Supply chain management is the flow of activities in the production process that moves a good or service from raw materials to finished products for consumers. A properly managed supply chain uses as few resources as possible to maximize customer value. As a result, a company can consistently maximize customer value and earn a sustained competitive advantage. Therefore, a supply chain management system can make or break your business.
The global supply chain management market is rising as more businesses begin understanding the importance of an efficient supply chain. The supply chain management market is expected to see over 11 percent growth between 2020 and 2027. Therefore, there is no better time than right now to truly dive into the functions of a supply chain to ensure your business is ahead of the competition.
What Are the Components of a Supply Chain Management System?
The term “supply chain management” can initially seem daunting, considering the vast size and plethora of functions that go into producing consumer goods. But thankfully, every business in every industry follows the same five supply chain management components: planning, sourcing, making, delivering, and returning.
Before any activity in the supply chain can begin, planning must take place. For example, obtaining workspace, hiring employees, meeting with business partners, and completing legal documents should be completed before work begins. Proper planning is the best way to mitigate production problems.
Deciding on a supply chain management strategy is also done during the planning stage. For example, should products be made-to-order, or should you keep stock? If you hold stock, where will it be stored? Can your organization handle the supply chain management processes, or is outsourcing better? There are a variety of supply chain management strategies, so answers to these questions will differ from business to business.
Sourcing is the process of purchasing raw materials for production from outside suppliers. The procurement team is typically in charge of an organization’s sourcing since the sourcing strategy goes hand in hand with the procurement strategy.
Common sourcing practices include:
- Setting standards
- Researching suppliers
- Negotiating contracts
- Quality testing
- Managing supplier relationships
Once raw materials are delivered, it is time to make the product. Products must be designed, assembled, tested, and packaged for delivery in this stage. The production team works closely with all other departments, including marketing, finance, and logistics, to ensure the best possible product is created and delivered to customers at a cost-effective price.
The delivery process falls under an organization’s logistics management strategy. A logistics management strategy focuses solely on moving freight from point A to point B. Many companies outsource their logistics operations to a third-party logistics company (3PL). Reports have shown a continued increase in 3PL usage, with 90 percent of Fortune 500 companies using a 3PL.
Choosing to deliver via road, air, water, or rail depends vastly on your product, budget, and time constraint. Remember, quicker delivery times will always be costly, so plan accordingly.
In a perfect world, every customer would receive their products on time, in pristine condition, and be happy with their purchase. Unfortunately, this is impossible, so returns must be planned accordingly.
Also known as reverse logistics, creating a streamlined return process is one of the best ways to maintain positive relations with customers even if they are unhappy with their product. Be transparent about your company’s return policy before consumers make purchases to avoid upset customers.
Why is Supply Chain Management Important?
As stated, a properly managed supply chain can truly make or break your business. Due to recent environmental macro trends, the public is increasingly aware of organizations with efficient and inefficient supply chain management systems. Therefore, controlling your business’s supply chain is more critical than ever.
In 2021, over 50 percent of supply chain professionals stated that global supply chain disruptions, including shortages of products and workers combined with increased customer demand, were extremely challenging. Managing a supply chain system is becoming more complex, and demand is not slowing down.
An organization’s supply chain is also a considerable cost, no matter the size of the business. Investment, procurement, production, quality, control, and inventory costs are just some expenses incurred in the supply chain process. Therefore, if supply chain managers are not careful with budgeting, it is elementary to accrue debt.
Supply chain management is also your business’s chance to prove ethical practices. Partnering with ethical suppliers, using minimal product packaging, and relying on green energy in production will decrease your business’s carbon footprint and show customers you care about sustainability.
PLS and Supply Chain Management
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