Mastering Supply Chain Management: Strategies for Efficiency and Success
Managing the flow of goods and services for companies is a complex endeavour. It’s not enough to meet sales goals. Small inefficiencies can slow down the chain, resulting in an invisible trickle of revenue loss.
A supply chain management (SCM) specialist acts as Sherlock Holmes to uncover these issues. Supply chain management is essential for businesses to meet customer demands efficiently and cost-effectively. Effective SCM can help reduce costs, improve product quality, minimise lead times, enhance customer service, and increase overall competitiveness. It is a critical part of an organisation’s success, and it has become increasingly complex in a globalised world with intricate supply networks.
What is Supply Chain Management
Supply chain management (SCM) oversees and optimises the flow of goods, services, information, and finances as they move from the supplier to the manufacturer to the wholesaler, to the retailer and finally to the end consumer. It involves the planning, design, execution, monitoring, and control of every step within this complex network of processes.
Critical components of supply chain management include:
- Planning: This phase involves forecasting demand, setting inventory levels, and making decisions regarding production, sourcing, and distribution.
- Sourcing: It involves selecting suppliers and establishing agreements to obtain the necessary materials and resources for manufacturing and product development.
- Making: This phase includes the production, assembly, testing, and packaging of products.
- Delivering: It encompasses the logistics, distribution, and transportation of finished goods to wholesalers, retailers, or end consumers.
- Returning: Managing the return process for defective or unsold products, which includes reverse logistics and recycling.
In recent years, technological advancements, such as data analytics, the Internet of Things (IoT), and blockchain, have transformed supply chain management, enabling real-time visibility, enhanced decision-making, and improved efficiency. Supply chain sustainability and responsibility have also become significant considerations as businesses and consumers increasingly value ethical and environmentally conscious practices throughout the supply chain.
How Does Supply Chain Management Work?
Supply chain management (SCM) involves all the steps a business takes to get a product or service from raw materials to the consumer. This includes sourcing raw materials, manufacturing, creating and fulfilling orders, shipping products to the customer through carrier partners and tracking inventory. A successful SCM plan considers several factors to ensure that products arrive on time, at the right place and in the correct quantity. It also helps a company avoid waste, which can increase costs. This includes minimising wasted time, space and raw materials and optimising storage capacity for goods.
An SCM leader is a skilled team player with strong leadership and communication skills who can sift through the numerous layers of information in the field to identify problems, develop solutions and construct the ideal narrative to address them. They also have in-depth technical knowledge about the various elements that comprise a company’s supply chain, such as warehouses, carriers, freight and warehousing services.
Another crucial component of SCM is finance and accounting, which helps a firm maintain healthy working capital and comply with legal and tax requirements. In addition, financial departments can offer flexible payment terms to suppliers and buyers. Geopolitics is another factor to consider in SCM, as each nation has unique laws and regulations that affect importers and exporters. For example, a lack of necessary paperwork can result in shipments sitting at ports for an extended period and costing businesses money.
Supply Chain Planning
Supply chain planning encompasses all the steps that take a product from its raw beginnings to the point where it can be delivered to customers. It involves five key components:
- The first is supply planning, which sets how much to produce based on the demand plan. It also decides on the best way to achieve those production goals. This includes evaluating transportation, supplier contracts, workforce capacity and customer constraints. The result is a configuration table that shows the various tradeoffs. For example, the model might suggest that producing enough of a particular item to meet customer demands at 95% service level would cost X dollars in materials, Y dollars in labour and Z dollars in overhead.
- Another element of supply chain management is operational planning, which ensures that the production and distribution departments can work together to meet production and service goals. This can include coordinating shipping dates and adjusting plans when changes occur, such as new tariffs or natural disasters.
- The final aspect of supply chain management is the control tower, a software system that gives planners throughout the different functional areas a real-time view of operational data. This information can help them respond quickly and make better decisions. This can reduce costly inefficiencies like stock shortages that lead to rush orders and loss of sales, over-forecasting that leads to wasted resources or holding too much inventory that ties up cash.
The inventory management portion of supply chain management involves overseeing and controlling stock levels. Businesses use the process to optimise cash flow, ensure a consistent supply of goods to customers, and maximise customer service.
The process starts with analysing current stock levels and determining the optimal amount of each item a company needs to keep in inventory. The goal is to balance inventory level, customer demand, and reordering costs. Many companies use the first in, first out (FIFO) method, which keeps older inventory at the front of shelves and newer items toward the back to prevent spoilage and obsolete merchandise.
Once a business has a solid plan for inventory, it can move on to tracking the stock and managing order fulfilment. This involves identifying the best locations and types of goods in each warehouse, calculating the cost to store each type of good, and monitoring order patterns. At this point, a business can also determine how much inventory to buy and when. Using a process like Material Requirements Planning and Variance Elimination Design, companies calculate the right amount of each product to order based on sales forecasts and other data. This helps avoid overstocking or understocking and improves the efficiency of the manufacturing process. The next step is to transfer the product from the factory to regional distribution centres and finally to retail locations for consumer sales.
In addition to production and warehousing, transportation is a significant component of supply chain management. It is how manufacturers get the raw materials they need to make their products, how retailers stock their stores and warehouses, and how online businesses fulfil customer orders. Companies that rely on transportation processes must manage all the moving parts in close to real-time to ensure their goods are delivered consistently.
This requires sophisticated logistics software integrated with other applications, like ERP systems and EDI solutions. This is where a functional TMS (transportation management system) comes in. A TMS streamlines the shipping process by automating the majority of fulfilment tasks and providing valuable insights into how to improve freight spend and optimise logistics processes. Distribution companies and e-commerce organisations that ship products on a regular basis will find the most benefit from implementing a TMS solution.
While many think of transportation management as a subset of supply chain and logistics, it is a separate discipline that is subordinate to both. However, it is an essential part of supply chain management, especially when you consider the global nature of today’s business environment. Without the ability to transport goods and information across oceans and continents, global commerce would come to a screeching halt. This is why a TMS solution should be a vital component of any supply chain strategy.
What is Supply Chain Management – Other useful links from our Knowledge Centre:
How to Manage Business Finances Correctly and Efficiently
Unlocking Business Potential: Strategies for Long-term Success
The Impact of Sustainability on Ecommerce Businesses
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