What Is Supply Chain Management and Why Is It Important for Your Business?

what is supply chain management important for business

Every product must complete a journey from inception to delivery into the hands of an end-user. Several organizations or entities embody the path from idea to physical or nonphysical product, and these entities are often independent of one another. 

When you incorporate supply chain management (SCM) into your business’s mission, you create a better product and get it from one end of the journey to the other quicker and cheaper. The main goal of any business is to deliver a product, from custom cardboard boxes to hand-painted pet portraits, in the most cost-effective and time-effective manner possible. 

The most basic definition of a supply chain is the supplier of raw materials, a factory that assimilates the product, a warehouse that stores the product and distributors who get it to the store or customer. 

When you put time and energy into managing your business’s supply chain, you streamline every step of your company’s process, from sourcing raw materials to transforming them into the final product. 

Order Custom Cardboard Boxes to Fit Your Exact NeedsAn efficient and well-managed supply chain affects every aspect of your business, from logistics to optics to net income. 

The Tenets of Supply Chain Management

The focus on SCM is based on two interrelated ideas. The first idea is that every end product is the result of a cumulative effort of many entities. Collectively, this group is referred to as a supply chain.

Use Styrofoam Packing Peanuts to Protect the Contents of Your PackageThe second idea is, although supply chains have existed ever since companies first outsourced production or made deliveries, few concentrate on the logistics and efficiency of their supply chain. 

Most companies are mainly concerned with what’s going on within their walls and do not actively consider nor engage with the other entities along the chain. It follows that managing your supply chain more efficiently benefits your company.

choosing options on tablet

Information vs. Physical Flow

There are different ways the entities along your supply chain trade information about the inception, production, distribution and marketing of your end product. 

The factions of your supply chain can communicate through a physical flow: the movement, transformation and delivery of material goods. These fluctuations between the various independent entities along your supply chain are the more visible transference of products or information. 

Parts of your supply chain can also swap information about long-term goals, expectations or day-to-day logistics. The result of both sorts of flows—both physical and informational—is to form a concerted effort to produce and distribute your product. 

Some supply chain experts believe, within 5-10 years, focus on supply chain management may be obsolete. A smooth-running digital platform that captures real-time data and provides predictive analytics across the entire supply chain will eliminate many current obstacles.  

Eventually, it is hoped the entire supply chain will be a part of a large, automated system that includes robots in fulfillment centers and drones and self-driving delivery vehicles. 

Although these innovations may be in the offing, that does not mean attention to your company’s supply chain and the relationships between the different components is wasted. On the contrary, focusing on the links of your supply chain and the trust that builds these links can make your company stronger in the future. 

What Brought SCM to Mainstream Attention?

Effective supply chain management is as much about a group of ideas as it is about a set of techniques and tools. For a long time, companies did not need to pay attention to their SCM, but a few developments carried these ideas and techniques to the forefront. 

One of the first developments that spurred the business world’s interest in SCM was the increasing speed and effects of the information revolution. When computers were first created, a mainframe took up the space of an entire room. However, today’s laptops exceed the original mainframe’s capabilities and memories in a much smaller package. 

With the advent of the internet, personal computers and optical fiber networks, more informational resources became available and cost-effective. These resources allow for comfortable linkages between entities along your supply chain and eliminate time-related delays. 

Another trend that elevated SCM into the spotlight was increasing globalization in a highly competitive atmosphere. Markets are changing faster, so much so that one business veteran compared the current global market to the fashion industry, in which the trends change seasonally.

scm developments ideas graphic

Modern consumers want quicker turnaround, more customization and the most state-of-the-art technology. Companies that can respond to these demands in a flexible and timely manner will survive the fast ebb and flow of the 21st-century global market.

Some organizations have embraced the rapid rate of change by focusing on their supply chain management. The more flexible a supply chain and the more dependable the information or physical links in the chain, the more satisfied your customers will be.

Having a supply chain management system that can do it all, from hazardous materials classification to proper storage of breakable items in dunnage air bags, is the only way to survive the turbulent global market. 

Relationship Management and SCM

With a variety of informational resources and a more extensive range of technologies for interacting with supply chain entities and customers, some companies may believe this is enough to create an effective supply chain.

However, without the proper relationship management between the various components of your supply chain, you will never be as efficient or effective as you could be. Facilitating trust and communication between the different links of the chain can help hone your company’s effectiveness.

Out of all the functions in a supply chain, the management of relationships between members of the chain can be the weakest and most challenging to get right. All it takes is a breakdown between two different factions of your supply chain to impede the whole procedure. A delay in sourcing raw materials, for example, can lead to bloated lead times and general customer dissatisfaction. 

A firm or company must forge strong bonds with both upstream and downstream entities. The link between supplies and manufacturers must be as strong as between distribution channels and marketing teams. Any weak link may bring down the whole supply chain.

How to Incorporate Effective SCM Tactics

Supply chain management doesn’t replace all the business acumen developed over the last half a century; it adds to it. 

