Supply chain management is a concern for many businesses due to the heavy losses that can occur if management is ineffective. Understanding this issue, the following article will help you learn about the characteristics of supply chain management and how to apply this knowledge in your business practice.
What is Supply Chain Management?
Supply chain management (SCM) ensures coordination between different parts of your business so that every process runs more smoothly. It includes inventory, raw materials for production, raw material suppliers, goods suppliers, transportation, etc.
It is the optimization of product creation and flow from raw material sourcing to manufacturing, logistics, and delivery to the end customer.
SCM involves the integrated planning and implementation of the processes required to manage the movement of materials, information, and financial capital in activities such as demand planning, sourcing, production, inventory management, storage, transportation – or logistics – and the return of excess or defective stock.
Why Supply Chain Management Important For Your Business?
Supply chain strategy plays a key role for businesses today because consumer needs and wants are constantly changing. Therefore, the market requires organizations to have clear and flexible strategies to ensure customer satisfaction.
90% of CEOs worldwide put supply chain management first as market competition is increasing, and market prices and purchasing prices for goods are increasingly tightened. A supply chain with great impact will dominate the market and customer trust, create shareholder value, expand strategy and reach for the business.
In addition, in today’s business environment, the supply chain is one of the factors that determine your business’s competitiveness compared to your competitors in the same industry. Thanks to an effective supply chain, large international corporations have achieved 4-6% higher profits than their competitors.
An independent study also shows that some of the world’s leading companies such as Apple, Coca-Cola, and Samsung have effectively leveraged their supply chains to rise in the competitive environment, achieving a 40% increase in company value compared to other competitors.
Good supply chain management also brings efficiency to logistics and logistics operations, bringing goods to businesses and customers as quickly as possible, ensuring the freshness of goods, minimizing costs, and increasing profits.
The Benefits of a Good Supply Chain Management
- Cost savings:
The overarching goal of SCM is greater efficiency, which means cost savings. A company that can accurately predict demand will not overspend on inventory. This improves cash flow – less money is tied up in products sitting in warehouses, and companies realize lower manufacturing, shipping, and inventory carrying costs.
By implementing more efficient processes, businesses can also increase productivity and reduce labor costs.
- Better customer experience:
Supply chain management helps you reduce situations where your company runs out of popular products. This keeps customers happy and may entice them to buy from you in the future over your competitors. When you optimize your supply chains, your business can also find ways to ship products faster and for less money, potentially saving money.
Finally, greater transparency allows customers to track the status of their orders at any time.
- Fewer quality issues:
Improving the quality of goods and services is one of the main goals of supply chain management. Your company can put in place better quality assurance processes or notice that a certain supplier or carrier has a much higher rate of damaged shipments and then work with the partner to fix it.
Customers will obviously appreciate noticeable quality improvements, and service teams will appreciate getting back the time and money spent on resolving quality issues. Effective SCM reduces product recalls and lawsuits that can cause lasting damage to your brand reputation.
- Stronger, more resilient supply chains:
Your company that establishes SCM has visibility into its entire value chain and can share information with all stakeholders. CFOs can quantify the financial impact of a supplier facing a shortage of a key component or a retailer seeing a drop in sales for a particular product.
You need to have advance notice so you can react quickly and avoid losing revenue or increasing missed orders for customers while keeping partners informed. This ability to shift gears quickly puts those with a clear SCM strategy in a much better position if a natural disaster, pandemic, economic turmoil, or similar event impacts the supply chain.
- More sustainable:
A supply chain that optimizes purchasing and production creates less waste. Accurate demand planning helps buyers buy only what they need, which means less inventory to carry.
Get a handle on supply chain sustainability and you’ll produce and ship fewer unnecessary items. This reduces a business’s environmental footprint, which is increasingly important to customers
- Create a competitive advantage:
The ultimate goal of SCM efforts is to give companies a clear competitive advantage. The benefits discussed above can set your business apart from your competitors, whether through lower prices, a unique customer experience, a more flexible supply chain—or all of the above.
Once your business secures a position at or near the top, you will gain market share and see profits grow.
Major Challenges of Supply Chain Management
Here are some of the key challenges of supply chain management:
- Complexity and diversity of supply chains
Supply chains can involve many stakeholders, from suppliers, manufacturers, distributors to end customers. Managing the interactions between parties in the supply chain is a major challenge.
- Changes in customer demand
Customer demand can change rapidly and require your business to optimize supply chain management processes. In order to deliver products and services quickly and efficiently.
- Market instability
Unexpected pandemics or market fluctuations could severely impact global supply chains, leading to product disruptions and increased shipping costs on many routes.
