Concepts in Supply Chain Management
We are all used to turning on the coffee machine in the morning and waiting for our first cup of coffee. There is hardly any hard work involved and most of the time, all we need to do is just press a button and our cup of coffee is ready. However, there is a lot of work that goes into making the process so quick and simple for you. That work is what people in the business refer to as the supply chain management. To bring you that cup of coffee, someone worked tirelessly on a farm, someone organized the packaging of the coffee beans, someone calculated demand and supply mathematics to make sure you were paying the right amount for it and so on. Suffice it to say, if so many people weren’t working in harmony, your cup of coffee would never be so simple to make.
The above chain of events is usually referred to as Supply Chain Management (SCM).
All the steps and processes in SCM need to be managed optimally. Or else consumers won’t get the product when they need it.
The Desired Outcome: Fulfillment
The importance of the supply chain is such that even if one wrong step is taken, or a delay happens at any point, the final product doesn’t reach its destination. Everything needs to be done correctly, on time, and to the best of quality. Big corporations that move products every minute of the day work to meet the targets on order fulfillment to ensure everything runs smoothly.
Every single order passing through the supply chain needs to be executed flawlessly. Such an order saves costs such as those associated with fixing mistakes, compensating customers or employing extra resources. Since a lot of departments need to be engaged to correct any errors, everyone wants the process to run perfectly, so that they have to spend the least resources possible.
The question then arises, what exactly is a ‘perfect order’? In layman terms, one could call it an order that runs exactly as planned. This starts from ensuring the availability of the product and continues through different stags including processing, shipping, notifying the customer, tracking, on-time and correct delivery, and billing.
This process culminates in a happy customer who is ideally willing to use the services again.
Supply Chain Management Flows
From the origin to the end-consumer, effective flows of the concerned products need to be in place. However, that is not all. If one looks at the supply chain of fresh food, one can see that two-way information flow is necessary to ensure that all the participants in the supply chain are aware of the demand, problems, and potential problems in the supply chain. Only with the availability of this information can they decide what to make, what to transport, in what quantity and through which mode of transport.
Suppliers of products and raw materials also benefit greatly from a company’s efficient supply chain. If a company supplies a particular raw material to another company, then it wants to be paid as soon as possible. If the client is working efficiently, the company is likely to receive the payment on time. Note that sometimes companies have to process returns, faulty products, and recyclable products which also becomes a part o the supply chain and uses resources.
Due to the importance of the supply chain, most companies involved in import and export activities employ supply chain managers, making it an attractive career path for many people.
Intelligent managers have realized and always stressed the importance of the following two things:
- The supply chain needs to be thought of as a whole. This means giving fair consideration to all the steps involved until the product reaches the end-user.
- Tangible outcomes are important. Put the focus on costs, asset utilization and revenue growth to achieve success.
Supply Chain Management Processes
The people involved in supply chain processes need to work together as a team. One can think of them as a sports team. While everyone is vital to the way the team performs on the pitch, no one can act independently and do whatever he wants. Every player’s actions are a result of the continuous actions of the fellow players. The same happens in supply chain management. Each department wants every other department to work efficiently so that they can do their part efficiently too. If one manager or one department makes a mistake, the whole supply chain needs to react to make up for it.
One way to achieve a flawless supply chain is to assign roles to the people involved. In this way, the following processes can be executed optimally.
- Planning: This process involves creating strategies for both long-range and short-range supply chain. It includes designing the supply chain network, predicting customer demand and developing the supplies accordingly.
- Procurement: Procurement involves buying stuff for use in product development or any other processes the company carries out. The job here is pretty simple: Buy!
- Production: This process involves manufacturing or assembling of components into finished goods. A key job of the manager here is to ensure all the raw materials and production support that the manufacturing process requires is available to the production department.
- Distribution: This process moves the finished goods around the globe. It involves communication with logistics firms, transport companies, shipping agencies and similar people to ensure the product is moved securely and timely. It involves the finer details of compliance like ensuring the correct HS code is used for import or export declarations.
- Customer Interface: This is the process that determines the demand for the product. It involves measuring how satisfied the customers are, how they are interacting with the product and whether their current and future needs are and will be satisfied easily.
The 7 Principles of SCM:
Over a decade ago, a study was conducted with about 100+ distributors, manufacturers, and retailers. It showed how big companies used supply chain management principles and formed their strategies. A summary of these strategies and ideas was presented in an article which formed the seven principles.
Let’s briefly go over these:
- Divide the customers into groups according to their needs. Then mold the supply chain according to the demands of these individual groups. The ultimate aim is maximizing profitability in each group.
- Mold the logistics according to the requirements of each group.
- Keep track of changes in the market and vary demand planning accordingly. This ensures timely forecasting and proper allocation of resources.
- Differentiate the product as close to the end consumer as possible. This ensures companies don’t have to stockpile inventory thousands of miles away from the customers and can move it quickly based on the demand.
- The supply sources need to be managed strategically so that total expenses associated with owning services and materials is reduced.
- A strategy that allows for decision making at multiple levels in the supply chain needs to be established. Such a strategy should allow for clear access to the flow of information, services, and products.
- Adopting measures that measure success in effectively and efficiently reaching the end consumer.
These principles were developed over a decade ago but till now they have stayed relevant because of the immense value they bring to supply chain management.
Managers increasingly find themselves assigned the role of the rope in a very real tug of war—pulled one way by customers’ mounting demands and the opposite way by the company’s need for growth and profitability. Many have discovered that they can keep the rope from snapping and, in fact, achieve profitable growth by treating supply chain management as a strategic variable.