A Definitive Guide to Supply Chain Management
Supply chain management (SCM) has become an essential part of the smooth running of a business. If a business can’t handle its SCM effectively, the sales will surely fall sooner or later. For any aspiring entrepreneur or even a multinational brand, understanding and enhancing their supply chain management is integral to their success.
What is Supply Chain Management (SCM)?
The products you’re ordering now and then through Amazon go through an entire supply chain management process. Similar is the case with the car wash service you opt for.
Where a product or service flows from the origin point to the consumer is supply chain logistics. Furthermore, it can include various steps in between, such as storage and transport of raw material, product manufacturing, and sales and distribution. The intersecting procedure that ensures the maintenance of these processes is supply chain management.
What is the Purpose of SCM?
An efficient SCM doesn’t have a single benefit but multiple, making the brand set a strong foothold in the industry and gain a competitive advantage. Between managing raw materials to the sales department, anything can go wrong.
SCM’s first and foremost purpose is to provide a high-quality product or service to the customer within the shortest possible duration. Suppose a customer is unhappy with its handling of the product or service or has to wait for a long duration before receiving it. In that case, it lowers the chances of customer retention and loyalty.
Another reason an effective SCM is necessary to any business because it lowers the cost the company has to bear in the production cycle while ensuring a faster procedure. SCM determines the errors and risks of the manufacturing and solves them beforehand before the company has to bear the financial loss.
Stages of SCM
SCM is an entire process that can make or break a company’s game in the modern competitive era. There are five stages involved in an effective SCM.
- Planning: The basic strategy of planning involves how the business decides to manufacture its products. The list includes deciding whether the products are stocked beforehand or made on order, standard or customized design, complete manufacturing, or sourcing from suppliers. Besides that, initial planning also includes choosing suppliers, manufacturing sites, transportation facilities, etc.
- Sourcing: Sourcing involves the most reliable and feasible practices to acquire raw materials or partially manufactured goods from suppliers. From coming to terms on a price and scheduled delivery to negotiating contracts based on company assets, this stage has several decisions that affect the overall supply chain.
- Manufacturing: This aspect of SCM looks over the actual manufacturing of the goods. The company finalizes the quantity and scheduling of the product manufacturing. Plus, the manufactured product should be tested for quality at this stage before being packed for delivery.
- Delivering: The second last stage of the process is getting the product to the customer effectively. Firstly, the business must decide on a storage facility or warehouse from where the products are sent out for delivery. Then, it essentially includes selecting a preferable method of transportation and sales distribution that delivers the product to the consumer.
- Returns: Any established business will agree that this is phase is equally important as the previous four, but many overlook it. In case of a defective product delivered to a consumer, the company is responsible for setting up a policy for replacements and refunds.
7 Principles of SCM
The seven key principles of SCM guide a business on the elements they need to practice and improve for effective management. These include:
- Adapt Supply Chain as Per Customer Segments: Different types of customers have different demands and expectations from a company’s product or service. A company’s success is determined by how well it caters to its customers. Customer segments are the separation of customers into various groups according to their demands.
- Customize Logistics Network: When a company makes customer segments, it also needs to cater to each segment as per their requirements. Customizing logistics networks means inculcating logistics, from sourcing raw material to delivering the product that suits each segment’s demands.
- Align Supply Chain According to Demand: This principle revolves around the supply-demand chain, where a company needs only to manufacture as much stock as is required by customers. Excess stock often results in a financial deficit for the company if the supply does not equate to the demand. Evaluating demands includes monitoring the current market and predicting the future market potential of your product.
- Differentiate Products Close to Customer: Differentiation is the opposite of standardization, which means customizing a product to the customer’s requirements. Some businesses rely on this principle because differentiated products hold higher value in the market than standardized products.
- Strategical Sourcing: Strategical sourcing is clear-cut planning and decision-making to reduce the financial burden on the business of managing its supply sources. Exploring multiple options when selecting the source of supply and systematic negotiation of terms makes a strong foundation.
- Integrate IT to Enhance Multi-Level Decision Making: No business can survive in today’s market if they don’t use information technology in their supply chain management. IT allows a business to closely evaluate and monitor the entire process, find any errors timely, and have better control from the start to the end of the chain.
- Incorporate and Monitor Performance Measures: Finally, performance metrics allow a company to assess its sales and profitability across a given period. Performance metrics are usually based on service metrics and financial metrics.
Supply Chain Management: Conclusion
The business world has evolved tremendously in the last few years and continues to do so with time. The importance of supply chain logistics and management for a company is also increasing at a rapid scale. While globalization has added obstacles in terms of more financial costs and competitiveness, it has assisted the business world in conquering new heights too. Simultaneously, technology has played a fundamental role in improving the SCM process too. SCM was, is, and will always remain an integral component of any business.
