What is importance of supply chain management?
Supply chain management is a part of the management process that ensures that materials, products, or services are delivered in a consistent and timely manner. It is a system of activities used by companies to ensure that their supply of raw materials, parts, and finished goods is delivered to their customers. The term has also been applied interchangeably with logistics. Supply chain management has become increasingly important as the global market becomes more complicated and the pace of production increases.
The Importance of Supply Chain Management- A Brief History
The importance of supply chain management in business
Supply chain management (SCM) is an integral part of large and small businesses. SCM refers to the end-to-end management of supply chain activities to ensure that goods and services realize their market value. Supply chain management ensures greater customer satisfaction while helping businesses achieve a competitive advantage. SCM also helps with the storage of raw materials, movement of finished goods, and inventory management. In addition to this, an effective supply chain will forge connections between producers, transportation companies, distributors, warehouses, and retailers. Read this article to find out why efficient supply chain management is crucial for success and how your business can benefit from it!
A brief history of the importance of supply chain management
Supply chains were largely local, restricted to the regions where the goods were produced, up till the first Industrial Revolution. With the arrival of rails, goods began to travel relatively long distances, finding markets in places hitherto undiscovered by producers. The first mention of the terms dates back to 1937. Supply chains grew consistently in the early 20th century, forging global networks, with a marked increase in mechanization and logistics following World War II. By the 1950s, the concept of unit load had gained popularity, which later extended to transportation management.
The following two decades saw immense growth in logistics providers such as DHL and FedEx. At the time, freight transportation shifted to trucks and led to the coinage of the term, physical distribution. The first computerized inventory management and forecasting system was developed by IBM, and JC Penney's real-time warehouse management system was the key breakthrough of this period. With the development of personal computers, supply chain management got an overhaul and started to be looked at as an important and complex function by the mid-1980s. This is also the time when the terms began to be used more widely. British logistician, Keith Oliver used it during an interview with the Financial Times in 1982, defining it thus-
Supply chain management is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. It spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.
The global supply chain industry galloped through the 1990s and early 2000s, with ERP, advanced planning and scheduling solutions, and the bolstering of international import and export. Today, the wide-scale adoption of AI, data, and IoT solutions is driving digital transformation in supply chain strategies.
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The importance of supply chain management and its it key benefits
Supply chain management is certainly complex but effective supply chains can significantly improve your bottom line. Better collaboration, improved quality control, demand forecasting, higher productivity rate, shipping optimization, better customer service, reduced costs, and improved risk mitigation and cash flow are only some of the benefits that highlight the importance of supply chain management.
What is supply chain management?
The supply chain is a process that begins at the point of raw materials extraction, moves through the entire production process, and ends with the customer taking possession of the product. Supply chain management includes all activities related to sourcing raw materials, producing goods, managing inventory, and delivering the finished product to the customer.
How does supply chain management work?
Supply chain management essentially covers everything from planning to production to the information systems required to implement these undertakings. The five most important supply chain elements are planning, sourcing of raw materials, production, distribution, and returns of goods and services. Supply chain managers are tasked with keeping tight control on internal inventories, reducing costs, and supply shortages.
Though supply chain management has existed for decades, most companies have only recently woken up to the importance of supply chain management. Each product that reaches the market, after all, is a result of the efforts of every company that makes up local or global supply chains.
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How to build a more efficient supply chain?
The forces of globalization and changing customer expectations require companies to build resilient and flexible supply chains. Implementing the right strategies can help you build more efficient supply chains that allow your company to grow and increase its revenue. Here are five strategies that you can implement for more effective supply chain management!
Cultivate Healthy Supplier Relationships- Supply Chain processes begin with your suppliers. You need them to be reliable, responsive, and demonstrate the ability to work at the speed of your company. Maintain these relationships on an ongoing basis, even after the deals are finalized.
Optimize your Inventory- Be on top of your company's inventory to prevent stockout as well as surplus stock. Include demand forecasting in your inventory management procedures to optimize your inventory.
Embrace Digitisation- There are many benefits of automating what were once tedious chores. Make the most of digital solutions to make your supply chain streamlined, transparent, and accessible.
Monitor Your Supply Chain System- Set up a supply chain council that reviews procedures to ensure functionality and efficiency regularly. With a team dedicated to aligning the company's supply chain management with its goals, it becomes easier to avoid bottlenecks and mitigate risks.
Improve Distribution- Companies usually use either the cluster approach or the holistic approach to achieve this goal. The former included grouping similar statistics to observe the processes pertaining to any of the company's functions. The latter, on the other hand, involves the periodic reviewing of key elements of distributions networks to assess if the components are working in sync.
Important aspects of supply chain management strategy
A supply chain is a logistical network that a company uses to deliver its products to the end consumer. It includes all the stages of production and distribution and can encompass the company's entire operations, or only a subset of them. Supply Chains are a complex network of suppliers, manufacturers, distributors, retailers, and customers. The supply chain can be as simple as one person ordering an item from a catalog or as complex as a global manufacturer producing a product, shipping it whole to a retailer, who in turn sends it to the customer. In a supply chain, each participant is a link in the chain, and each link is important to the end goal of delivering the product to the customer. The goal of effective supply chain management is to provide customers with the products they want, when they want them, and at the lowest possible cost. Supply Chains are typically designed to optimize costs while maintaining consistent quality and meeting customers' expectations.
The key aspects of a supply chain are-
- Getting the right product to the right customer at the right time.
-Meeting customer demand for products with the highest quality and the lowest price.
-Developing a flexible supply chain that can respond quickly to changes in customer demand.
- Maximizing the use of assets and analyzing their optimal location in the supply chain.
- Minimizing the use of inventory and avoiding the need for safety stocks and inventories.
- Controlling costs.
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