When you need to buy something, you go to the nearest store or supermarket. You pick up the product, pay for it and return home. Have you ever wondered how products reach the store shelves? There is an entire process called supply chain management behind it! Supply chain management is not a single function. This process comprises various parts, people, and systems. Before looking at these different tasks, it is pertinent to understand this procedure correctly.
What Is Supply Chain Management?
What was earlier done by different sets of people without much interaction is now being performed as a single system. Procurement, storing, and delivery is the functions of supply chain management. All these are now done in a coordinated manner to improve efficiency, reduce costs and improve customer experience. All these functions together form the supply chain. The management of these functions is called supply chain management, and it is critical for every organization – whether small or big.
Also Read: Steps Of Supply Chain Management Process
The procurement job will include planning raw materials, finding vendors, and purchasing these items at prices that will help improve profitability. Warehousing is a function that consists of both raw materials and finished goods storage. This task includes preparing warehouses and ensuring proper stocking to facilitate the easy movement of goods. It also includes sending materials as per orders received. Delivery is the part that provides for transporting and reaching goods to the end customer.
Importance Of Supply Chain Management
Courses from reputed institutions on this subject talk about the importance of Supply Chain Management (SCM) is for businesses. With many players fighting it out in a market that has become global, companies face many challenges. Pricing has become an essential factor in gaining an edge over competitors. This means that it is critical to control raw material and production costs. Purchasing raw materials is a supply chain function. This department must also handle the storage of these items in a suitable ambiance. Reducing purchase and storage costs can reduce product prices.
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As there are too many companies selling similar products, customers are spoilt for choice. Customers are demanding better prices and faster deliveries because of this. Along with this, customers also need to have information on the status of their orders. Finding competitive rates for transportation helps reduce prices. Ensuring vehicles for delivery promptly will ensure faster deliveries of goods. Software systems that integrate all SC processes make it easy for information to pass to customers.
Warehousing is one of the critical supply chain functions that deal with the arrangement of suitable space for storing goods. Space is a precious commodity, and one must use it judiciously. Using more space for a longer duration can result in increased product costs. This is why inventory control is a critical part of the logistics function. Items must be purchased and produced so that they don’t stay in storage for a longer time. This requires a keen eye on available stocks and pending orders.
Supply Chain Management Centers Around Five Main Functions:
- Purchasing
- Operations
- Logistics
- Resource Management
- Information Workflow
Supply chain management maintains the balance between the demand and supply and involves activities right from procurement of materials and converting them into finished goods to ensuring delivery at the right time to reach the end-consumer. Hence, supply chain management is the lifeline of an organization. It needs to be efficient to keep the operations running like a well-oiled machine. A streamlined supply chain management can enhance customer relationships, lower down operational costs.
What are the Functions of Supply Chain Management?
The Role of global supply chain management primarily comprises five functions mentioned below:
Purchasing
Purchasing is one of the first functions of supply chain management. It pertains to procuring raw materials and other resources that are required to manufacture the goods. It involves coordination with suppliers to deliver the materials without any delay. It is not a simple act of buying things. There are various aspects one needs to consider when purchasing raw materials or other items needed to manufacture finished goods. All purchasing activities can have a significant impact on the sales and profitability of a company.
When sourcing raw materials, it is necessary to ensure that they are of a quality that is most suitable for that company. It is a function of Supply Chain Management (SCM) to ensure that only such materials are purchased. It is not enough to check this once. They must regularly test these items to ensure consistency. Raw materials of inconsistent quality could adversely affect finished goods production. This can result in the product losing its salient features. A small error in purchasing can damage an organization’s reputation.
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The timely arrival of materials is necessary to ensure that all order fulfillment occurs as required by customers. It is necessary to ensure no disruption in supply of materials to have continuous production without any interruption. Purchasing in excess can result in unnecessary blocking of money and usage of space. Hence, purchase managers must have up-to-date information about orders and what materials will be needed to execute them on time.