In accordance with everything else your company has gained over the years through trust and relationship-building, you can now overlay different strategies that augment these business philosophies. 

mass transport containers in port

Here are some ways to incorporate effective SCM tactics to make your company quicker and better than it ever has been before. 

One Entity to Oversee It All

If a company doesn’t produce quality products in a time-efficient and cost-efficient manner, then no amount of concentration on SCM will change that. But for a company already running at optimal production speed, focus on SCM can speed up even the quickest production turnaround. 

The most crucial aspect in your process from start to finish is defining supply chain management. Once you designate who is overseeing which aspects of your supply chain, it becomes easier to track and strengthen relationships and swiftly move your product from inception to delivery.

Engaging an outside firm to manage all aspects of your company’s production sequence uses the best practices for supply chain efficiency. If you’re determined to work in-house, a dedicated department to manage all aspects of your supply change may prove to be equally effective. 

In either scenario, a governing group can synthesize all aspects of your supply chain, maximizing your company’s output and minimizing the time it takes to get to your customers. 

When you’re looking at individuals to staff the council that oversees SCM, concentrate on those that rely most on the strategy to build value through interpersonal relationships. The more communicative your supply chain council is, the easier it is for all components of your supply chain to get the information they need to work efficiently. 

Employees who concentrate on more transactional, short-term goals will not be adept in the ever-changing global market and may be unable to communicate effectively with the different factions of your supply chain. 

Reshuffle In-House Organizational Structure

One of the outcomes of a conscious effort to attend to your company’s SCM is that it may disrupt and upend your company’s organizational structure. 

The ideas and tools of effective SCM span multiple factions of your company and have to be embedded at the highest level to be exceptionally useful. If SCM techniques are only instituted in a functional unit like logistics or operations, it may not be as forceful.

Outside perspectives and observations may prove to be invaluable when you’re recalibrating your institution’s efficacy. Hiring a firm that can manage everything from long-term logistics to the supply of styrofoam packing peanuts can refocus your output on what’s important.

how to maintain efficient supply chain graphic

Engage Transparent Metrics Across the Board

The last practice to put in place to optimize your supply chain is to make sure all metrics or information links span the whole supply chain. If individual units decide to change aspects of their procedure without considering what it might mean for the rest of the supply chain, the results could be catastrophic. 

For example, a manufacturer’s decision to change its source of raw materials could upend your supply chain. On the other hand, a distributor’s decision to respond to a seasonal fluctuation could “bullwhip” the upstream components of the supply chain, resulting in significant cost overruns. 

With the transparent and sprightly information resources, your company can maintain a highly efficient supply chain, despite individual factions’ decisions. 

Collaboration Makes Development Complex

It was relatively common for a company to have its strong suits and weaker areas in the past. Perhaps a company was particularly reliable in one area like operations or marketing. Even though the company wasn’t stable in all areas, it could still be reasonably competitive.

In today’s marketplace, multiple firms and companies partner with one another. A company that may have suffered from a weak marketing department may now be able to compensate by leaning on one of the coupled firms with a more robust marketing arm.

Additionally, companies must now carefully examine with whom they make alliances, as the global market practically demands multi-firm supply chains. Amid the debates about functionality and business strategies, companies now have to consider what other companies could bring to the table. 

logistics process icons illustration

Expectations of Excellent SCM

For a supply chain to become the best version of itself, each entity along the production route must put in their best efforts. Seven principles were presented in Supply Chain Management Review as a blueprint for companies to follow: 

  • Principle 1: Divide customers into groups according to their service needs and then customize the supply chain to serve these groups best.
  • Principle 2: Modify the logistics network to profit the customer groups and adhere to the service requirements. 
  • Principle 3: Align planning with forecasts of current market demands, remaining as agile as possible in resource allocation.
  • Principle 4: Make the distinction between the proximity of the product to the customer and the speed at which the product is delivered. 
  • Principle 5: Strategically manage sources to diminish costs affiliated with the ownership and distribution of goods. 
  • Principle 6: Designate a technological platform that can support multiple tiers of decision-making and provide a clear view of product, service and information flow. 
  • Principle 7: Adopt review procedures that span the entire supply chain with a standard set of expectations to assess the productivity and efficacy of any implemented changes. 

The Bottom Line

In the ever-changing global market of the 21st century, it’s more important than ever to maintain a steady grip on your supply chain management. Using the tools and techniques that synthesize your chain’s different entities can help your company become more efficient and cost-effective.

efficient scm graphic

Some tactics employed to institute SCM’s philosophy are a centralized, designated council to oversee all supply chain activities, agility and flexibility. Other tactics include a broad tech platform that can support multiple levels of decision-making and firm trust and communication between all levels of the supply chain. 

These strategies may differ according to whether your company is large, mid-sized or small. For larger organizations, incorporating performance balances between both internal and external entities is crucial. Small and mid-sized companies should focus on the unique value they offer to customers in compensation for limited resources.

  





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