Have you ever wondered where your clothes are made? Where did your Levi’s ever come from or where your iOS device was put together? They likely came from far away, and this is all due to efficient supply chains. Let’s take an American Eagle shirt you might have bought at your local mall. Where do you think it came from? It was likely made in a factory in Vietnam, shipped through Singapore in a big container, and then trucked to your local mall. All of this is the result of supply chain management. According to a report by Deloitte, 79% of organizations with high-performing supply chains grow their revenue faster than the industry average. In this post, we will discuss the importance of supply chain management for businesses.

What is Supply Chain Management?

Supply chain is the process of getting a product from point A to point B. Supply chain is a global network used to deliver products and services. From raw materials to end customers through an engineered flow of information, physical distribution and cash.

You would find companies procuring materials globally from various vendors to supply raw materials to their factories situated in different continents. The finished goods out of these different factory locations then pass through various chains of distribution networks involving warehouses.

These are exports to different countries or local markets, distributors, retailers and finally to the end customer. In simple language, managing all of the above activities in tandem to manage demand and supply on a global scale is supply chain management. 

Supply chain management is also called the art of providing the right product at the right time, at the right place and at the right cost to the customer.

How Does Supply Chain Management Work?

1. First you need to negotiate with suppliers to purchase raw materials
2. You ship those materials as efficiently as possible through trucks, ships and trains.
3. You do everything you can to make sure the products get to the store on time so that customer can enjoy your product.

Entities That Make a Supply Chain

• Seller

Seller is a supplier who supplies goods and services. This could be a person or an organization with whom the buyer does business. Their generic term in the marketplace is seller. 

Supplier provides materials, energy, services or components for product or service. Such as plastic, fabric electric wiring or aircraft.

• Producer 

A producer is the one who receives components from the seller to produce a finished good or service. Such as shirts from fabric, crockery from plastic, power form electric wiring or provides transportation through aircraft.

• Customer 

The customer is the one who receives the finished product. Customer is the one who wears those shirts, uses the Crocker, turns on the lights or flies in an airplane.

Importance of Supply Chain Management for Businesses

1. Higher Efficiency Rate

When your business is able to incorporate supply chains, integrated logistics and product invention strategies, you will be in a great position to not only predict demand as well as to act accordingly.

This is without any doubt, one of the main supply chain management benefits. Why or when your businesses implement supply chain management systems, it will be able to adjust more dynamically to the fluctuating economies, emergency markets and shorter product life cycle.

2. Decrease Cost Effects

One of the advantages of supply chain management is the cost decrease in different areas. The most important ones are:

• They improve your inventory system.
• They adjust the storage space for finished goods which eliminates damage to resources.
• They improve your system’s responsiveness, the actual customer’s requirements.
• They improve your relationship with both distributors and vendors.

3. Increases Output

One of the main benefits of supply chain management is the communication improvement. It adds up to the coordination and collaboration with shipping and transport companies, vendors and suppliers.

4. Increases Your Business Profit Level

When you place your business open to the new technologies and an improved collaboration within the different areas, you can be sure that supply chain management ultimately increase your business profit level.

5. Boost Cooperation Level

When we are talking about the most successful businesses right now, one of the things they all have in common is communication. Infact, when there is a lack of communication, your vendors and distributors have no idea about what’s going on.

So, this is definitely one of the main advantages of supply chain management. When you open your doors to technology, you can also take advantage of the fact that people don’t even need to share the same space in order to be a true communicator.

The communication among the different areas of your business will allow you to have faster access to forecast, reporting, quotation, statuses among many other plans in real time.

6. No More Delays in Processes

One of the main benefits of supply chain management is the fact that through communication, you can actually lower any delays in the processes. Since, everyone is aware of what they are doing as well as what others are doing.

This will mitigate any late shipments from vendors, logistics and distribution channels and holdups on production lines.

7. Enhance Supply Chain Network

It’s not easy to maintain a sustainable supply chain management system. According to some of the advocates, one of the best ways to do it is by using a combination of lean practices like waste removal with agile.

By combining, all the information gathered on the different sectors of your business, will allow you to have an enhanced supply chain network.

5 Key Supply Chain Roles and Responsibilities

1. Increase Customer Service

One of the most important supply chain roles and responsibilities is to manage customer service. The customers should always get what they are looking for whether it’s a product, solution to their issues or answers to their questions.

The supply chain management team has to assure that the customer service platform is accessible 24/7 so the customers will feel connected to the organization they’d like to do business with.

2. Reduced Production Cost

The most important thing supply chain managers have to do is to reduce the production cost of the items. It is done by:

• Introducing machines in the industry.
• Buy the raw materials directly from the factors or the wholesale markets.
• Reduce the number of rejected or failed items.
• Increasing the efficiency of the workforce.

3. Improved Quality of Products

It is a fact that the production cost of the products has to be reduced but at the same time the quality of the items has to be enhanced. It has to be assured that the raw material and manufacturing of the items is high class.

It is because if you do so, only then customers will be attracted. They have to be durable, reliable, and long lasting.

4. Improve Financial Position

The company has to improve its financial status, it has to be assured that the customers will return to buy the product once again because they are satisfied with the previous items.

The supply chain management has to work in such a way that:

• The cash flow of the company will increase.
• The amount of fixed assets will decrease.
• The profit leverage will increase.

It will make the customer believe that the company is progressing and showing positive results. 

5. Development of Best Marketing Strategies

The supply chain management team has to develop the best marketing strategies for the company to assure that their products will be present in the best possible way.

The customers often decide whether they would buy a certain item or not by looking at the advertisement shared on different platforms

Risks and Pitfalls in Supply Chain Management

Managing and changing a supply chain is fraught with risks and pitfalls. There’s a lot of complexity and risk that goes into managing your supply chain. It’s not just your day to day management of the supply chain in terms of where your vendors are redistributing where you source your materials from.

These are all complex things to manage day-to-day. But when you are going to change your supply chain or automate your supply chain or change your business processes or change the way that your employees are operating. There’s a lot of complexity and difficulty and risk that goes along.

Part of it is because it’s just a complex set of business processes which is what makes it so fascinating. But at the same time that complexity is what creates the cost and the difficulty of managing that supply chain.

So, when you are going to change, it can be particularly difficult to change when compared to other business functions within an organization.

To make it even more simple, any sort of change in an organization is going to be difficult. This is just change that’s already going to be difficult because now you’re dealing with a particularly complex set of business processes within your supply chain.

Another reason why supply chain management is risky and has pitfalls is because typically when you’re looking at your supply chain you’re dealing with a number of different cultures, diverse business processes and very siloed operations that you’re trying to consolidate and bring together.

This is so that you have visibility into what’s going on across multiple countries, hundreds of different vendors, multiple warehouse locations and multiple manufacturing facilities. It’s a lot of flow of information in a very diverse way.

Managing all this complexity, the diverse nature of it, the cultural nuances of different employees and people you are dealing with throughout the supply chain makes supply chain management quite difficult.