What is supply chain management and why is it important?
Supply chains have the potential to make or break a company, and they’re coming under pressure from what’s become known as the ‘Amazon Effect’. The delivery goliath is raising expectations of how quickly products can be delivered and how cheaply. As a result, it’s more important than ever that supply chains are carefully managed.
What is supply chain management?
Supply Chain Management (SCM) is the process of overseeing and controlling the movement of goods and services from manufacture to the customer. A supply chain manager’s goal is to improve the efficiency of the supply chain, reduce costs. For that reason, they will oversee the entire process, including:
Procurement of raw materials
This will include where the materials are sourced, agreements held with the supplier, the timing and process of transferring the materials to manufacturing sites or into the ownership of your business.
The size and location of manufacturing sites and warehouses
Key considerations are the volume of goods the sites can process, the distance from other key sites (the further away, the higher the costs of transportation), and logistics of moving goods from the site into the next stage of the supply chain.
The supply chain manager will want to ensure that all agreements with suppliers and manufacturers minimise delay, maximise efficiency, and provide value for money.
Transportation is a huge part of supply chain investment, so opportunities to reduce costs could potentially have a huge impact. Anything from the method of transportation being used to the time of day goods are being moved can have an effect on the chain.
Changes to scheduled events
Any alterations to events that occur on a regular basis, such as changing a bulk dispatch time for orders from morning to evening, will fall under the supply chain manager’s remit, as these changes could have an enormous impact on the rest of the chain.
Processes used to collect, store, fetch, and dispatch inventory can all have an effect on the supply chain, and so a supply chain manager will have a keen interest in these. The length of time that inventory is held for can have a large impact on a company’s profits too.
Customer order processes
The customer is the beginning of the supply chain, as it is their order that creates the need that results in all of the movement of materials that ends with a product in the customer’s hands. Therefore the way a customer’s order is processed is an integral part of the chain.
Order dispatch processes
How inventory is removed from a warehouse and processed as an order before being shipped to the customer can affect the speed with which the customer receives their goods, as well as the likelihood that they receive all of their order and not something else.
Tracking customer orders
The final stage of the product’s journey is still fraught with possibilities of delay and disruption. If this is in your company’s control, there might be improvements to be found. If not, then your supplier agreement will determine how quickly and efficiently the customer receives their order.
Why is supply chain management important?
With so many elements making up the supply chain, and all of them dependent on the others for smooth operation, it would be easy for one bad apple to have a negative effect on your business. But supply chain management isn’t just about avoiding disaster; it can also bring positive effects to your company too.
Boost customer satisfaction
An inefficient supply chain can leave customers receiving only part of their order, or even receiving the wrong products. SCM can not only ensure that customers receive the entirety of their order, correctly, but also shorten the time in which it takes an order to be delivered.
Products in the right location
If your car battery dies but a replacement takes weeks to arrive at the garage, you’ll be displeased to be without a car because the product wasn’t where it needed to be. Equally, the garage will be unimpressed to be acting as a temporary warehouse for hundreds of batteries they don’t need. SMC ensures that products are available in the correct location at the correct time.
Reduce operating costs
Supply chain efficiencies can reduce costs at multiple points along the journey a product takes to the customer. For instance, deliveries that arrive as they are needed reduce the need to hold inventory in warehouses for prolonged periods of time. In fact, food manufacturer Kellogg’s is expected to save around £500 million in 2019 through ‘Project K’, an initiative designed to streamline its supply chain.
These aren’t just your costs; an efficient supply chain can reduce costs for partners and other businesses, who are more likely to renew contracts as a result of these savings.
Production delays can result in high costs and dissatisfied customers. Production delays caused a reduction in revenue of over £300 million for medical product and technology company ConvaTec.
Equally, inventory needed to fulfill orders which is waiting in a warehouse is actively costing you money; Apple CEO Tim Cook once stated that inventory effectively depreciated in value by 1% to 2% every week. Reliable delivery of materials to factories or assembly plants lowers the risk of the huge expenses caused by production delays, and efficient dispatch of orders reduces costs incurred by the storage of inventory.
Reducing reliance on warehouses and transportation costs similarly reduces expenditure. Efficient SCM also increases cash flow by making the organisation a more attractive supplier to customers for its speed of delivery, who may go on to recommend you to others.
How to ensure quality supply chain management
ISO 9001 is the world’s most recognised quality management system standard. It’s proven to help improve efficiency and profit margins, and can help you to implement systems and policies to streamline your processes and increase efficiency for complex logistics.
Alternatively, if you want to specifically demonstrate that your supply chain is held to high standards, an Industry Specific Standard (ISS) or Business Specific Standard (BSS) can help. Our experienced team can help you put together a bespoke standard that you can use to measure your success, and reassure your suppliers and clients that your supply chain is efficient, well-managed, and could even reduce their costs too.