What is Supply Chain Management (SCM)?
Tom McGuffog, the CEO of Altogue Associates defines Supply Chain Management as “Maximizing value added and cutting down on total cost, whilst focusing on speed and market security across the entire trading process.” In simpler terms, it is the process of planning, tracking, and perfecting how goods and services move throughout the system, from the creation of an idea and raw materials into a finished product. This process involves every aspect of business operations including logistics, purchasing, and information technology. It includes moving and storing raw materials, storing the finished products until they sell, and tracking where they go, to drive future sales.
Supply Chain Management is an integral part of the success of a business and customer satisfaction as it can directly influence its revenue. It seeks to streamline every part of the process by integrating materials, finances, manufacturing facilities, suppliers, wholesalers, retailers, and consumers into a seamless system, hence maximizing profits and minimizing product defects. Why is it important? Supply Chain Management impacts business costs and profitability and can reduce a company’s operating expenses, hence driving up profits. Its efficiency can be displayed in every aspect of the chain, from idea creation to marketing of the finished product.
Globalization and ICT have enabled Supply Chain Management to be an instrument for the proficient competition of corporations at a regional and global level. In the modern world, Supply Chain Management is necessary for the production industry, when it comes to supplying products and solutions at an aggressive price and in better quality than their opponents. Below is a breakdown of some of the significant roles of Supply Chain Management;
SCM improves customer service
- Correct quantity and quality – Customers expect the correct quantity and quality of products to be delivered.
- Correct location of delivery – Customers expect products to be available at the right location.
- On-time delivery – Customers expect their products to be delivered on time. A reliable supply chain can help ensure customers receive their products in the promised time frame.
- After-sales services – Customers expect their products to be serviced quickly. If any issue comes up with the product, customers expect it to be handled swiftly. A reliable supply chain helps ensure that customers get the service they want.
SCM reduces operating costs
- Decreases Purchasing Cost – Organizations and retailers usually depend on supply chains for quick distributions of costly products and raw materials to avoid holding expensive inventories in stores any longer than necessary.
- Decreases Production Cost – Manufacturers depend on supply chains to deliver raw materials to assembly plants in a reliable manner to avoid a shortage of materials that would shut down production. An efficient supply chain delivers materials to assembly plants and helps avoid any costs that may be incurred due to delays.
- Decreases Total Supply Chain Cost – Manufacturers and retailers usually rely on supply chain managers to devise networks that fulfill customer service goals at the least total cost. Reliable supply chains enable a firm to be more competitive in the marketplace.
SCM improves the financial position of businesses
- Increases Profit Leverage – Businesses value supply chain managers because they assist in controlling and reducing supply chain costs, resulting in dramatic increases in firm profits.
- Decreases Fixed Assets – Businesses prefer supply chain managers because they decrease the use of large fixed assets which include warehouses and plants in the supply chain.
- Increases Cash Flow – Businesses value supply chain managers as they speed up product flows to customers. For instance, if a firm can make and deliver a product to a customer in 10 days rather than 70 days, it should invoice the customer 60 days ahead.
Below are some of the reasons why Supply Chain Management has turned out to be significant in the present-day production industry:-
Competitive Edge due to Core Competencies
The modern business climate has promptly changed and taken a competitive turn, seeing as businesses now not only want to work at a lower competing price but also acquire and possess core competencies to distinguish themselves from opponents and stand out in the industry. Supply Chain Management has allowed corporations and enterprises to rethink and restructure their entire procedure, focusing on what they do ideally and outsource the processes that are not in their core competencies. As a result of the present-day aggressive industry, this is the only way an enterprise can survive. Making use of SCM not only affects its position in the industry but also permits it to generate niches and specialization of key places. According to Chan Kim’s Blue Ocean System, in order to create a niche for aggressive benefit, corporations have to view the full procedure in a bigger picture and figure out which procedure can be reduced, eliminated, raised, or generated.
Supply Chain Management has allowed companies nowadays to not just have cost advantage alone, but also value advantage. According to Martin Christopher’s eBook, Logistics and Supply Chain Management: Tactics for Minimizing Charge and Improving Service, ‘Cost advantage gives a lower cost profile and the value advantage gives the product or offering a differential ‘plus’ over competitive offerings’. As a result of maximizing included advantage and also decreasing the price in the identical time, additional innovation can be included in the product and procedure. Mass producing provides a cost advantage but mass customization can be achieved as a result of effective offer chain management.
With mass customization, clients are offered the value advantage as a result of adaptable producing and tailored adaptation. Product existence cycles can also be enhanced as a result of the effective use of Supply Chain Management. Value advantage also alters the norm of standard offerings, that is, ‘one-sizing-fits-all.’ As a result of Supply Chain Management, the industry’s additional approved offerings to the buyers would be a variety of products and solutions catering to various industry segments and clients choices.
Whether handling day-to-day product flows or an unanticipated natural disaster, supply chain experts roll up their sleeves and get to work. They identify problems, skillfully work around them, and work out how to transport essential products to customers as efficiently as possible. Our course in Procurement & Supply Chain Management equips you with skills to become a supply chain expert. Enroll with us today for more knowledge regarding supply chain management in businesses.