Thursday, February 22, 2024
Thursday, February 22, 2024
HomeProcurement/Supply Chain ManagementSupply Chain Management, Its Components and Advantages

Supply Chain Management, Its Components and Advantages

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Successful delivery of a product of the consumer or end user is crucial for the organizations. A product has to move through different stages before it reaches the customer. The different stages may be inception, concept development, product design, testing, manufacturing, marketing and final delivery. There are several stakeholders involved right from the inception to final delivery of the product like, design team, raw material suppliers, marketing professionals, management professionals, wholesalers, distributors, retailers, etc. So we can say that a product or service moves through a chain of different of several stages before being consumed by the end user. This chain is called the supply chain and the management of different processes and stakeholders in the supply chain is termed as supply chain management. In this article, we will learn in detail about the supply chain management, its processes and its management.

What is supply chain?

Supply chain incorporates all stakeholders involved, directly or indirectly, in satisfying a customer’s requirement. The various stakeholders range from manufacturers to suppliers, and also incorporates transporters, warehouses, wholesalers, distributors, retailers and customers themselves. Various processes and functions within the organization like product development, production, marketing, distribution, finance and customer service, etc. are also a part of the supply chain.

Let us take an example of ‘mineral water bottle’. If a company wants to make this product, then there are several processes involved with it. Designing of water bottle, fixing specifications of mineral water, supply of fresh water, establishment of plant, supply of raw material for the packaging, testing of water, production, marketing, finance, there are so many functions and stakeholders involved right from the conceptualization to final delivery of the water bottle. Out of the above discussed processes, some are internal processes of the organization and other are external processes in which other firms are involved, like transportation, supply of raw materials, distribution of final product, etc.

You can see that there is a constant flow of information, materials and funds through the different stages. All of these processes and activities form a chain, which is called the ‘Supply Chain’.

Other example is, the purchase of a product from Amazon. If a customer orders some product from Amazon, the Amazon’s website, its warehouse, and all the suppliers & distributors of the Amazon form a supply chain. The order is made through the Amazon’s website and payment may also be made through the website. The information regarding the order is transferred to supplier and distributor and the product is delivered to the customer with the help of distributor. So in this case also there is a flow of information and money from the customer to Amazon and similarly the product flows from supplier to the customer using the interface of Amazon. This all form a supply chain.

Supply Chain Management

Now the question arises, ‘what is supply chain management?’.

Supply chain management is the management of flow of information, materials and services used for transformation of raw materials into the final product and satisfying the consumer requirements. It includes the active management of activities and processes like concept development, product design, testing, manufacturing, marketing, transportation, distribution, customer care, finance, etc., some of which are the part of product life cycle.

Supply chain management also involves the management of different stakeholders in the supply chain, like, internal staff, suppliers and vendors of raw materials and parts, transportation agencies, distributors, consumer, etc.

Five Components of the Supply Chain

Below are given five integral components of supply chain management:

Planning

Planning is the first and one of most important components of the supply chain management. Which product is to be manufactured? what is the customer requirements? how the desired value will be added to the product? how the product will be designed? what will be the specifications? who will be the suppliers of raw materials? what will be the method of procurement of raw materials? how the product will be marketed and distributed? there are several questions which need to be answered during the development and supply of any product. The planning is the process to find the answer of these questions and to establish a way to execute the processes required for production and delivery of the product. The planning should be aligned with the strategic goals of the organization. In the planning stage the road map of product development and distribution is prepared and the execution of various activities involved in the supply chain, as discussed above are planned.

Procurement of Raw Materials

The next component of supply chain is ‘Procurement of Raw Materials’. This is also termed as ‘Sourcing of the Raw Materials’. In this stage the raw material required for the final product is procured from various suppliers. The procurement methods chosen at the planning stage are applied and appropriate suppliers are selected. The raw material received from the suppliers is verified & tested and the payment to the suppliers is made accordingly. The management & monitoring of suppliers is a part of this component.

Production or Manufacturing of the Product

After receiving the raw materials, the next part is to manufacture the final product. Various activities, like, accepting the raw material, manufacturing, testing, discarding and recycling of the items not meeting standards, packaging, etc. comes under this component. Maintaining the quality of the product and the productivity of the employees is crucial and take care at this stage.