Conflicts, such as the Russia-Ukraine conflict, have increased the price of oil and many raw materials, causing high import and export costs and significantly affecting the business operations of many enterprises.
- Limitations in technology application
There are many limitations in technological innovation, digital transformation, and supply chain diversification of enterprises, requiring effective support mechanisms and policies to promote technological innovation, supply chain diversification, and incentives for products from new technologies.
However, enterprises have not yet been able to create multimodal transport corridors, while the demand for high-quality transportation of goods is also increasing.
- Limitations in resources and human resources
Recruiting workers to meet the requirements of enterprises in the supporting industry sector is still facing difficulties, especially in finding highly skilled workers.
Main Factors in Supply Chain Management
There are several factors that you need to pay attention to in the supply chain management process:
- Rapidly Changing Economy
Rapidly changing economic trends require better quality goods and faster shipping times. Therefore, your business needs to serve consumers with the products they order in the shortest possible time frame.
- Seamless data flow
Since SCM is time-constrained, finding the right toolkit that can efficiently collate and match data from consumer, supplier systems and create a consistent information roadmap is a significant challenge.
- Cost control
Transportation costs are always high, accounting for a large proportion of product costs. Because ensuring compliance with quality and time means incurring large costs. Your business can solve this problem by localizing the delivery process to end users at scale.
- Distribution network configuration
The distribution network is subject to changes in customer demand, changes in production levels, new supplier selection, and new product flows. Managers should select the location and capacity of warehouses, and decide on the production volume for each product at each appropriate plant.
- Distribution strategies
Your business needs to plan the number of warehouses and should apply a classic distribution strategy, direct transportation, or cross-docking strategy to bring optimal efficiency in both time and cost while keeping the minimum inventory level for the business.
- Inventory control
Inventory control must always be kept at a minimum level to minimize costs for the business while ensuring the quality of the goods. However, because customer demand changes over time, businesses also need enough inventory to meet temporary changes in customer demand.
- Supply Contracts
A contract establishes a binding relationship between the supplier and the buyer in the supply chain, in which the conditions regarding items, prices, quantities, delivery times, returns, quality, discounts, etc. will be specified.
- Supply chain integration and strategic collaboration
Your business needs to determine how collaboration impacts the success of your business, what information can be shared during collaboration, and what level of integration and type of collaboration is appropriate for each specific situation and project.
- Outsourcing and procurement strategy
Your business needs to identify the risks that may arise when using external resources and plan to minimize the risks. At the same time, plan a purchasing strategy and choose reputable suppliers, ensuring deadlines and quality.
- Product Design
Your business needs to determine when to redesign a product to reduce logistics costs or reduce delivery times in the supply chain. In addition, it needs to decide what changes should be made in the supply chain to take advantage of the new product design.
- Information Technology and Decision Support Systems
The key issue in supply chain management is not what data is collected but what data should be moved, what data is important to supply chain management, and what data can be ignored. Consider integrating e-commerce into your supply chain system effectively to create a competitive advantage for your business.
- The right people
Your business needs to find individuals with the right skills, knowledge, and attitudes. This will largely determine whether supply chain management strategies are implemented effectively or not
Stages in Supply Chain Management System
- First stage: Planning
To meet the needs of your distributors or customers, you first need to plan. Preparation is necessary, even if your business is just a small part of the supply chain. This is where planning becomes possible.
You must determine how your organization impacts the supply chain, and then figure out the best way to maintain a certain level of efficiency while delivering consistent value to your customers.
One of the best ways to do this is to combine the power of WHS and ERP. For example, when you import or export goods into a warehouse, you will scan the SKU or barcode. Information about inventory levels will be automatically updated and shared with the integrated ERP system. From there, you can analyze data, forecast demand, and order the materials or products you need to meet future consumer demand
- Second stage: Sourcing
This is when a store or business identifies suppliers, manufacturers, and distributors that can provide the goods or services it needs based on its plans.
In an effort to build supply chain resilience, a manufacturer may have multiple suppliers for a critical component, in case one supplier goes out of business or reduces capacity. This adds redundancy but can come at the cost of added complexity. Managing redundant relationships also falls under this part of SCM.
- Third stage: Manufacturing
Even for companies that outsource manufacturing or purchase all or part of their finished goods, this is an important step. The company must purchase finished goods or all the components and raw materials needed to produce goods based on its demand plan, inspect them for quality, and then package the items for shipping or direct distribution.
- Fourth stage: Distribution
Supply chain management and logistics go hand in hand. Coordinating orders, picking and packing, scheduling deliveries, invoicing, dispatching, notifying, and receiving payments are all important. Even with third-party courier systems, every transaction in this process requires careful monitoring to ensure there are no errors or delays.
