The Importance of Supply Chain Management
SCM has a significant impact on both the company and the consumer.
Supply chain management activities can lead to improved customer service. By ensuring that necessary products are available in the right place at the right time, they can guarantee customer satisfaction. With increased customer satisfaction levels, companies are able to build and improve customer loyalty.
SCM also provides a major advantage for companies by reducing operational costs. SCM activities can reduce the costs of purchasing, production, and the entire supply chain. Cost reduction improves a company's financial standing by increasing profits and cash flow. Furthermore, adherence to supply chain management best practices can minimize the overuse of large fixed assets such as warehouses and vehicles by allowing supply chain professionals to redesign their network; for example, to maintain customer service levels while operating five warehouses instead of eight, reducing the costs of having three extra facilities.
Perhaps the vital role of SCM in society is less known and less understood. SCM can help human survival by improving healthcare, protecting people from extremes and weather events, and preserving lives. People rely on supply chains for necessities such as food and water, as well as medicines and healthcare. Supply chains are also crucial for providing electricity to homes and businesses, supplying the energy needed for light, heat, air conditioning, and refrigeration.
SCM can also improve the quality of life by boosting employment, providing a foundation for economic growth, and improving living standards. It provides many job opportunities, as supply chain professionals design and control all supply chains within a society, as well as controlling inventory, warehousing, packaging, and logistics. Furthermore, a common characteristic of most impoverished nations is the lack of a well-developed resource supply chain. Societies with strong and developed supply chain infrastructure – such as large rail networks, intercity highway systems, and a collection of airports and ports – can exchange goods at lower costs, allowing consumers to purchase more products, thus fostering economic growth and increasing prosperity.
Supply Chain Management Processes
Each major stage of a product's movement through the supply chain – from materials to manufacturing and distribution – involves distinct processes and business functions. Many of them began decades ago as paper-based methods but are now typically performed within specialized software.
The SCM process begins by specifying what customers want – the early stages of supply chain planning, traditionally considered one of two main categories of SCM alongside supply chain execution.
Supply chain planning begins with demand planning, a process of collecting historical data such as past sales and using statistical analysis and modeling to create a forecast or demand plan that sales and operational departments – such as production and marketing – can use to determine the types and quantities of products to manufacture. Some companies perform demand planning as part of a formal process called Sales & Operations Planning (S&OP), a recurring process specifying the collection of data, discussion, reconciliation of demand plans with production plans, and management approval. Some companies place S&OP within a broader process called Integrated Business Planning (IBP), which puts the plans of other departments into a single, company-wide plan. https://youtu.be/bwl5ohf1qsg
In the next important stage, production planning, the company specifies where and how the products needed in the demand plan will be produced. (Production planning is also used in other industries, including agriculture and oil and gas.) A more fine-tuned variation – typically performed within its own specialized automation software – is called advanced planning, which optimizes the resources that go into and come out of production.
Materials Requirements Planning (MRP) is a process dating back to the 1960s that most manufacturers use to ensure they have sufficient materials and components (such as subassemblies) available for use in the production process, using existing inventory, identifying gaps, and purchasing or making other items. The primary document in MRP and production planning is the bill of materials (BOM), a complete listing of the items needed to make a product.
MRP is sometimes considered part of Manufacturing Resource Planning (MRP II), which extends MRP to other departments such as human resources and finance. MRP and MRP II were predecessors to Enterprise Resource Planning (ERP) software, designed to integrate core business processes in any industry.
Two complex processes play a significant role in most major SCM stages: inventory management and logistics. Inventory management involves various techniques and formulas to ensure sufficient supply – from the raw materials of a manufacturing plant, perhaps working within an MRP system, to the finished goods in a warehouse.
Logistics is everything to do with the transport and storage of goods from the beginning of the supply chain, with the delivery of parts and materials to manufacturers, delivery of finished goods to stores or directly to consumers, and even beyond that for service, returns, and product recycling – a process called reverse logistics. Inventory management follows throughout the entire sequential logistics process.
Procurement, sometimes called sourcing, is the process of finding suppliers of goods, managing those relationships, and economically acquiring goods – along with all the communications, such as sending out requests for proposals and paperwork, including purchase orders, invoices, etc. Considering how much is being bought and sold at all points in the chain, it is a central component of supply chain management. Most supply chain players – suppliers, manufacturers, distributors, and retailers – have procurement employees.
Strategic sourcing is a more sophisticated and advanced type of procurement that aims to optimize a company's procurement process by leveraging its combined buying power and aligning it with the overall business objectives.
Conversely, Supplier Relationship Management (SRM) addresses sourcing issues by focusing on a company's suppliers that are most crucial for success systematically strengthening relationships with them while fostering optimal performance.
