What is supply chain management and why is it important?

Supply chain management refers to the management of the flow of goods from the time of manufacture to the point they reach the end consumer. This can hence refer to the movement and storage of raw materials and packaging materials, and of finished goods. As you may imagine, supply chain management is a very important aspect of any business dealing with trade in goods. Unfortunately, many businesses do not allocate sufficient resources to supply chain functions within the organization.

Insufficient resources or attention leads to hiring inexperienced team members and an overall lack of infrastructure that oftentimes can hinder the company’s growth.

Many bottom-line costs are directly and indirectly linked to the supply chain, such as:

  1. Manufacturing overheads
  2. Reverse logistics costs
  3. Transportation costs
  4. Customs administration costs
  5. Vendor management costs
  6. Service recovery costs
  7. Scrap costs
  8. Inventory management costs
  9. Import export compliance costs
  10. Warehousing costs
  11. Duties and taxes

By investing the right resources in supply chain management, companies can suppress bottom lines in the long run. By managing the supply chain proactively, the business stands to gain by reducing unnecessary expenditure, improving operational efficiency and being better equipment to satisfy demand for product in a timely manner.

All organization that are involved in import and export activities should aim to improve their supply chain capabilities in the areas described above. This includes having clear standard operating procedures developed and training all team members to strive towards achieving the goals of supply chain excellence in day to day operations.

What are some important elements of supply chain management?

Supply chain management has several elements that need to be considered.

  1. The supply chain network. This refers to physical facilities of all nodes related to the supply chain such as the manufacturing site, distribution centres, ports of use and even customer locations.
  2. Ethical standards. This refers to the company’s standard on acceptable practices when dealing with customers and government authorities.
  3. Legal standards. This refers to the company’s interpretation of legal requirements and internal standards developed to meet them.
  4. Software and technology. This refers to the IT infrastructure in place to support growth and process simplification.
  5. S&OP or SIOP. Proper planning on inventory levels against expected demand allows for businesses to satisfy customer requirements in a timely manner without holding too much inventory in warehouses. This reduces the potential for scrap and costs incurred from storage.
  6. Vendor management. This sets the standards of selecting and managing vendors. This also includes the aligned KPIs that need to be met in order to quantity vendor performance.

What are the recommended Key Performance Indices for supply chain management?

Some of the common supply chain KPIs are:

  1. Cash to cycle time
  2. Perfect order rate
  3. Inventory turnover
  4. Gross margin of return on investment
  5. Cost to serve

Why is supply chain management important?

As can be imagined, SCM has a direct influence on a company’s bottom line. As such, it has a direct impact on overall performance. As companies all over the world build more and more complex supply networks globally, the costs of transportation are expected to keep increasing. Moreover, Go-To-Market models are also increasing in complexity, which adds to the costs of doing business, where timely delivery is fast becoming just as important as cost and quality.

A final note:

Supply chain management is a universe of concepts. In large multinational organizations, due care must be taken to ensure that all aspects of supply chain management are appropriately resourced for.

This includes, but is not limited to:

  1. Order fulfilment
  2. Import/Export compliance
  3. Planners
  4. Buyers
  5. Marketing
  6. Manufacturing
  7. Warehousing
  8. Finance

Without properly leveraging resources to achieve supply chain excellence, companies are vulnerable to competitors selling similar products, but disrupting the market with competitive prices attained from supply chain optimization. For example, if a multi-billion-dollar company is able to reduce scrap wastage by just 3% compared to industry averages, that company will have tremendous advantage in pricing aggressively while holding similar margins.

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