoring existing relationships. It encompasses many processes such as ordering, managing inventory, receiving, paying, and authorizing. Reliable relationships with suppliers increase the quality of raw material supply.

  • Making

Making is the step that allows organizations to coordinate all the steps involved in the creation of products and produce products along with quality tests, by controlling quality, production output, and employee productivity, often to maintain their overall standards. It also covers the control of things such as packing the cargo and the delivery schedule.

  • Delivering

Logistics covers the process of coordinating product orders, planning delivery, shipping, invoicing, and receiving payment, and ensures that products reach customers.

  • Returning

Organizations grant the right to return to the end-user for defective, unwanted, and excess products. Returner is the step where a defective product is scrapped or remanufactured, and an unwanted product is returned to the warehouse. Therefore, supply chain managers must create a responsible and flexible network to support returned products and customer needs.

Why is Supply Chain Management Important?

Supply Chain allows organizations to create a table of functions and activities that go into producing goods and services, from the supply of raw materials to goods supplied to the end-user. Organizations with poor Supply Chain Management face costly delays, quality issues, and reputational losses. Supply Chain Management enables supply chain managers to work more closely with other supply chain members, enabling them to predict potential problems, dynamically adjust prices, and improve inventory and shipping. Supply Chain Management provides various benefits to organizations and is therefore very important for every organization.

  • Interconnected Supply Chain

The world appears as a large supply chain and consumers and producers are in constant communication with each other. Before a product reaches its destination, it passes through various hands. Supply Chain Management deals with important issues such as the growth of organizations, partnerships, global brand expansion, and outsourcing.

  • Integrated and Cooperative Logistics

Supply Chain Management deals with a wide variety of manufacturers and is essential to supplying goods to consumers. To be strategically successful, it must adopt an integrated approach with management to meet the needs of producers and consumers. An effective Supply Chain Management facilitates collaboration and communication with operations in multiple locations. It is easier to monitor and manage the logistics process thanks to the inventory and supply data provided by each part of an integrated supply chain.

  • Better Managed Business Processes

Supply Chain Management, when implemented and adopted effectively, has a huge impact on business. An effective Supply Chain Management helps deliver the right product and the right quantity on time to appease both manufacturers and distributors. Consumers want to know exactly where they need to go to get the goods they want. Supply Chain Management directly allows to improve customer service and improves the bottom line of the company. In addition, it ensures timely deliveries of products as it increases the efficiency of facilities, warehouses, and transportation vehicles in the supply chain. Thus, it improves the relationship between the consumer and leads to an increase in cash flow.

  • Forward Momentum

Supply Chain Management facilitates all processes in the organization, from unexpected natural disasters that may occur in the product flow. The logistics operations of large-scale organizations are managed by supply chain managers. Adopting an effective Supply Chain Management strategy makes it easier for organizations to deal with problems and disruptions.

How Supply Chain Management Works?

Supply chain management (SCM) is an approach to streamlining the processes of sourcing, manufacturing, distributing, and delivering products and services in an efficient and cost-effective manner, incorporating the latest technological innovations in order to optimize the flow of goods and information.

By managing the supply chain, organizations can reduce costs and improve the speed of delivering products to the market, while maintaining tight control over internal inventories, production, distribution, and sales, as well as the inventories of their suppliers.

Supply chain management (SCM) is a concept that recognizes the importance of the various organizations that contribute to the production and delivery of products, and seeks to optimize the flow of materials, information, and financial resources throughout the chain.

Types of Supply Chain Models

Supply chain management does not take the same form for all organizations. Every business has its own objectives, restrictions, and advantages that determine what its SCM approach is like. Generally, there are usually 5 distinct principal models a business can employ to direct its supply chain management activities.

The continuous flow model is a classic approach to supply chain management which is suitable for more established industries. It entails a company producing the same commodity regularly, presuming that the customer demand will remain largely constant.

The fast model emphasizes the swift production and sale of goods with a fleeting lifespan. Companies utilizing this approach strive to take advantage of emerging trends, quickly manufacture goods, and exhaust the product before the trend dissipates.

The agile model is suited to businesses with ever-changing customer requirements or orders. This approach emphasizes agility, allowing organizations to quickly adapt to changing circumstances.

The elastic model is optimal for organizations subject to seasonal fluctuations. Businesses may experience a surge in demand during peak periods and minimal demand during other times. An adjustable supply chain strategy ensures production levels can be quickly increased or decreased.

If the existing models are not suitable for a company's needs, it may opt for a custom model.

What are the Benefits of Supply Chain Management?

Supply Chain Management allows seeing the organization end-to-end to monitor the flow of information, services, and goods from the sourcing of products to production and delivery to the end-user. It is not a simple undertaking for organizations to implement, but when implemented effectively it provides many benefits that improve the bottom line of the organization.

  • Better Cooperation

Supply Chain Management ensures the seamless sharing of fragmented information within the company, eliminates bottlenecks and helps supply chain managers make more informed decisions.

  • Enhanced Quality Control

Supply Chain Management allows companies to have more control over their suppliers and better-quality control. However, organizations implementing Supply Chain Management go a step beyond performing periodic audits or documents that validate suppliers' compliance steps.

  • Higher Efficiency Rate

With effective Supply Chain Management, organizations have information about raw material availability and production delays and can implement strategic plans. By helping to prevent problems such as out-of-stock or late shipments to the end-user, it not only prevents problems but also helps increase the reputation of the organization by supporting the customer experience.

  • Meet the Demand

It avoids problems caused by delays in communicating supply and demand changes. It helps supply chain managers forecast demand and allows them to respond to market conditions to avoid challenges such as the bullwhip effect.

  • Cargo Optimization

Supply Chain Management helps identify the most efficient shipping methods for large bulk orders and other shipping scenarios. Thus, it both reduces costs and ensures that orders reach customers faster. While increasing the company's profitability, it creates customer satisfaction.

  • Lower Overhead Costs

Supply Chain Management allows for more accurate demand forecasts, helping to make room for faster revenue-generating inventory. Stocking slower inventory, reduces the storage overhead costs of slower moving inventory and the organization's unnecessary expenses.

  • Enhanced Risk Reduction

Analyzing large-picture and detailed supply chain data helps identify potential risks. This enables the organization to respond quickly and easily to unexpected conditions. It allows for proactive action and avoidance of adverse impacts on supply chain disruptions, quality control issues, and other issues that may arise.

You can also take a look at this;

The Role of Warehousing in Supply Chain Management


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