Learn about the increased importance about supply chain management in organizations. Do you want to increase your profit ? Reduce costs ? Attract more sales ? The answer is right here.

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Why is Supply Chain Management Important?

Supply chain management represents a combination of various activities that are centered around major processes in the business: Source, Plan, Make, Deliver and Return. The complete end to end process involves  inception to finalizing and selling products. It helps organizations control the entire process efficiently and cost-effectively and satisfy customers.

With the supply chain, organizations can centralize the entire process so that the information is available for every department on a real-time basis.

Importance of Supply Chain Management for Organizations

The primary purpose of supply chain management is to improve customer services by supplying the products at the right time without compromising quality. 

Competitors can take advantage of the lack of supply in the market and penetrate easily by providing the alternative to end consumers.

However, there is a wide range of supply chain benefits. In the section below, we discuss some of them.

  • It helps organizations reduce the operational costs of purchasing raw material at low prices, avoiding overtime expenses with efficient production hours.
  • It is beneficial to point out the issues, if any, in the manufacturing or supply process. At times, organizations face the shortage problem of raw materials which then translates into finished goods stockouts. Effective supply chain management enables them to maintain sufficient stock that already meets  current orders’ requirements and plan for future orders.

Supply chain management is beneficial to reduce the investment in fixed assets. It enables the production departments to maintain the respective production capacity to avoid additional plant investment through optimized capacity planning.

Benefits of Supply Chain Management

As we mentioned earlier, supply chain management is essential to reducing various companies’  costs. It helps to improve the efficiency of the production line (in house or externalized at a supplier). These are the two significant benefits that every organization wants to achieve to enhance its profit. 

Better cash flow is another benefit that organizations can achieve by implementing effective supply chain management. For example, instead of buying the raw material in bulk, it helps to make the standards for maintaining inventory levels. Organizations can buy the raw material in an adequate quantity to meet the current and future order requirements.

The Process of Supply Chain Management

The supply chain 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 after the one.

Planning

Source: Pixabay

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 sources required for fulfilling the requirements . It enables the supply chain managers to arrange the sources timely and make them available to start the production with available supply. 

On-time supply is vital to enhance the confidence of the customer. It is also essential to improve relationships with vendors. In the planning process, multiple departments work together to forecast raw materials, work in process and finished goods products.

Procurement

Some people take procurement and sourcing in the same context, but there is a difference between these terms. Sourcing is part of the procurement process, and the entire process makes the supply chain management successful.

Procurement is a process to acquire all the materials 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 purchase planning to get quotations, price negotiations, order placement, order confirmation, and follow-up until the goods arrive on the company premises. After receiving goods, the suppliers will acquire the payment. They are also the ones responsible within the procurement department.

Sourcing

Generally, the sourcing process occurs before the procurement department purchases. The primary purpose of sourcing is to find reliable and quality suppliers capable of supplying goods as per demands with specific delivery times and quality required. 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.

Usually, people argue that the sourcing process is essential to get the goods at the lowest price. But in actuality, it is used to make a perfect balance between quality and price.

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 appropriate time frame . Also, it helps to keep the quality of the product as per standard. 

Typically, organizations have to manufacture multiple products on the same plant and provide various customers with supplies. 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 historical data and expected sales volume.

Inventory Management

Inventory management is the most crucial section of supply chain management and my personal favorite! In this section, you have to tackle inventory from raw material, work in process (WIP) and finished goods.

Source: Pexels

Managing inventory allows organizations to find the optimal amount of raw materials required to complete future orders. 

Any shortage of any raw material causes a delay in delivery that does not positively affect customers. It is also essential to maintain the optimum level for finished products to handle the expected orders demand level. Furthermore, effective inventory management helps to avoid the risk of excessive stock levels and overage inventory long-term.

Warehousing

The warehouse is the storage place of goods for various 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 the transportation cost and maintain service levels. 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 also are beneficial  to keep the goods for a long time to benefit from increased prices. Companies also can use warehousing to manage proper inventory levels.

Logistics

Logistics is the process of transporting goods from one place to another. It involves both raw materials and finished products. The logistics department is responsible for delivering the products to customers as per the schedule and handles the shifting of finished products to warehouses at different locations.

Source: Pexels

Usually, the logistic department also generates invoices for customers, receives 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 it comes to sensitive handling.

Is It Worthwhile To Get Education In Supply Chain Management?

Every organization wants to profit from their current investment and resources they deployed. It is impossible to get their desired output without effectively implementing the supply chain management process. Therefore,supply chain managers’ demand is increasing rapidly in organizations from every category. Due to the current COVID-19, the supply chain individuals’ market will only grow exponentially. Companies will be seeing a new perspective in operating an effective supply chain in the future. 

Many universities offer Bachelor’s and Master’s Degree worldwide to improve personal efficiency. These programs provide the fundamentals of supply chain management to students from a global perspective. Students can also learn about the effects of operations and supply chain management’s benefits for achieving their goals. Implementing a supply chain system in the organizations helps them operate and tackle uncertain problems and future challenges.

Conclusion

Supply chain management provides many opportunities to improve  any organization’s performance and profit. It interconnects with effective and efficient implementations. For organizations, SCM is to get the lead over the competitors by providing high-quality and cost-effective products to customers.

Feel free to tell me for any inquiries or if you would like to hear more relevant topics and news in Supply Chain Management!