Finding a freight-forwarding supplier is also important in your supply chain. Efficient transportation improves the supply chain by reducing (if not avoiding) the waste of materials and time. This helps supply chain professionals move products and deliver them to the right place, on time – a priority for any successful business.
If you are looking for a freight-forwarding supplier to support your shipping process, Bansarchina.com is a reputable partner that helps you have effective shipping solutions while saving costs significantly.
- Final stage: Returns process
The product life cycle does not always end when the end user receives an item. Sometimes products are sent back, whether due to customer dissatisfaction, defects, overstocking, or warranty claims.
The item then travels through the supply chain back up until it reaches the company responsible for a refund or replacement. That company then either scraps the item, repairs it, or returns it to available inventory.
A recent trend is “no-return refunds,” where an online seller determines that it will cost them more to return an item than it can recoup and chooses to simply issue a refund and ask the customer to keep the product.
The Supply Chain Process Operations
In a business’s supply chain management, there are a few operational processes that you should know.
- Purchasing:
Before anything can be produced or sold, your business needs to buy raw materials or goods. That’s where purchasing comes in. Based on current plans and needs, the store or business will send orders to suppliers and ensure they can meet the requirements in terms of quantity and timing.
- Manufacturing:
If your organization is in the business of manufacturing, producing things, then that process is obviously a fundamental part of the supply chain management system. Manufacturers must plan production operations and ensure they have the necessary capacity to meet demand. They must also keep track of work-in-progress and finished goods.
- Inventory Management:
Your business must closely monitor the condition of all components and items as they are received, used, and shipped out. It needs to know the details and location of each piece of inventory coming in and out of its facility. Inventory management focuses on optimizing inventory levels to increase inventory levels and reduce holding costs.
- Order management:
Companies – particularly retailers – may receive orders through multiple channels and need to have a way to organize them. Order management involves sorting and prioritizing orders and routing them to appropriate fulfillment locations, such as warehouses or regional retail stores.
Order management systems also track orders as they are fulfilled and shipped to customers.
- Warehouse management:
Although similar to inventory management, warehouse management focuses on the movement of goods within the warehouse and the associated workflows. For example, directing employees as they store incoming products and fulfill customer orders, packaging, and shipping—each step is managed well.
- Customer service:
Your businesses must keep customers informed as their orders move through the supply chain. Let customers know whether you can fulfill their requests, then give them a way to track their orders in real-time. A high-performing supply chain requires consistent and frequent communication with your partners and customers.
- Reverse logistics:
On average, customers return 30% of online purchases, with return rates as high as 50% for some apparel brands, experts say. Companies must find effective ways to handle returned products. A supply chain partner, such as a retailer or distributor, or the end customer can initiate the process. SCM teams should have clear policies on when returns are allowed and rules that detail when goods should be returned for inventory, repair, or destruction.
- Tracking Supply Chain Performance:
Leaders must establish supply chain KPIs and other metrics to understand whether their organization is meeting performance standards. These metrics should be tracked in real-time and reviewed regularly to avoid problems from appearing unnoticed. You can measure productivity, costs, fill rates, on-time delivery rates, and customer satisfaction.
How to Manage Supply Chain Effectively for Your Business
To build an effective supply chain strategy, you need to understand the factors that can affect the operation of the supply chain. Of which, the 5 most influential factors can be mentioned:
- Impact of the external and internal environment of the business
In an increasingly volatile market and with consumer demand becoming more unpredictable, you need to understand current changes and predict future trends.
In addition, the issue of internal connectivity also needs to be focused on. A lack of connection in internal interactions can negatively affect the final results, due to inaccurate information transmission leading to incorrect plan implementation.
- Strengths and weaknesses of your business and your competitors
When you clearly understand your advantages and weaknesses compared to your competitors, the business will identify the core factors that need to be focused on, improved, and promoted to achieve the target market.
- Factors that help build the business’s competitive advantage
Your business needs to focus on promoting a separate aspect to create a distinctive mark on the market. It can be the characteristics of the product, the value of the service, or the surplus value that your business brings to your customers.
- Supply chain operating costs
Supply chain strategy always aims to optimize costs in every aspect to achieve the most competitive price in the market. This is also one of the important advantages that affect consumers’ purchasing decisions.
- Activities that help improve business cash flow
For the supply chain to be implemented according to strategy, you must always ensure your financial flow, to maintain supply chain operations without interruption. From there, achieve the set goals and bring efficiency to the business.