Operations
The operation team engages in demand planning and forecasting. Accordingly, it further sets the ball rolling for inventory management, production, and shipping. Before giving a raw material purchase order, the organization must anticipate the possible demand for a product and the number of units it needs to produce. If the demand is over anticipated, then it could result in excess inventory cost. If the demand is under anticipated, the establishment wouldn’t be able to meet customer demand, thereby leading to revenue loss. So, the operation is a critical function of supply chain department.
Operation managers are responsible for planning production in relation to demand. These officials will have to arrange for raw materials and ensure that manufacturing will be done on time to ensure prompt delivery of goods to customers. They must make sure that all machines function properly without failure to complete production of goods on time. They must also ensure that all other items like packaging materials, labels, and stickers are kept ready for those products that need to be delivered to customers.
The other important function of Supply Chain Management (SCM) that falls under operations is the organizing of space. Storage space is a costly commodity considering that real estate is very expensive in most Indian cities. Supply Chain Managers must manage available storage space very efficiently to ensure that they store only essential goods in company warehouses. This will require them to plan both raw material and finished goods availability very cleverly to ensure no excess or less stock.
Logistics
This is a supply chain management function that requires immense coordination. The manufacturing of products has commenced. It needs space for storage until it is shipped for delivery. There is a need for making local warehouse arrangements. Let’s say; the products are to be delivered outside the city, state, or country limits. This brings transportation into the loop. There will also be a need for outstation warehouses. Logistics ensures that products reach the end-point delivery without any glitches.
Arranging for transport for goods is not an easy job. If this includes shipping to other countries, it is essential to ensure that staff members do all documentation properly. Incorrect sets of papers could cause problems at both exporting and importing ports. This can cause delays in goods reaching customers. The logistics manager must be familiar with formalities that establishments must follow when sending goods to different countries. Various countries also have testing requirements for different products.
Even in local transport of material, there can be unexpected problems. Vehicles can get delayed due to mechanical issues. Supply chain managers must be able to arrange for an alternative conveyance immediately. Weather and road conditions can delay materials. The person must know such information and make arrangements to ensure goods arrive on time. There must be a proper tracking mechanism in place to inform customers about their order status.
Resource Management
All firms need raw materials, technology, time, and labor. However, all the processes need to be efficient and effective. This phase is taken care of by the resource management function team. It decides the allocation of resources in the right activity at the right time to optimize the production at reduced costs. A major duty here is to properly allocate people for various jobs to ensure that all work is done on time. The workforce is essential in moving goods and ensuring the proper execution of orders.
Managing resources is challenging in factories where they use the same machines for making different products. Resource managers must know how many orders in each item are to be executed to allocate machines for each of them. Various other pieces of machinery are needed to complete finished goods manufacturing. Arrangement of devices for packing and labeling of goods are also part of supply chain department functions.
Also Read: Ace the field of Logistics & Supply Chain with this course from XLRI
Time is another constraint when there are large volumes of orders to be executed. These professionals must see whether a single shift is enough to complete a job or more shifts will need to be included. Hence, they must make sure people are available to work more hours. These managers must also calculate the cost involved in using more resources for increasing production and ensure it doesn’t affect profitability.
Information Workflow
Information sharing and distribution is what keeps all other functions of supply chain management on track. If the information workflow and communication are lacking, it could break apart the entire chain and lead to mismanagement. Data must flow in both directions as far as logistics are concerned. Regular exchange of information must also happen between external and internal entities in this process.
Information from downstream will include details of orders in hand and market trends. These details are crucial for ensuring that enough quantities of raw materials are made available. Knowing market trends from retailers and distributors will help to formulate sales forecasts. Without such predictions, companies cannot plan for production. Organizations must also arrange for finance if there is a need to increase production because of a sudden demand increase.
