What is Supply Chain Management? Importance & Benefits

Supply chain management (SCM) is essential to any business strategy. Negative effects wreak havoc, impacting customer satisfaction and ROI. Facets of this broad field include demand planning, inventory management, logistics, acquisitions and partner management. Supply chain management is never boring, and there’s always more to learn. Let’s dive in. 

What is a Supply Chain?

Simply put, a supply chain controls the flow of raw materials and goods. This process covers anything in direct relation, from individual employees to organizations, information and resources. Used to cut costs and maximize efficiency, supply chain trends cater to every business. E-commerce brands must oversee design, manufacturing, sourcing, warehouse inventory, shipping and delivery. Logistics is a larger focus for transportation companies. No matter the industry, customer satisfaction remains of utmost importance. Supply chain management is typically broken into three large buckets of intricate processes and roles:

• Concept: the full cycle, from sourcing and procurement to fulfillment. 
• Industry: carrier regulations, trade compliance and transportation. 
• Function: operation management, logistics and inventory. 

Cohesion is required across supply chain management to create maximum value. Working proficiently relies on moving parts, but the bottom line is simple: meeting customer demand.

What is Supply Chain Management?

Supply chain management ensures that products get to the right place at the right time. This integration of supply and demand requires a special mix of business operations, procurement, accounting, and production. The five basic components of supply chain management are: 

• Planning – Organization matters. Supply chain management software helps to forecast demand and plan ahead through data and analytics.

• Sourcing – Collaboration starts by selecting suppliers to produce items or services. This stage also includes writing contracts and managing external vendor relationships. A supply chain management system streamlines the process oversight for ordering, receiving, inventory management, and payment authorization.

• Making – Technology is critical to production. This component includes conception, design, materials, manufacturing, quality testing, and packaging.  

• Delivering – This stage is focused on logistics to ensure that goods reach customers. Different deliverables apply to every industry.

• Returning – Effective supply chain management requires a network to support the return of any defective or unwanted items. 

Why is Supply Chain Management Important?

Supply chain management can revolutionize business performance. Happy customers = higher margins and revenue growth. The benefits of supply chain management don’t stop at cash. System optimization is valuable when reducing cost, waste, and time. Let’s dive into three main reasons why supply chain management is so important.

• Boost Customer Service – A seamless supply chain management system protects the full customer experience. Don’t let anyone fall through the cracks. Create memorable moments, from purchase to delivery. Buyers like to secure easily, and social media offers another great way to connect and even anticipate problems.
• Reduce Operating Costs – Every stage of supply chain management can benefit from cost reduction without risk to the customer. Technology reduces time spent, along with providing helpful data for future improvements and improved decision making. Decrease purchasing and production costs through automation; sales planning; and even different transportation methods. Hiring skilled people can further decrease total supply chain costs.
• Improve Financial Position – Geopolitical, environmental and other unplanned events are constantly invalidating your long term plans resulting in a divide between financial and operational supply chain objectives. You need to protect your bottom line by aligning financial plans and supply chain operations to reduce supply chain and financial risks. Fixed assets only lose value. Address these flaws in a full review of your supply chain management system from top to bottom. Inventory control is key to reducing the need for fixed assets. Gartner suggests three ways to level performance for cash flow optimization and boosting ROA:
  
  • Follow a comprehensive approach. Rather than focusing on fixed costs, aim to capture valuable margins and control working capital.
  • Drive better overall performance through clear communication, strategic alignment, and realistic performance goals. 
  • Invest in digitalization to grow and transform, eliminating issues from human-related costs and errors.

Benefits of Supply Chain Management

Supply chain management fosters functionality across the business, with benefits that trail back to three major areas:

• Lowered Costs – There are many ways to reduce costs across SCM without losing sight of the customer. Efficient utilization of space is important. Develop a smoother approach to inventory organization through digitization. Supply chain management software keeps information in one place. Consider all the hours saved from manual data entry and other AI tasks.

