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The importance of supply chain management and its key benefits

December 13, 2021

Your supply chains are a vital foundation of your success. In recent years, the rise of businesses like Amazon has helped revolutionise supply chains, particularly in a customer context. Products being "always available" and following day delivery options are now considered standard. Moreover, since the onset of the Covid-19 pandemic, global supply chains have come under unprecedented pressure. Various geopolitical and economic factors, along with the continuing pandemic, mean this pressure is likely here to stay for the foreseeable future.

Developing an effective supply chain management system will help you mitigate the risks and pressure on your entire supply chain network.

What is supply chain management (SCM)?

Supply chain management, or SCM, is the process of managing the manufacturing and movement of goods from your suppliers to your customers. If you have a supply chain manager or a team overseeing your supply chain processes, it's their job to ensure your operations are optimal from start to finish.

SCM is a diverse business process that involves overseeing several functions and factors, including:

  • How your suppliers procure raw materials
  • Your and your suppliers' warehousing capacity
  • Wider reaching logistics management to ensure suppliers meet lead times and fulfil just-in-time supply chains
  • Forecasting and supply chain planning based on both historical and real-time data to meet customer demand
  • Inventory management
  • The entire customer order process, from processing to dispatch and delivery

One of the most significant challenges in organising and overseeing your supply chain activities is that each element can influence the other. For example, an issue with a manufacturing process at your suppliers' assembly plants can cause disruptions, bottlenecks, and shortages further down the supply chain and affect your customers. As such, you need a robust management process to maintain those relationships.

9 benefits of effective supply chain management

Now that we appreciate just how far-reaching your supply chains are in terms of how they interconnect and influence each other let's look at the specific benefits of effective supply chain management to your business.

An effective management process will ensure you achieve these, whatever your supply chain strategy looks like.

1. Improved customer satisfaction

Problems in your supply chain can lead to several customer-centric issues, including:

  • Being unable to meet customer demand
  • Sending part or incorrect orders to customers
  • Extended waits for orders to arrive
  • Products not being in the right place at the right time

Effective supply chain management and streamlining product flow will help you minimise such events and ensure customer satisfaction remains high.

2. Reduced operating costs

Supply chain inefficiencies are potentially having an enormous impact on your bottom line. By conducting thorough reviews as part of your management process, you can reduce your supply chain costs and the time it takes for a finished product to arrive in your customer's hands.

Don't just look for inefficiencies within operations, either. Look at your supply chain model yourself. For example, if you're able to migrate towards a just-in-time model, you can massively reduce warehousing and other storage costs.

3. Improved cash flow

Efficient supply chains are efficient from end to end.

As such, you can accurately forecast what you're going to sell and how much product you'll need to meet customer demand. So you end up with a seamless process where you're selling products while ordering efficiently, improving your cash flow and making it easier to analyse your financial metrics.

4. More efficient sourcing and procurement

An efficient supply chain makes it easier for your sourcing and procurement teams to find new suppliers when necessary.

How?

Because you'll have a clear idea of what good looks like in terms of what you want from suppliers. As such, you can find suppliers that meet your expectations and needs or work with them to ensure they reach the required standard. Either way, by having excellence in your supply chain to start with, you'll know what you're looking for if you need to replace a part of it.

5. Safeguarding supply of raw materials

It's vital to remember that supply chain management isn't just about business processes.

It's about your relationships with your suppliers and how you work together. Suppose you have a robust and respectful relationship with your suppliers. In that case, you'll find you're at the front of the queue and given priority if there are issues like shortages of raw materials. Having robust relationships to mitigate these potential disruptions is an easy win, too.

6. Better inventory management

If you could boil down the objective of your supply chain into one phrase, what would you say?

"Right product, right place, right time" would be a pretty good starting point.

A well-managed supply chain will achieve this as it'll enable your inventory management to be much more effective. So whether your supply chain management process helps you move towards a just-in-time supply chain strategy, improves your forecasting, or sees you provide suppliers with better warehousing solutions, there are benefits to realise wherever you look.

7. Better partnerships with distributors

Many businesses make the mistake of thinking a product arriving in-store or at their distribution centre is the end of their supply chain. Consequently, those same businesses don't have much in the way of a relationship with the distributors they rely upon to get the final product into their customers' hands.

Remember that your supply chain ends successfully when your customers - not you - receive a product. Make distributor partnerships a crucial part of your supply chain management strategy.

8. Ensure adherence to legal and ethical standards

The nature of modern global supply chains means that you're held accountable for your suppliers' adherence to legal and ethical standards as much as you are your own.

Supply chain sustainability and transparency has become increasingly vital in recent years and will continue to do so. By closely managing your supply chains and working with your suppliers, you can ensure you meet the required standards both at home and wherever your suppliers are.

9. A competitive advantage in your industry

Every supply chain has unique complexities and challenges. While it's often easy to identify inefficiencies and areas for improvement, the truth is that many businesses fail to deal with these as effectively as they potentially could.

By making supply chain management a priority in your business, you'll give yourself a competitive advantage against those who don't.

Like your supply chain, these benefits are interconnected

As we saw earlier, every element of your supply chain has the potential to influence the other. The same is true when looking at the benefits of embracing supply chain management. By working towards having more efficient supply chains, you'll achieve a wealth of benefits alongside each other. Due to the nature of these benefits, you'll also see a snowball effect. For example, identifying areas to improve your inventory management will enhance customer satisfaction, leading to your customers ordering more often, increasing your cash flow and revenue.

How to build a more efficient supply chain

Many options are available to help you achieve a more efficient supply chain.

Ensuring adherence to ISO standards, for example, can be helpful and also act as great social proof for how effective your supply chains are. ISO standards are also something you can encourage your suppliers to embrace, which will improve their business operations and the outcomes they deliver for you too.

Utilising supply chain software will also help you manage supply chains more effectively. For example, it can be advantageous to use dashboards to get an overview of everything across your supply chains rather than focusing on one supplier or node of your chain at a time.

Discover how Serai can help you realise the benefits of better supply chain management

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