Supply chain management
In today’s interconnected world, the efficiency and reliability of supply chains are crucial for the success of any size business. It’s essential to recognize how supply chain vulnerabilities can impact your business and what steps you can take to safeguard against these risks. By proactively managing your supply chain, you can enhance resilience, maintain customer satisfaction, and ultimately secure the longevity of your business.
Most supply chains rely heavily on agreements and collaboration, which can easily be disrupted. According to the Council of Supply Chain Management Professionals (CSCMP), “supply chain management integrates supply and demand management within and across companies.” Understanding and planning for your company’s role in this big picture can be the difference between survival and closing your doors. A review of the following areas may help identify where your company can take a closer look to ensure business continuity.
What is supply chain management?
Supply chain management includes:
- Coordinating the entire production flow, from sourcing raw materials to delivering the finished product.
- Working with suppliers, manufacturers, distributors, retailers, wholesalers and customers, either locally or globally.
- Obtaining necessary raw materials, components, equipment, and machinery; manufacturing the product; storing it, transporting it and delivering it to customers.
- Coordination of external partners, internal resources and operations management.
Why is supply chain management important?
Supply chain management (SCM) coordinates a business’ entire production flow, from sourcing raw materials to delivering a finished item and:
- Helps companies anticipate and mitigate risks (such as supply chain disruptions) and track compliance with regulations and standards.
- Improve brand recognition, customer satisfaction and loyalty when products arrive on time, in good condition, or are easily returned.
- Minimizes operational expenses, costs, waste, and time in the production cycle, directly impacting profitability.
- Helps companies reduce their carbon footprint by optimizing logistics and energy management.
One study found that organizations with advanced SCM capabilities were 23% more profitable than their peers.1
Key elements of supply chain management
The main considerations of SCM include:
- Planning and Operations Strategy: Involves forecasting demand, arranging production and managing inventory to meet customer demand. SCM sets an overall strategy by determining metrics to measure efficiency and effectiveness, adapting to new product needs, and ensuring inputs and logistics are factored into all new products.
- Sourcing: Identifying specific providers, establishing contracts and managing supplier relationships to ensure a reliable supply of raw materials and components. This includes ordering materials and equipment, receiving, managing inventory, distributing to manufacturing, and authorizing supplier payments. For processes dependent on specialized equipment, spare parts on hand or through a stable local or regional supplier is critical.
- Manufacturing: Starts with product design, then receiving and distributing raw materials, components, and equipment on site, followed by production, quality control and logistics of getting the finished product to warehouses or distribution centers.
- Delivery: Involves the transportation and distribution of finished products to customers. It includes managing distribution centers, warehousing, order fulfillment and logistics, which may include 3rd party vendors (FedEx, UPS, USPS, etc.). Warehouses store products for shipment to distribution centers, which deliver directly to consumers or ship straight to point of sale.
- Returns: Handling returns involves creating a network or process to take back defective, excess, or end-of-lifecycle products. It includes managing reverse logistics and customer satisfaction, in addition to final product disposal. Returns could be sent back to point of sale, a distribution center, a factory for refurbishment, or processed for disposal or resale.
- Review: From planning to returns, the supply chain requires constant review and adjustment to ensure continued operational viability. An annual review is recommended.
Supply chain management technology
New technologies are transforming the way businesses manage their supply chains. This includes:
- Artificial intelligence (AI), machine learning (ML), Internet of Things (IoT) and Blockchain.
- Various software products support supply chain professionals, including inventory, order, warehouse and transportation management suites.
Insurance and BCP Considerations
Whoever is assigned to manage the supply chain should be empowered to work closely with senior leadership and the Business Continuity Planning team. A Vulnerability and Risk Assessment should consider factors that can disrupt the supply chain. Ensure appropriate conversations are held with your insurance agent to ensure adequate Business Income and Extra Expense (business operations) and Contingent Business Income coverage (impact from disruption to suppliers, customers, etc.) insurance policies.
Effective supply chain management is not just a necessity but a strategic advantage for your business. By understanding and addressing the vulnerabilities within your supply chain, you can help build a more resilient operation. Embracing new technologies and maintaining strong relationships with suppliers and partners will further enhance your ability to meet customer demands and adapt to market changes. Ultimately, a well-managed supply chain can lead to increased profitability, customer satisfaction and long-term business success.
Sources
- "Next stop, next-gen", Accenture, July 2024.
- https://www.ibm.com/topics/supply-chain-management
- CSCMP Supply Chain Management Definitions and Glossary", Council of Supply Chain Management Professionals, July 2024.
- https://www.sustain.life/blog/supply-chain-mapping
- https://www.brightest.io/tier-suppliers