• Increased Revenue – Make the supply chain management system into your competitive advantage. Once manufacturing is streamlined, labor and materials can be allocated to new initiatives, like product expansion or adding additional services.

• Asset Utilization – Effective supply chain management allows organizations to make better use of assets. Rather than replacing equipment, businesses can assess and evaluate by demand. This process allows organizations to guarantee availability, reduce quality issues, deliver products more rapidly, and handle returns with ease. 

Industries Utilizing Supply Chain Management

Supply chain management is applicable to most industries, but here are a few examples of growing fields:

• Industrial Manufacturers – Today’s consumers demand products that fall in the categories of configure-to-order, make-to-order, and assemble-to-order. A modern, agile industrial manufacturer must be responsive and able to deliver with quality and timeliness. Fluctuating demand leads to significant challenges around internal supply chain management, specifically cost control, inventory optimization and supplier management. QAD’s Industrial ERP meets these challenges to exceed expectations.
• Pharmaceuticals and Medical Devices – A tightening regulatory environment, increasing cost pressures, and supply chain management complexities raise new challenges in a typically innovative field. Other factors include emerging global markets, quality initiatives, and merger and acquisition activity. ERP solutions from QAD deliver the flexibility required for manufacturers in this industry, providing industry-specific functionalities to meet the continually evolving supply chain needs of medical device, pharmaceutical, and biotech manufacturers.
• Food and Beverage – Despite the unpredictable market, Food and Beverage ERP technologies allow manufacturers to satisfy customers better and increase profitability. With different product lines, more inventory, and evolving compliance regulations, a supply chain management system must be flexible enough to streamline all inventory. Supply chain management logistics also provide field-to-fork traceability, documentation, and quality monitoring.
• Consumer Products – Consumer Products manufacturers face dramatic disruptions that continue to transform the industry, impacting daily operations and plans for the future. Manufacturers can stay ahead of the ever-changing market by being adaptive and agile. Supply chain management feels the impact of every buying pattern shift, especially as manufacturers face tightening margins. Consumer Products ERP systems allow manufacturers to streamline processes, save on costs, and improve flexibility in the face of fluctuating customer demands.
  
• Electronics and High-Tech – Innovation and the ability to quickly manage change are two keys to success in this industry. There is constant pressure on margins, fluidity to global supply chains, challenges with cross-border shipments, material availability strains, and imperatives around controlling cost. ERP software and solutions from QAD allow high-tech and electronics manufacturers to meet these challenges while complying with industry standards and regulations.
  
• Life Sciences & Medical Device ERP – Complexities of manufacturing and distributing medical devices and other life science products are influenced by emerging global markets, quality initiatives, and increasing merger and acquisition activity. Compliance is crucial, and Life Sciences and Medical Device ERP solutions deliver the flexibility required for manufacturers in this industry. There are exacting regulations for when you must ship hazardous materials, scheduled medicines, or biological matter. Non-compliance can result in delayed shipments, canceled orders, hefty fines, and damaged reputations.

The Role of Supply Chain Management Software

Supply chain management is far less effective without technology. When evaluating ERP vendors, a few important areas to consider include:

• Supply chain management software for daily operations
• Ability to anticipate risk and proactively manage cases
• Inventory management to track and optimize numbers
• Warehouse systems to optimize storage management

Businesses often fail to accurately account for costs beyond the purchase price of goods, including transportation, lead times, duties, taxes, fees, and other factors. It can also be difficult to manage supplier relationships. Without access to timely inventory, demand, and order information, suppliers cannot appropriately respond. Sourcing manages the electronic request for quote (RFQ) process with suppliers, from recording requirements to the RFI, contracts, and orders. More specifically, it identifies and qualifies suppliers, negotiates best-value agreements, streamlines processes, and manages sourcing knowledge.

Interested in learning more about supply chain management? Check out these additional resources: 

• Supply Chain Trends
• Integrated Supplier Management