Supply chain management is an umbrella term for all the processes involved in the procurement, manufacturing, and production of products. It includes the management of the flow of goods right from warehousing, transportation, and final delivery to the customer. The goal of effective supply chain management is to centralise disparate processes, cut down operational costs, and make sure that products/services are made with legal compliance
Did you know?
Supply chain management software industry is booming, and the usage of these software solutions is forecasted to grow by 9% every year!
What is Supply Chain Management?
Supply chain management involves the workflow that starts from building a product from raw materials, which leads all the way up to finishing manufacturing, dispatch, and delivery. It actively streamlines business processes to ensure a smooth customer experience and aims at maximising product value.
A good supply chain management process ensures a steady supply of goods from suppliers to manufacturers and consumers. The individual responsible for managing supply chain activities is known as the supply chain manager.
Benefits of Supply Chain Management
Global supply chains are becoming increasingly sophisticated and in today's data-driven world, having strong supply chain management is a must. Supply chain management solutions provide great visibility into the flow of information, products, profits, and lost sales. It gives a holistic view of supply chains end-to-end and keeps companies in the know-how. There is no confusion, complete data tracking, actionable insights, and managers can make informed decisions. Following are the benefits of effective supply chain management.
1. Improved Collaboration with Suppliers
Volatile market conditions can make it difficult for manufacturers to sustain their business models. Suppliers understand this and are more than willing to adjust prices for temporary cash flow challenges. Businesses can manage currency fluctuations better when exchanging goods overseas or importing raw materials. This is one of the best benefits of good supply chain management.
2. Enhanced Quality Control
Building a good relationship with your supplier means you enjoy better quality control in the long term. Customers don't like defective products, and your suppliers make sure it doesn't happen.
3. Optimised Shipments
Working with a supplier can help businesses reduce the total number of sales and distribution channels. This ends up lowering costs and optimising deliveries. It's one of the best ways to boost efficiency and provide better shipment methods to customers too.
4. Good Risk Mitigation
Great supply chain management comes with good risk mitigation. You get complete visibility into your logistics and end-to-end supply chain solutions. It avoids loss of profits by detecting risks early in the pipeline and remedies them. For example, you can find out if your products are getting to your customers on time and whether there are any delays in shipments. Risks faced by businesses can vary in size, and effective supply chain management considers the worst possible scenarios.
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Types of Supply Chain Management
There are different models of supply chain management for businesses. They are:
1. Continuous Flow Model
The continuous flow model is built around high-volume environments and based on efficiency. It relies on supply, demand, and availability, which means processes are built in a way that ensures a steady development of products and services. PepsiCo is an example of a company using the continuous flow model.
2. Efficient Chain Model
Efficient chain models are best suited for businesses that are in competitive markets. It improves the end-to-end efficiency of supply chain management solutions. Amazon and Flipkart are examples of companies using the efficient chain model.
3. Fast Chain Model
The fast chain model is useful for businesses that deal with finished products, with a focus on manufacturing goods of the latest trends. The timelines are very short, and customers have to get their goods fast to all customers. Apparel and footwear companies like Nike tend use this supply chain model.
4. Agile Model
The agile model makes products on an 'on-demand' basis and caters to consumers who want unique product specifications. Pre-orders are accommodated and the business is capable of meeting huge volumes of orders in its supply chain management. Fashion retailer Zara uses the agile model for their supply chain system.
5. Custom Configured Model
This supply chain management model has a limited number of configuration capabilities and produces specific product types. Customisations are focused on assembly products and this model is a blend of Agile and continuous flow scenarios. An example of a custom configuration is that of a furniture company. The customisation would be in the product's leg styles, hardware, or sizing of other individual components.
7. Flexible Model
The flexible model is based on adaptability, where the business configures delivery outcomes. The focus is on increasing the number of critical resources, providing rapid response times, product engineering, and custom process flows. High demand during peak hours and sudden low workloads are incredibly common. Most businesses supplying stationary, especially for schools and colleges tend to use this model. Their sales soar when students return to schools and colleges and fall during vacations.
5 Components of Supply Chain Management.
Breaking down key supply chain management components gives companies clarity on their design and manufacturing processes. Using supply chain management software is a must so that professionals can leverage analytics, logistics, and delivery channels and connect disparate processes. The five key components of supply chain management are as follows:
Planning involves managing various resources and ensuring that customer demands can be met. It consists of metrics that measure the effectiveness of a supply chain, set company goals, and assure that the chain delivers value to consumers.
Sourcing is all about gathering raw materials required for the production process. In this phase, you have to choose suppliers who will provide you with the resources for manufacturing products. Key processes of sourcing are ordering, receiving goods, managing inventory, and authorising payments to vendors.
All activities related to the making of the product are tied to manufacturing. The business will perform activities such as assembly, testing, and even taking care of the packaging. Feedback is given by the consumers at this stage usually and any defects are corrected. The goal of the manufacturing process is to improve supply chain management and production operations constantly.
Delivery and Logistics
Delivery and logistics summarise the shipment process. It features offering different shipping speeds, scheduled deliveries, invoicing, and tracking customer orders.
Returns and Refunds
Every brand has to establish a strong return and refund policy in place. It is important to create a reliable network so that customers can get a speedy resolution to their problems. When your refunds are processed smoothly, it improves the reputation of the business.
Challenges in Supply Chain Management.
The top challenges faced by the supply chain management industry are:
1. High-Quality Customer Service
Supply chain management is about developing products for consumers and ensuring they get to their doorstep on time. Customers don't have patience and want immediate results. Sometimes it's hard to keep up with demands and additionally, there could be customisation requirements. The perfect timing, season, and pricing - all these are variables to be considered.
2. Cost of Raw Materials
If an economy goes through a recession or inflation, the prices of raw materials change drastically. This can impact the cost of raw materials and make it expensive to manufacture products. There is also the issue of supply and demand. If customers cancel orders at the last minute, it affects business operations. Some customers can choose to upgrade, downgrade, or customise products according to their preferences. So all these decisions can cause pricing fluctuations.
Miscommunication is a real problem and it can become an issue if vendors don't foster good relationships with the buyer. Who are your partners or suppliers and how high of a standard they hold your business to are both important. Sometimes suppliers may not be honest and withhold figures. The only way of knowing is to verify and be thorough in your dealings.
Now that you are aware of the benefits and pitfalls of supply chain management, you can take calculated decisions with your business. There is no one-size-fits-all solution to supply chain management and an individual has to tailor products according to client requirements. Taking an adaptive approach to improving business operations is best and it's important to take this day-by-day instead of drawing huge plans.
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