Arranging for raw materials is among the essential roles of supply chain management. To perform this perfectly, the official in charge must have accurate information about the availability of various materials. Advance information of any shortage will help them purchase excess and ensure production continues smoothly. News about price increases is also essential to correct finished goods prices or look for other economic sources for such items.
We have understood how important it is for all companies to have good supply chain management in place. It is necessary to see in detail what goals this function achieves.
Goals Of Supply Chain Management
Order Fulfillment
Without selling goods, a company cannot earn revenue. For this, it is essential for orders from customers to be fulfilled efficiently and as per customer requirements. All entities of the supply chain work together to ensure that goods are available as required. This will result in the execution of all orders. Streamlining order processing and avoiding duplicate work by using efficient software will increase order processing speeds. This is a vital role of supply chain management that has multiple benefits.
Supply Demand Matching
Order fulfillment is possible only if there are goods. It is the job of Supply Chain managers to ensure that raw materials are available for producing items. There must be good coordination between the sales team and purchase team to ensure that there is never a shortage of products that have a high market demand at a particular time. A free flow of information provides this. Predicting market trends using analytics is an excellent way of making sure that enough materials are available to meet customer needs.
Reducing Waste
Waste reduction is an essential function of supply chain management through various methods. Avoiding excess stocking of raw materials is a way to prevent wastage. Many products cannot be used after a period, and this means they must be discarded. Having a clear idea about customer demand helps to maintain an optimum quantity of raw and finished goods. SC managers are constantly in touch with marketing teams to know demand trends and alter product stocks accordingly. Having a proper inventory management system is vital for achieving optimum stock levels.
Also Read: What are the Career Opportunities in Operations and Supply Chain Management?
Improving Delivery Speeds
With the proliferation of e-commerce sites, delivery speed is becoming a significant criterion for customers. Companies are vying with each other to offer a faster supply of goods than competitors. This has put immense pressure on supply chain managers. They must find ways to speed up the movement of goods. Finding warehouses closer to customers is a way to do it. Ensuring the timely availability of delivery vehicles can also help in reaching goods to consumers on time. Collaboration with transporters ensures an uninterrupted supply of vehicles.
Ensuring Real-Time Information
Information is crucial for any operation. This is especially true with this department, where various persons are overseeing different but connected operations. Any delay in one could affect everything down the line. This is why up-to-date status is made available for everyone. Customers today demand to know the status of their orders. Information about raw material needs must also reach purchasing teams on time. It is a crucial Supply Chain Management (SCM) function to ensure that an adequate tracking mechanism is in place for real-time information for everyone.
Cost Reduction
When markets are highly competitive, and margins are thin, companies must constantly try to reduce costs. Various costs come under supply chain management. Raw material prices, storage costs, transport rates, etc., must be kept at the lowest possible levels. For this purpose, SC managers must regularly lookout for new partners who can offer better rates. Good interaction with existing suppliers, transporters, and warehouse owners will also help to bring down costs. Managers in charge of various functions must always look for ways to bring more economy in this process.
Facing Disruptions
Various disruptions can occur in a company’s operations. A machine failure can stop production temporarily. The non-availability of raw materials can affect finished goods stocks. A sudden surge in prices of raw materials can affect profitability. Weather conditions can affect goods movement resulting in delayed deliveries. All these are related to supply chain management functions, and they must be ready to deal with these and ensure that neither the company nor its customers suffer due to these factors. Risk management methods are used to assess and mitigate these threats.
Improving Customer Experience
Severe competition has made all companies look at customer experience more seriously. No firm can afford to lose even one customer because the cost of acquiring new customers is very high. Supply Chain Management (SCM) plays a vital role in giving customers a better purchase experience. Exploring various ways to reach goods to a buyer within a short time has become a priority for this department. These professionals also try to reduce delivery expenses as much as possible to sell products at competitive prices. Another way to please customers is to give them real-time information on order execution.
