Supply chain is integral to the success of a business. Most businesses fail because of lack of finances. A large chunk of finances, sometimes as large as 90% of the cost base, can be attributed to the supply chain, making it the most significant cost component. Thus, the financial health of a business is dependent on its supply chain.
Strategic management of supply chains and having a design process for supply chains are important aspects to take care of if the business has to be successful. It is important for a business to understand supply chain in-depth for strategic business management as it is the chief cost components of a business.
If the supply chain is well understood and managed, the purchase and production requirements of the business are effectively met. Supply chain management is the process through which the coordination and collaboration between a company’s suppliers, distributors, service providers and customers happen. Some of the important benefits of a supply chain are:
- Procurement: Procuring raw materials, parts, supplies and services is one of the key benefits of supply chain management. Through supply chain management, companies are able to strike long term deals with suppliers instead of purchasing items on an ad hoc basis. This provides a two-prong benefit. One, the long term deals provide a cost-benefit. Two, making a long term deal with a reliable supplier frees the management to focus on other operational aspects while being confident of timely supplies. This is an especially critical requirement in case of limited stock components or raw materials.
- Reduced costs: As discussed above, supply chain management is helpful in reducing material costs. This is done by placing contracts with supply chain members. This removes the cost associated with finding material suppliers, negotiating deal terms and placing ad-hoc orders. Moreover, giving long term contracts to supply chain members usually gets a substantial discount to the company. Over and above this, the contract rate once fixed is fixed for a specified term and thus, saves the company from price fluctuations.
- Quality control: This is one of the major benefits of a supply chain. Companies have a standardized procedure for selecting suppliers for their purchase requirements. The quality standard requirements are clearly communicated to the supply chain and the quality is maintained among the different members of the supply chain. Thus, quality is maintained and quality control cost is mitigated.
- Communication: Supply chain members maintain constant communication. It is the task of the company to consistently communicate with all its suppliers in order to inform them of any latest quality, quantity or material change requirements. The demand schedule is available with the lead company and it is the responsibility of the company to update the vendors with the schedule in order to obtain the right quantity of materials at the right time.
- Collaboration: Another key benefit of a supply chain is the close working relationships between the company and the suppliers. This enables to reduce costs, enhance efficiency as well as improve innovation and design.
Business management professionals or students looking for a career in supply chain management could opt for an SCM certification online to enhance their career prospects.