When COVID-19 caused massive shortages around the world in 2020, most people assumed that it was a short-term problem that would resolve once borders opened and transportation of goods from around the globe was permitted once again. But with the resurfacing of such issues in 2021, particularly in the United States, it’s become clear that there are deeper concerns with how the supply chain works, particularly in developed nations that heavily depend on imports from Asia.
The supply chain management process manages the movement of materials through a series of interconnected processes or distribution channels. Supply chain management is a part of various industries, including marketing, manufacturing, logistics and more. Even small businesses such as standalone restaurants and shops have a supply chain. Supply chain management includes all activities related to getting specific products from raw materials through distribution networks to customers.
Supply chain management is a subject of importance, not just for businesses but also for how the world works. Let’s deep dive into the definition and importance of supply chain management.
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Definition Of Supply Chain Management
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Components Of Supply Chain Management
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Types Of Supply Chains
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The Importance Of Supply Chain Management
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Examples Of Supply Chain Management
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Problems With Supply Chain Management
Definition Of Supply Chain Management
Rice is planted in a field and harvested by the farmer. It’s harvested when the time comes and it then enters the supply chain when it’s bought by a trader, who sells it to a rice brand which then mills it to necessary specifications and packages it. It then is transported to a larger grocery chain, which keeps the product in a warehouse till it makes its final trip to the shop.
Every time rice is moved from one place to another (i.e., from one customer to another), it’s part of the supply chain. The supply chain management process encompasses the entire lifecycle of goods, so they reach consumers with no interruptions between each step. They’re delivered smoothly to their destination thanks to the components of supply chain management.
There are many benefits of supply chain management. For example, the supply chain plays a key role in the production of any foodstuff. For manufacturing biscuits, a factory needs flour, water, sugar, salt, flavorings like chocolate and vanilla and dairy products like butter and milk. The factory can’t produce a single biscuit without these ingredients and would usually depend on suppliers for them, which is where supply chain management comes in. The relationship between vendor and manufacturer is a very important one.
This is a common situation across industries, as can be seen in examples of supply chain management. For instance, there’s heavy reliance on suppliers for various components to produce computers or other electronic goods. In 2021, the global chip shortage has seriously impacted the manufacture and sale of everything from cars to phones. The importance of supply chain management has never been more evident.
Components Of Supply Chain Management
Now that we’ve understood the definition of supply chain management, let’s look at how it works. The supply chain management process has four components: planning, production, logistics and customer service:
Planning
One of the essential components of supply chain management includes planning activities and methods needed to produce a product or service. This is where the necessary inputs are arrived at.
Production
The goods required for manufacture arrive and are used for manufacturing, assembling and packaging goods for delivery to customers.
Logistics
This is managing multiple transportation modes to move products from place to place until they reach the end-user. This can include storing and moving products using air, sea, road and rail transportation.
Customer Service
Businesses must work in close synergy for the supply chain management components to all come together. This is an essential part of ensuring that the goods reach the consumer in time, at the best price and in good condition.
These are the components of supply chain management. Supply chains exist between two manufacturers, a producer and a manufacturer, a manufacturer and a retailer and more. In all cases, it’s a relationship between a seller and a user.
Types Of Supply Chains
There are two major types of supply chains:
Vertical Supply Chains
In a vertical supply chain, the same organization controls several stages in the lifecycle of a good. For example, furniture maker Ikea grows a large amount of wood to provide raw materials for its products.
Horizontal Supply Chains
This is where two unrelated entities do business to ensure a smooth flow of goods through the supply chain. For instance, coffee is grown by farmers who then harvest and sell in bulk to buyers who might sell the beans in their own coffee shops or through retail or sell it onwards to another manufacturer of coffee granules.
Without an efficient pipeline for all the products required for manufacture, the result will be an unsatisfied end-user.
The Importance Of Supply Chain Management
Supply chain management plays a vital role in the success of any business. If businesses want their products to reach consumers quickly and efficiently, they need to embrace supply chain management. Some benefits of supply chain management are –
- The supply chain management process is important because it can help businesses be more efficient. Having goods arrive when they’re needed, and not before, means they can cut down on warehousing costs and reduce the incidence of waste that results from damage. If they arrive late, manufacture and supply down the line are held up.
- When organizations manage their supply chains effectively, not only does it reduce delivery times, but it also improves the experience of buyers who will now receive items faster than expected, which increases customer satisfaction.
- Another one of the benefits of supply chain management is that businesses can shop around for the lowest cost, highest quality products for their use. Taking the time to plan also means they might be able to integrate recyclable materials like paper, cardboard, plastics. It’s good for the bottom line and the environment.
- Supply chain management helps avoid delays that can occur during the transfer of products. When delays start in one place in the chain, it tends to have a knock-on effect. If businesses fail to meet delivery dates, they’ll ultimately lose buyers and take a hit to their profits.
- The supply chain management process allows for efficiencies in shipping and transportation, which are major business costs. It can also allow for more secure shipments.
- Supply chain management helps organizations reduce error and damage rates. This makes for greater efficiency and more profit.
Without an efficient supply chain management system, there’s no way to ensure timely delivery of goods.
Examples Of Supply Chain Management
Let’s look at a few more examples of supply chain management.
Multiple Points Of Contact
Sometimes an item goes through distribution through several steps. For instance, book publishers work with printers who print and bind books. (Xanax) These are then shipped to distribution firms who then send them on to bookstores or sell directly online.
Seasonal Demand
One of the examples of supply chain management would be how organizations manage their inventory. They do this by making sure they have enough items for consumers to purchase when they’re needed. This is important because if businesses run out of stock, then it can affect sales negatively. If a toymaker knows that its demand spikes in the six weeks running up to Christmas, it can order the bulk of its annual stock ahead of this period.
Enabling Returns
A third example of supply chain management is in how businesses manage their returns and service complaints. If a customer receives a damaged product, for instance, they will send it back. The organization must have a mechanism for handling these goods. This is known as reverse logistics, an essential part of order fulfillment; it’s also part of the supply chain.
These examples show how diverse factors affect the need for goods and their transportation. It makes strong supply chain management crucial.
Problems With Supply Chain Management
There are also some common problems that can arise with the supply chain:
- When delays occur, organizations can’t fulfill their delivery deadlines and it can cause a loss of customers.
- If an organization suffers from cash flow issues, it may not be able to purchase the goods needed, resulting in disappointment for customers.
- Natural disasters, pandemics and other environmental events can cause problems with the supply chain. Raw materials may simply not be available or stuck in transit or employees may not be able to work at their maximum capacity.
- Damage to goods en route can cause huge losses. While large businesses may have insurance to cover this issue, smaller set-ups may not have the same protection.
The kinds of problems that can arise are many, given the complexity of the issue at hand. However, there are steps a manager can take to mitigate problems. Harappa’s Manage Projects Expertly course will provide leaders of today and tomorrow with the skills to overcome hurdles and bottlenecks. You’ll learn to plan with incisive analysis and strategy and then execute it expertly. Tools such as SWOT Analysis and the Good-Cheap-Fast rule will hold you in good stead in many aspects of your career.
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