Increasing Revenue & Profitability
The supply chain is a function that has a broader scope for cost reduction as they are involved in purchasing, storage, and delivery of goods. Maintaining a good relationship with vendors can help reduce raw materials costs. Having multiple suppliers ensures to get the best prices. Optimizing storage space helps to reduce warehousing costs. It is possible to reduce delivery expenses by choosing suitable transporting and distributing partners. Reduced costs and increased sales help improve revenue and profitability.
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Though it is a function that provides many benefits to establishments, it is not a job that can be done easily. Modern supply chain managers face a lot of challenges in their jobs that they must cope up with to ensure successful company operations.
Challenges Faced In Supply Chain Management
Increasing Costs
Throughout an organizations’ activities, there is an increase in cost for almost everything. High fuel prices are driving transportation costs through the roof. Subsequently there is a hike in all raw material prices. Labor costs are increasing as there is a shortage of skilled people to fill positions in supply chain departments. Expenses for storing materials are also going up as space becomes a rare commodity, especially in cities. SC managers must look at all possible ways to reduce costs.
Multiple Supply Channels
With e-commerce companies becoming a more common method of purchase for many people, there is high complexity in delivery channels. Working for such organizations will require a good understanding of their system and meet delivery promises. These firms must deliver goods directly to customers. There are also retailers and wholesalers who need to be supplied from nearby storage locations to ensure low inventory for them. In addition to this, there are those who want drop shipments that will need fast international services. The role of supply chain department has become highly complex.
Rising Consumer Demands
As competition prompts e-commerce companies to offer close to impossible delivery times at very low prices, it is the supply chain department that suffers. Because of a number of choices, customers are demanding better service. They want fast delivery, low price, and excellent quality. As the logistics department is in charge of purchase and delivery, all these responsibilities fall on their shoulders. Performing their duties successfully is highly challenging for these professionals.
High Risks
With pressure increasing on supply chain managers, there is a likelihood of mistakes happening that can lead to highly adverse situations. With suppliers and customers spread across various countries, there are a lot of things that must be considered and enough measures taken to avoid loss of goods. The non-availability of real-time information can be worrisome. Logistics managers are unable to input accurate data because of this. Compliance and regulation issues add to these problems. SC managers must ensure that all risks are accounted for, and steps are taken to avoid them.
Delays And Backlogs
Various other factors are creating delays and backlogs in supplies. New regulations in certain countries mean additional tariffs and more time to process documents at ports. Suppliers from other nations with lesser rules will make use of this situation. An increase in international sourcing is creating congestion at most ports resulting in delays. There are problems with local supplies due to the non-availability of transport. Managers in this department must be on their toes always to ensure that they can overcome these problems and ensure prompt deliveries.
Also Read: What are the Stages of Supply Chain Management?
It is quite evident that the role of supply chain management in an organization is very important, and companies are preferring to have experts in this science to manage this department. It is not enough that one has a qualification in Supply Chain Management (SCM). There are certain skills that supply chain managers must possess to do their work successfully.
Skills Needed For A Supply Chain Manager
1. Data Analysis Skills
SC managers must possess data analysis skills to gain valuable insights. It helps them make smarter decisions on various matters. This process includes a lot of factors that cannot be predicted correctly. Looking through past data can help to make better forecasts. This will allow these professionals to perform better and avoid unpleasant surprises. They can be better prepared to face any situation and ensure that the process goes on without any disruptions.
2. Inventory Maintenance Skills
This is a very critical skill that is necessary for every logistics manager. Too much inventory can cost a company a lot of money by way of slow-moving stocks and storage space. An inadequate level of stocks can lead to the non-fulfillment of orders. This can lead to losing customers. One needs to balance between the two. Looking at past data can help a lot in predicting the requirement of goods at different times of the year.
3. Flexibility
As we can see, a lot of people both within and outside the company are involved in completing the functions of Supply Chain Management (SCM). This requires a manager to be flexible because there can be people from different backgrounds and cultures. Being amicable will help to get things done in a smoother way. In times of crisis, such an attitude will enable one to get support from every person involved in this process.
