Supply Chain Management (SCM) involves monitoring and optimizing the production and distribution processes of a company’s products or services. Also called supply chain management, this set of activities seeks to make an organization more efficient by transforming raw materials and components into a final product.
An effective SCM will help your company streamline its activities, eliminating waste and increasing added value for your customers. A good Supply Chain Management will give your company a competitive advantage in the market.
This strategy also allows your company to avoid spending money on product recalls and even customer lawsuits, which can permanently stain your reputation. In addition, your company still has the chance to improve customer service and avoid the problem of shortages or surplus products in your inventory.
In this article, we will talk about the importance of Supply Chain Management, what its different areas are, and show how it works. Don’t miss it!
Why supply chain management is important
Companies with advanced SCM capabilities are 23% more profitable than their peers, an Accenture study has found. This data alone should be enough to convince you of the importance of good supply chain management.
if that wasn’t enough, there’s more: a good Supply Chain Management will minimize your expenses, reduce your waste, and make your production cycle faster. It is a set of activities that will help your company anticipate risks, having a better chance of avoiding them or at least mitigating them when they appear.
SCM also allows your company to predict supply chain disruptions, as well as track your compliance performance with different regulations and standards. Not to mention that supply chain management also improves the satisfaction and loyalty of your customers by making it easier for your products to be delivered on time and in good condition.
Not to mention that the importance of good Supply Chain Management only grows with the increase in awareness about climate change. Companies with a sustainable supply chain will be able to reduce their carbon footprint and their impact on nearby communities — which has concrete benefits for the environment and their reputation.
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How Supply Chain Management works
A global supply chain is made up of a complex network of suppliers, manufacturers, distributors, retailers, wholesalers, and customers. An effective SCM strategy seeks to optimize this ecosystem to ensure that everything is in the right place at the right time when needed.
For this to work, your company will need to source or manufacture the necessary components, manufacture the product, store it, and transport it to customers. If something goes wrong, it will still be necessary to take care of reverse logistics or even any recalls — as you will see in the following section.
Supply Chain Management also involves the coordination of external partners and internal resources. You’ll also need to manage operations, ensuring that everything flows as expected.
At the end of the day, supply chain management combines control of supply and needs both within your company and in relation to your partners.
As 5 fases do Supply Chain Management
Each of the phases of Supply Chain Management serves as a cog in a large machine. All these gears work together to create a flow of raw materials and products that will end up in the customers’ homes.
There is a specific function for each phase and the union of them makes your supply chain efficient as a whole. And a well-coordinated supply chain is essential to the success of any project.
Next, let’s talk in detail about each of the phases of Supply Chain Management:
1. Planning
The planning stage lays the groundwork for a successful supply chain. This is when you need to determine the resources you need, estimate deadlines, and set budget constraints.
The person in charge of planning needs to have their forecasting and scheduling skills sharpened, as well as have a good overview of the project’s scope and objectives. After all, all the next phases of the chain will depend on how good your planning was.
It is recommended to perform a comprehensive risk analysis, enabling you to identify and mitigate issues that may arise in your supply chain. You need to analyze the full scope of the project and anticipate potential risks through an assessment of the demands of your workforce and the availability of materials, among other elements.
2. Procurement of raw materials
Obtaining the materials needed to manufacture the product is the second stage of the supply chain. At this stage, an organization must source and contract with a supplier for the raw materials that will be used in its product — which can include items such as plastic, wood, or steel.
Your ultimate goal at this stage is to build a network of reliable, high-quality suppliers. You should try to get the best quality materials possible at the most competitive price you can negotiate, but don’t forget to confirm that this partner’s ethical and sustainability standards are aligned with those of your company.
It is necessary to carry out a rigorous supplier evaluation process, without fear of engaging in multiple rounds of negotiation. When done skillfully and carefully, this process results in building relationships that are built on trust and mutual benefit.
3. Manufacturing
This is the stage where the raw materials are transformed into tangible components, which in turn will be part of the final product. The main objective is to ensure that manufacturing will occur efficiently and with the desired quality, but without violating the safety standards and environmental legislation of your industry.
The manufacturing process can be divided into sub-steps, such as assembly, testing, inspection, and packaging. At this stage, it is necessary to keep an eye on factors that can cause deviations from the original plan, such as waste.
The ultimate goal of Supply Chain Management is the manufacture of a product, but that doesn’t mean that this will be the last stage. Once manufactured, the product must still be delivered and it is necessary to give proper support to customers who will buy it.
4. Delivery
The item is ready, but now it needs to get into the hands of your customers. This usually involves transporting the products to the stores where they will be sold or the warehouses of partner e-commerce businesses — if your company does not work with direct sales.
Delivery operations must be meticulously planned and executed in order to ensure safe and timely delivery. This is what a good Supply Chain Management strategy is for, as it allows you to employ advanced logistics and tracking systems to coordinate transportation, monitor inventory levels, and manage distribution schedules.
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Sustainability also plays a role in this step, as you can optimize transport routes and transported cargo capacity to reduce CO₂ emissions. Your delivery process must be flexible and responsive, with the ability to adapt in the event of unforeseen events such as delays and accidents.
It is recommended to include a plan B for your transportation routes or a diversified distribution method. For example, you need to be prepared in case heavy rain causes flooding in the region where your business operates.
5. Return
The payback phase often doesn’t get the attention it should, but it’s vitally important to your company’s reputation. This is where you will minimize waste, reduce costs and promote sustainable practices. This is also the part where you will deal with dissatisfied customers or those who have not had their demands met.
Sometimes referred to as reverse logistics, this step requires your company to have the ability to receive products returned by customers and refund their money. This action should occur without major difficulties, no matter if it is just a customer dissatisfied with your product or a generalized defect that requires a recall.
Returns offer chances to receive valuable feedback from customers, which can help your company identify products with defects or design issues. From this information, your product development team can make the necessary changes to achieve the desired quality.
Read more: The main challenges in supplier management for the pharmaceutical industry
Conclusion
Supply Chain Management goes far beyond a simple set of operational processes — it is an essential strategy to ensure your company’s competitiveness, sustainability, and resilience.
By seamlessly integrating all phases of the process, from planning to return, organizations can reduce costs, optimize resources, and mitigate risks. In this way, they can ensure that the products will reach customers with quality and on time.
This approach not only contributes to increased profitability but also strengthens reputation and relationships with the market and community. Investing in robust and sustainable supply chain management is, therefore, a decisive step to turn challenges into opportunities and conquer a prominent position in an increasingly competitive scenario.
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