Common Supply Chain Management Strategies
- Push and Pull Strategy
This is a supply chain management method based on the combination of two strategies: Pull and Push to optimize the production, distribution, and inventory management processes.
The push-pull strategy plays an important role in ensuring the efficiency of the supply chain. This helps to minimize production costs, optimize inventory, increase flexibility, and respond quickly to changing market demands.
Your business can choose a pull supply chain strategy to reduce the risk of excess inventory, focusing on meeting a specific demand or order as soon as possible. Pull strategies do not require businesses to hold spare inventory.
The main characteristic of a push supply chain strategy is that demand can be forecasted easily. Your business chooses a push supply chain strategy that can plan production more efficiently to meet estimated demand. However, it imposes a mandatory requirement for large inventories.
- Lean supply chain strategy
To implement Lean in a supply chain, your business needs to understand the 5 rules of lean thinking: Optimize total time, Improve quality, Eliminate waste, Reduce total cost, and Engage and energize all employees of the business.
- Just-in-time Strategy
JIT is a production system in which the flows of raw materials, goods, and products in the production and distribution process are planned in detail step by step so that the next process can be performed as soon as the current process is finished.
Thereby, no items are left idle, waiting to be processed, and no workers or equipment have to wait for inputs to operate.
Important features of the Just in Time strategy are applying small batches with similar production scale, receiving materials throughout the production process is better than producing large batches and then leaving them in stock, causing capital congestion. It also helps to easily check quality, reducing damage when there are errors.
Trends in Logistics and Supply Chain Management
- The Adoption of Artificial Intelligence (AI) and Automation
Today, the adoption of Artificial Intelligence (AI) and automation has become an important factor in improving performance and optimizing supply chain management. Two important aspects of this trend are increasing operational efficiency and reducing time and costs.
- Towards environmental protection and sustainability
In the context of increasing awareness of environmental issues, businesses need to orient their supply chains to promote environmental protection and ensure sustainability. Two important goals in this area are the use of environmentally friendly transportation and the recycling of resources in the supply chain.
- Increasing Resilience to Risks
Today’s supply chains face a wide range of risks, from pandemics to natural disasters and emergencies. Increasing resilience to these events is not only a necessary task but also a critical part of maintaining the smooth operation of the supply chain.
- Diversify the Supply Chain
One of the major risks in supply chain management is dependence on a single supplier. If this supplier has problems, the entire supply chain can be affected. To reduce this risk, businesses need to diversify their sources of supply, seek out ancillary suppliers, and build diverse relationships with multiple partners.
Changes in markets and business situations sometimes require rapid changes in the supply chain. To cope with these changes, having multiple options and alternatives available in product and supply sourcing helps businesses maintain flexibility and performance in all situations.
- Leveraging Cloud Computing
Cloud technology enables businesses to store and share data easily and efficiently across parts of the supply chain. This improves connectivity and interaction between different departments, leading to improved management and rapid response to change.
In an increasingly connected business environment, data security is a major concern. Using cloud computing can provide a higher level of security for critical data and information in the supply chain, with advanced security systems and continuous monitoring capabilities.
Conclusion
To wrap it up, having effective supply chain management helps you not only optimize costs and improve productivity but also ensure flexibility and readiness to respond to all market fluctuations. Through this article, we hope to bring you useful information, helping you better understand how to manage the supply chain most effectively.
FAQs:
What benefits does a freight forwarding service provider bring to a business in supply chain management?
A freight forwarding supplier plays an important role because when freight forwarding is coordinated effectively, it leads to positive business results. The freight forwarding process helps businesses create value. Use freight forwarding services to help you reduce costs, improve efficiency, and deliver your products to the right place at the right time.
What do businesses need to do to implement sustainable supply chains?
Businesses need to invest in increasing awareness and understanding of sustainable supply chains through Training programs. Businesses also need to consider and seek appropriate funding sources to implement sustainable supply chains, which may include seeking social investment capital or funding from international organizations.
At the same time, it is necessary to build a convincing and motivating strategy to gain consensus and commitment from stakeholders. Finally, commitment must be demonstrated through setting specific goals and developing and complying with standards and norms related to sustainable supply chains.
What is the role of technology application in supply chain management?
Applying technology in the supply chain can help businesses reduce pressure on human resources and manage employees more effectively. At the same time, it also helps businesses save costs to focus on investing in other areas. In addition, technology also contributes to shortening the time and route of transporting goods so that products reach customers faster.
Advanced technologies such as AI (Artificial Intelligence), IoT (Internet of Things), and DLT (Blockchain and Big Ledger Technology) have been supporting real-time tracking, predictive analytics, and automation, helping to make informed decisions and reduce operational costs.