4. Understand Regulations
The supply of materials can be across borders inside a country or even outside it. It is essential that a logistics manager knows what documents must be prepared to ensure that there are no legal issues when transporting goods. The person must also be aware of rules with regard to stocking goods. They must follow the rules with regard to the safety of goods and personnel inside a warehouse. Such familiarity with rules will ensure that work gets done smoothly.
5. Planning
Good planning is key to completing a job well. This is true for any profession. But it is a critical activity in supply chain management. Market trends decide what must be produced and how much quantity will be required. This means that once there is a sales forecast, these professionals must plan everything from raw material procurement to delivery of goods to a customer. This will include production planning, arranging space, and organizing transport for delivery. All these items must be planned well if the job must be completed successfully.
6. Leadership
The function of Supply Chain Management (SCM) spans various departments. This means that the supply chain manager has to get work done by a diverse group of people. This will need excellent leadership qualities because only by inspiring others can work be completed successfully. Exhibiting such characteristics will help earn the loyalty of staff members. They will willingly go beyond their call of duty to ensure that work doesn’t suffer in any way. Showing leadership qualities also helps to inspire others to acquire such skills.
Also Read: What are the Different Stages Associated with Supply Chain Management?
7. Business Acumen
Though they are not directly involved in selling or earning revenues, these managers’ actions can have a direct bearing on the sales and profits of an organization. This makes it necessary for them to know about the business that their company is involved in. These professionals must know what impact their work has on their firm’s profits. This will help them make changes that can improve efficiency and reduce costs. It is also necessary that they know what is happening in the industry that their establishment operates in.
8. Decision Making
This is a skill needed for all leaders. But it is especially crucial for those in charge of the activities of supply chain management. This is because there are various tough situations that will require immediate decision-making. Their decision can affect organizational profitability, reputation, and customer satisfaction. This means they must know what decision will be most beneficial for their company. These decisions must also be taken quickly before any adverse results occur.
9. Accountability
This is very difficult to maintain when an SC manager must depend on many people inside and outside the firm for successful functioning. It is easy to blame any of these entities. But what one must cultivate is to be accountable for every outcome, whether it is good or bad. This will improve their team members’ trust in them. Companies will also have confidence in such managers who will take responsibility for their department’s actions.
10. Adapt To Changes
Changes are most often seen in logistics departments. There are various external factors that can affect their functioning. A machine failure at a supplier’s factory could badly disrupt production. The supply chain function includes ensuring a regular supply of raw materials as purchases come under their purview. The person must be able to arrange for an alternate supply of goods. They also have to make other arrangements if some factors are affecting the movement of goods to customers. They must quickly be able to adapt to changes.
11. Interpersonal Skills
An SC manager must deal with people from different backgrounds. They have to get work done by workers at lower levels. These professionals will also have to interact with top bosses and get their needs fulfilled for smooth operations. It is also in their line of work to regularly keep in touch with outside agencies like suppliers, distributors, transporters, and shipping agents. Good interpersonal skills help them get their work done efficiently from all these people while maintaining cordial relationships.
12. Communication
A logistics manager has to convey various instructions, requests, suggestions, and information to different sets of people. These must be done orally and in writing. As they are done to people with different educational and social backgrounds, it is necessary to convey messages in different styles and standards. This is why these persons must be highly skilled in communication. Others must understand them clearly so that precise action is taken and the desired outcome achieved.
In addition to these skills, it will be advantageous for logistics managers to use tools and techniques that will make their lives a lot easier. Let us see some of these tools that assist these busy professionals.
Also Read: The Future of Supply Chain Management
Modern Tools For Efficient Supply Chain Management (SCM)
Shipping Status Alerts
These tools are increasingly being used by companies that have several consignments in transit to various customers. One can find it difficult to answer buyers about the status of their goods. These tools give regular alerts about where these goods are. This will help have real-time information about different shipments.
