What is Supply Chain Management, and Why is it Important?

what is supply chain management and why is it important

More than 50% of companies believe that supply chain management (SCM) is a source of competitive advantage for their organizations.

In a highly competitive market, effectively managing such an internal source of differentiation can often be the difference between success and failure. It is, therefore, not surprising that firms are willing to spend $4.8 billion worldwide on supply chains by 2025.

If you are wondering, “What is supply chain management and why is it important?” then here is a compact guide to help you learn more about it.

Understanding Supply Management

Supply chain management deals with the procedures encompassing sourcing components a company requires to develop its products or service to deliver the end product to customers.

If you want to develop a robust SCM strategy, you have to look at the entire ecosystem. Such a vantage point drives you to bring together the various end-to-end processes necessary to create economic and market value for the firm.

Supply Chain Management Components

For any SCM strategy to succeed, it must rely on and leverage six critical aspects that drove the entire process. They are:

1. Planning

Planning an SCM strategy involves creating a design of the entire process that best works for you. You need to correctly identify the resources you will require to satisfy your customer’s demand.

Additionally, you also need to identify the metrics you have to keep an eye on to measure the efficiency of your supply chain.

2. Sourcing

You need to identify the most effective suppliers for your primary input. Once you contract the suppliers who best work for you, the job has only begun. You will find the need to monitor and manage the relationship with each supplier continually.

3. Making

Each supply chain manager needs to supervise the taking in of raw materials, making and testing of the product or service and shipping it. To ensure that you always deliver quality to your customers, you need to include quality testing at this stage.

On top of that, you must develop means through which you can measure the output and the team’s productivity. If you don’t, the quality of your end product won’t be as consistent.

4. Delivering

Delivery, also called logistics, is where you put the finished product or service into the customer’s hands. With delivery, you coordinate your client’s order, dispatch the items, invoice your customer, and receive incoming payments.

For many firms, this is the stage at which they outsource much of the work to third parties. If your product or service calls for special handling, then outsourcing can help you better retain focus on your core operations.

5. Returning

Not every item you ship will work like a charm, and you need to create a mechanism to help your customer with returns. A flexible yet responsive network that handles defective or excess products is therefore critical to your supply chain.

As long as the product is not defective, you can return it to the warehouse for future sales.

6. Enabling

For a supply chain to operate at optimal levels, there needs to be continual monitoring. You will, therefore, rely on several enabling processes to track information and assist in your compliance efforts.

These processes include human resources, information technology, finance, portfolio management, among others.

Why Supply Chain Management Is Critical for Your Business

It’s clear to see that SCM management is integral to your operational success. But in what ways exactly does it help your business succeed?

Price Optimization

When you are dealing with products that have a limited shelf life, you need a mechanism through which you can dispose of those that don’t sell. SCM helps you keep an eye on the performance of your products so that you can respond to any dynamic changes.

Often, it is through tweaking pricing that you can incentivize customers to buy your products so you can close out inventory. Clothing companies, for example, rely on this strategy to ship inventory that hasn’t sold at the end of a season.

SCM helps implement forecasting techniques that can alert you to when you need to employ price variation to close out lagging inventory. Even though you sell the products at a steep discount to offload it, it’s better than writing off. Thus, such price optimization can help buoy your top-line better during adverse sales cycles.

Cost Efficiency

SCM can help you keep tight control over cost to avoid inefficiencies creeping in. When you have more expensive inventory, a robust supply chain can help you quickly distribute it to prevent additional charges piling up as you park such stock in storage.

A well thought out supply chain can also help you manage production costs. Through SCM, you can forecast when exactly you need to replenish your raw material supply to avoid delaying production, which can run up your costs.

Better Client Service

One way SCM can help you differentiate yourself is by enabling your firm to deliver a memorable customer experience.

By employing an excellent supply chain, you can deliver the exact item the customer ordered on time. Such an experience builds positive brand equity with a client as they regard you as a reliable business.

If your client receives a defective product or they don’t like it, how you handle their difficulty can significantly impact your brand perception.

Having a supply chain that makes it easier for your customers to air their complaints and return the problematic product for another one is critical to the loyalty they feel to your brand.

An exceptional supply chain is one that helps you excellently serve your customers in good and bad times.

Lean Fixed Asset Portfolio

A robust SCM strategy has the net effect of weaning you off of excess physical assets. These include extra warehouses and shipping trailers.

In turn, this frees up money that you can then redeploy in meaningful ways to grow your organization as you don’t have to rely on more fixed assets than necessary.

What Is Supply Chain Management and Why Is It Important?

A supply chain system brings together the necessary resources to satisfy your clients’ needs. To keep this system working optimally, supply chain management enables you to monitor and improve your operations.

It’s when you answer the questions, “What is supply chain management and why is it important?” that you can mine valuable insight to optimize your supply chain continually.

Advance Transportation Systems, Inc is a customer-oriented freight company passionate about surpassing client expectations. Talk to us today for customized freight services that can satisfy your delivery needs.

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