Supply Chain Management (SCM) is key to improve business productivity and profits via higher revenue and lower costs of sales. Learn how to quickly implement SCM in your organization using a 7 steps process. Find out the 7 steps in the article below.
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Seven Basic Steps Of Supply Chain Management To Ensure The Success Of Any Business
The success of any business relates to the effective management of operations. Usually, the lack of communication is the primary reason behind on-time delivery problems and stockouts.
Therefore, every successful company needs a centralized system for effective communication known as supply chain management.
This process, at times, can be trickier and challenging to implement. To better understand this process, I have split it into seven parts. Let’s take a brief introduction to all of them one by one.
Every organization needs to manage the resources they have to get the optimal level of benefit from them.
The planning process helps to determine the customer demand and the supply sources required for fulfilling the request.
Supply chain managers are required to organize the sources of supply on a timely manner and make them available to start the production to ensure the supply is available. On-time supply is vital to ensure customer confidence.
It is also essential to improve relationships with vendors. In the planning process, multiple departments work together to provide a supplier forecast.
Some people take procurement and sourcing in the same context, but there is a difference between these terms. Sourcing is one part of the procurement process, and the entire process makes the supply chain management successful.
Procurement is a process to acquire all the material used to complete the product’s production process. It includes everything used in the manufacturing process, from raw material to packing material.
This process starts with forecasting and purchase planning in order to get quotations, price negotiations, order placement, order confirmation, and follow-up until the goods reach the company premises.
After receiving goods, the suppliers receive their payments based on agreed upon payment terms.
Generally, the sourcing process takes place before the procurement department purchases goods. The primary purpose of sourcing is to find reliable and quality suppliers capable of supplying goods as per demand levels.
The primary focus of sourcing remains on the balance of quality and affordability of the vendors’ goods.
This process comprises testing the quality of goods, gathering information about suppliers, the time required by suppliers to deliver the goods, minimum quantity to place the order, and the supplier’s capacity and capabilities.
Usually, people argue that the sourcing process is meant to get the goods at the lowest price. But in actuality, it is used to produce a perfect balance between quality and price.
4. Production Planning
Production planning is making the plan to get the maximum output from the available resources.
The primary purpose of production planning is to deliver the product within the time limitations. Also, it helps to keep the quality of the product as per standard process.
Usually, organizations have to manufacture multiple products on the same plant and supply various customers. Therefore, it is essential to prioritize production as per the time limit and capacity of production.
Adequate resource allocation for every production line is vital to ensure quality standards. In production planning, sales and production departments collaborate by keeping in view the past data and expected sales volume based on forecasts.
5. Inventory Management
Inventory management is the most crucial section of supply chain management and my personal favorite! In this section, we will discuss inventory from raw material and finished goods including Work in Process (WIP)
Managing inventory allows organizations to find the optimal volume of raw materials required to satisfy future orders.
The shortage of raw materials can cause delivery delays, leaving a wrong impression on customers. It is also essential to maintain the optimum level for finished products to handle the expected orders.
Furthermore, effective inventory management helps to avoid the risk of excessive stock levels and overage inventory long-term.
The warehouse is where they store goods for different purposes. These goods could be in the shape of raw material, finished product, or semi-finished product.
However, the primary purpose of a warehouse is to reduce transportation cost. For example, every organization needs a warehouse to store its products, and sometimes they need multiple warehouses.
Managing warehouses at different locations reduces the overall costs of delivering products to customers for that area.
Warehouses can keep the goods for a long time to benefit from increased prices. Companies also save the raw material to use in days of shortage.
Logistics is the procedure of moving items from one place to another. It involves both raw materials and finished products.
The logistics department delivers the products to customers as per the schedule and handles the shifting of finished products to warehouses at different locations.
Usually, the logistic department also generates invoices for customers, receive payments, and serves the returning products.
This department works with a fleet of vehicles for shipping purposes. Many large organizations hire logistic service providers to handle this department, especially when there is sensitive handling involvement. They are known as 3PL (third party logistics providers).
Successfully implementing the supply chain management system takes time and efforts. But once you succeed in implementation, it will surely provide a huge benefit to the company by improving profits.