Order Management Tools
This software is highly essential to perform the role of Supply Chain Management (SCM) efficiently, especially for those companies that are supplying materials to various e-commerce platforms. These tools help in managing orders and ensuring that they are not ignored by mistake. There are also various reports that one can generate from these programs. This will help in analyzing order processing time and optimizing the process.
Warehouse Management Software
This is great support for SC managers who struggle to manage space in their warehouses while ensuring enough availability of goods. This software program helps in planning space based on various inputs like sales forecasting, production plan, etc. For those who must manage multiple warehouses in different locations, such a tool is a must-have. This helps to reduce space costs to a great extent.
Vendor Management Tools
Companies having many supplies for various products find it difficult to manage them. It is not easy knowing which supplier is more beneficial. This tool helps in analyzing transactions with suppliers to know how they have impacted the main functions of supply chain management. It is possible to know which supplier has provided maximum benefits to a company. It allows managers to think about changing vendors or doing more negotiations.
Analytics And Reporting Tools
It is essential for department heads to ensure that their functions are effective. Knowing the efficiency of different supply chain activities will help to improve wherever required. Analytics tools use various parameters to assess performance. These reports will not only show where delays or unwanted expenses are happening but also will provide valuable insights that can help in making better decisions. Such a tool is very useful in improving supply chain functions.
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Over the years, supply chain management has evolved from a relatively simple concept to engineering and managing extraordinary complex global networks. Did you know in the 1940s and 1950s, the process of racking & stacking was introduced in order to take better advantage of storage space that resulted in better warehouse design and layout? Since then, supply chain practices have transformed with the evolving technology and knowledge.
Five Supply Chain Practices that Revolutionized Supply Chain Management:
Setting Up Supply Chain Council
Earlier, there used to be a single person who was held responsible for the entire supply chain network. But now, without an internal council of leaders in place, the supply chain tends to lack planning, organizing, and strategizing for efficiency as well as better functionality. The supply chain is likely to fail if your organization doesn’t have a governing body to synchronize your existing supply chain strategy with that of the company’s overall strategy.
Achieving Agility with AI
Back in the day, no one even heard of what Artificial Intelligence is, but now, this is all everyone talking about. Artificial intelligence has the ability to collect huge amounts of data and harness insight from this data, creating an opportunity to reconsider supply chains tactically and strategically. This provides agility in the process since products are procured and moved from one end of the globe to the other.
Introducing Sustainable Practices
Innovation has become the key to unlocking the potential of businesses, and the supply chain process is no different. Therefore, organizations need to keep a close eye on the supply chain operations and their internal practices in order to establish a sustainable platform to operate on. This brings in the need for adopting several sustainable practices like blockchain, the adoption of web-based supplier relationship management, etc. Deep hands-on knowledge of these tools and practices can be learned from a supply chain management online course, guaranteeing the credibility of your organization.
Optimizing Inventory for Reduced Cost
Every business desires to reduce costs and improve its bottom line. This is where optimizing inventory comes into play. There is a huge cost involved in inventory holding and storing, approximated to around 20-25%. So, this cost can be saved by optimizing the storage of inventory.
Identifying Areas Where Technology Can Lend a Hand
Technology has been helping humankind for over decades, and the supply chain is no exception. But, in order to improve and streamline your supply chain processes, you need to identify areas where newer technology can be integrated to help smooth functionality.
If you are planning to pursue a career as a retailer, you must invest in a supply chain management course to gain more knowledge.
Also Read: How to Successfully Manage Supply Chains?
Summing Up!
With the advent of technology and competition, applying these best practices has become imperative for businesses seeking growth and success. To expand your knowledge base, a credible supply chain management online course is recommended. One such course is supply chain management IIM , from one of the top B-schools in the country. By equipping you with the latest themes and trends along with the best practices, this course in supply chain management IIM can help you build an effective and fully functional supply chain for your organization.
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What Are The Important Components Of Supply Chain Management Covered in Supply Chain Courses
