Supply Chain Management, What are the Components and Benefits?

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Supply Chain Management

Supply Chain Management (SCM) is the optimization of product creation and flow from raw material sourcing to production, logistics, and delivery to the end customer.

SCM encompasses the integrated planning and execution of processes required to manage the movement of materials, information, and financial capital in activities that broadly include demand planning, procurement, production, inventory management and storage, transportation – or logistics – and returning excess or defective products. Supply Chain Management relies on business strategy, specialized software, and collaboration to work.

As this is a vast and complex endeavor, each partner – from suppliers to manufacturers and beyond – must communicate and work together to create efficiencies, manage risks, and adapt quickly to change.

In addition, Supply Chain Sustainability – which includes environmental, social and legal issues, in addition to sustainable procurement – and the closely related concept of corporate social responsibility – which evaluates a company’s impact on the environment and social welfare – are key areas of concern for companies today.

Benefits of Implementing Supply Chain Management in Companies

Effective Supply Chain Management provides three main benefits to organizations and companies:

1. Lowering Costs

By integrating suppliers and applying technology, organizations can lower operational costs by responding more dynamically to customer needs. For example, managing on demand keeps organizations from overproducing, which not only reduces labor and raw material costs, but also saves inventory management costs and transportation costs.

2. Increased Income

When organizations use technology to stay close to customer demand and respond faster (as in the example of Walmart keeping shelves stocked), it is more likely that products remain available for customers to purchase. When manufacturing is streamlined to produce enough, labor and materials can be devoted to developing new items to offer to customers and expanding the product mix. Outside the realm of products, this may mean offering additional services to customers.

3. Asset Utilization

With effective Supply Chain Management, organizations can use capital assets, such as production or transportation equipment, most effectively. Rather than adding wear and tear to manufacturing equipment needlessly, businesses can produce as needed.

Supply Chain Management enables organizations to deliver faster, ensure products are available, reduce quality issues, and direct returns easily, ultimately increasing value, both within the organization and for customers.

Components of Supply Chain Management

Supply Chain Management consists of several components that are very important and critical to the system. We will discuss each component briefly.

1. Planning

This is one of the most important stages. Before the start of the entire Supply Chain, it is important to finalize the strategy and put it in place. Checking the demand for the product or service, checking the feasibility, costing, profit, and labor, etc., is essential. Without a proper plan or strategy, it is almost impossible for a business to achieve effective and long-term profits. Hence, enough time should be devoted to this phase. Only after finalization of the plan and consideration of all the pros and cons, one can proceed further. Every business needs a plan or a blueprint or a roadmap on the basis of which a strategy is created. Planning helps identify demand and supply trends in the market and this, in turn, helps create a successful Supply Chain Management system.

2. Information

Today’s world is dominated by a continuous flow of information. To be successful, it is important for a business to stay abreast of all the latest information on various aspects of its production. Supply and demand market trends for a particular product can be well understood if information is disseminated correctly and in a timely manner through many levels of the business. Information is vital in the knowledge-based world economy, and ignorance about any aspect of business can actually spell doom for business prospects.

3. Source

Suppliers play a very important role in the Supply Chain Management system. The products and services sold to the end users are made with the help of various raw materials. Therefore, suitable quality raw materials must be purchased at cost-effective prices. If the supplier is unable to supply on time, and within the set budget, the business is bound to incur losses and gain a negative reputation.

It is very important for companies to obtain good quality resources so that they can create good quality products and maintain their reputation in the market. This requires a strong role for suppliers in the Supply Chain Management system.

4. Supplies

For a highly effective Supply Chain Management system, inventory must be kept and maintained thoroughly. Inventory means a list of ready-made goods, raw materials, and other essentials required for a product or service. This list should be updated regularly to demarcate the available stock and the required stock. Inventory management is crucial to the Supply Chain Management function, as without proper inventory management, production, as well as sale of products, is not possible. Businesses are now starting to pay more attention to this component simply because of its impact on the Supply Chain.

5. Production

Production is one of the most important aspects of this system. This is only possible if all other components of the supply chain are interconnected with each other. For the production process to begin, proper planning and supply of goods, as well as inventory, must be properly maintained. The production of goods is followed by testing, packaging and final preparation for shipment of the finished product.

6. Location

Any business that wants to survive and thrive needs a location that is favorable for the business. Take, for example, a carbonated beverage factory set up in an area where water supply is scarce. Water is the basic need of such a business. Lack of water can hamper production as well as affect the goodwill of the company. A business cannot survive if it has to share an already scarce raw material with the community. Therefore, a location that is suitable, well-connected, and very close to the source of essential resources for production is essential for the prosperity of the business. Labor requirements and availability should also be considered when setting up a business unit.

7. Transportation

Transportation is essential when it comes to bringing raw materials to the manufacturing unit and delivering the final product to the market. At each stage, timely transportation of goods is mandatory to maintain a smooth business process. Any business that pays attention to this component, and takes good care of it, will benefit from the timely production and transportation of its goods.

It is imperative that companies work towards a safe and secure transportation process. Be it in-house or a third-party vendor, the transportation management system should ensure no damage and minimal losses in transit. A well-managed logistics system along with flawless billing are the two pillars of safe transportation.

8. Return of goods

Among the various components that create a strong supply chain is a defective/defective return facility, along with a highly responsive customer complaint handling unit.

Supply Chain Management Example

There are many different types in practice. Here is an example of a well-known Supply Chain master:

Tesla and Specialized, Owned Chains

Automotive manufacturing has come a long way since Henry Ford used assembly line manufacturing to speed up production of a single car model in a single color. Now, at a time when even American automakers are opening factories overseas, Tesla is making innovative, highly popular, and luxurious cars right in California, a location with very expensive real estate.

Instead of having a long Supply Chain of cheap parts makers, they have a vertically integrated Supply Chain, with a full-service car factory near its corporate headquarters and plans for a supplier park and large battery factory, and Tesla has it all. Even more interesting is the digital Supply Chain the company is promoting – firmware updates and new algorithms are pushed to existing car owners via the cloud.

Advantages of Implementing Supply Chain Management

Supply Chain Management creates a number of benefits that translate into higher profits, better brand image, and greater competitive advantage. These include the following:

  • better ability to predict and fulfill customer demand;
  • better supply chain visibility, risk management, and predictive capabilities;
  • fewer process inefficiencies and less product wastage;
  • quality improvement;
  • increased sustainability, both from a social and environmental perspective;
  • lower overhead costs;
  • cash flow improvement; and
  • more efficient logistics.

Supply Chain Management makes deliveries more effective with more efficient logistics as its benefits. Well, to make delivery even more optimal, companies can use  Fleet Management Systems to optimize your fleet. Manage the health of your vehicles and improve fleet utility and safety with FMS from  TransTRACK!