Delivery

The delivery of the product is the next component of the supply chain management. Once the product is manufactured, it has to be delivered safely to the customer. The speed of delivery is crucial for a company. It should be delivered at the promised time to the customer. If the delivery is late, the customer may go to other companies. This component consists of the activities like, receiving customer orders, schedule delivery, deciding method of payment, invoicing customer, receiving the payment, transporting the goods and handing over the product to the customer. Sometimes, organizations choose to outsource transportation and delivery of products to other organizations. In that case, monitoring the agency, to whom these activities are outsourced, is crucial.

Return of Goods

The last component of the supply chain management is return of goods. There may be many reasons of returning back the goods to the manufacturer. The goods may be defective, ordered by mistake, not fulfilling the customer requirements or excesses quantity is ordered. Whatever be the reason, the goods have to be taken back by the manufacturer in many cases to retain the customer. If the goods are defective, these has to be rectified or recycled, otherwise they are taken back to the warehouse for resale.

Benefits of Supply Chain Management

Supply chain management has many benefits. Some of the advantages of good supply chain management are described below:

(1) Supply chain management provides proper road map for planning and execution of various activities within the supply chain. It helps in proper management of different stakeholders involved in the supply chain.

(2) Supply chain management ensures better collaboration between suppliers.

(3) Proper planning and management during production results in better quality control. When specifications and standards are fixed at planning stage and the suppliers and supply management organization work towards achieving the same goal, better quality of products is achieved.

(4) By proper planning and management, shipping is optimized which results in cost saving and better competitive advantage for the organization.

(5) Another benefit of supply chain management is reduced inventory and overhead costs. Many times, the management decides to adopt lean management methodology, in which only that quantity of items is produced, for which there is real demand from the customers. In this way, unnecessary inventory is avoided, which results in reduction of overhead costs.

(6) Supply chain management helps in identifying issues during the execution of various processes. This results in better risk mitigation and management.

(7) If the supply chain is will be well managed, there will be better collaboration between the different stakeholders and they will work together towards running an efficient supply chain. In this way, customers will get value in reasonable costs and the business of organization will thrive. This will result in better cash flow and profitability for the organization.

(8) Supply chain management ensures better visibility and data analytics. All the data is available to team members and stakeholders in their mobile phones and computers, with the help of software and apps. Better analysis of data is achieved and team can communicate well and take better decisions. This all results in an efficient supply chain and better profitability.

Summary

Supply chain incorporates all stakeholders involved, directly or indirectly, in satisfying a customer’s requirement. Supply chain management is the management of flow of information, materials and services used for transformation of raw materials into the final product and satisfying the consumer requirements. Supply chain management has five main components. (1) Planning, (2) Procurement of Raw Materials, (3) Manufacturing, (4) Delivery & (5) Return of Goods. There are many benefits of supply chain management, which includes, proper road map for execution of various activities, better collaboration among suppliers and other stakeholders, better quality control, optimized shipment, reduced inventory and overhead costs, better risk mitigation & management, increase in cash flow & profitability and better visibility and data analytics.

The organizations should therefore make emphasis on adopting best practices of supply chain management to optimize their resources, for better collaboration among different stakeholders & increasing profitability and achieving a competitive advantage by establishing an efficient and robust supply chain.

References:

  1. https://scm.ncsu.edu/scm-articles/article/what-is-supply-chain-management-scm
  2. https://www.investopedia.com/terms/s/scm.asp
  3. https://www.marketing91.com/supply-chain-management/
  4. https://www.americanexpress.com/en-gb/business/trends-and-insights/articles/benefits-of-supply-chain-management/
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Rajesh Pant
Rajesh Panthttps://managemententhusiast.com
My name is Rajesh Pant. I am M. Tech. (Civil Engineering) and M. B. A. (Infrastructure Management). I have gained knowledge of contract management, procurement & project management while I handled various infrastructure projects as Executive Engineer/ Procurement & Contract Management Expert in Govt. Sector. I also have exposure of handling projects financed by multi-lateral organizations like the World Bank Projects. During my MBA studies I developed interest in management concepts.
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