Supply chain management is vital to the efficient operation of any business handling physical inventory. When implemented correctly, it can result in lower costs, shorter lead time, lower risks, and ultimately higher profits as a result.
What is Supply Chain Management, and Why Is It Important?
A supply chain is a network of individuals, firms, resources, operations, and technology that a company uses in the creation and sale of products or services from the delivery of raw materials by the supplier to the delivery to the end user.
Effective supply chain management allows a company to gain an advantage over their competitors in the industry as it lowers the inherent risks of buying raw materials and selling products or services.
A business with an adequate supply chain management system in place will also be able to reduce waste and overhead costs.
What is an Example of Supply Chain Management?
A well-known example of a supply chain management system is the one used by Walmart. Walmart doesn’t have many links in their supply chain, and, instead of buying branded products, they stick to generic goods purchased directly from manufacturers.
Walmart uses a system called “vendor managed inventory” to ensure that suppliers are responsible for the products that Walmart owns in warehouses.
Walmart also goes to extremes when it comes to choosing suppliers. They typically only partner with suppliers that can meet their demands and that are conveniently located to keep transportation costs as low as possible.
The concept of economies of scale is a crucial ingredient of Walmart’s successful supply chain. Walmart purchases goods in large quantities from manufacturers. They ship these goods directly to their warehouse before delivering them to their stores.
Since these are the only links in Walmart’s supply chain, their input cost per unit is low enough to provide their customers with more affordable products.
What is the Supply Chain Management Process?
The supply chain management process consists of several steps, including strategic planning, demand planning, supply planning, procurement, manufacturing, warehousing, order fulfillment, and transportation.
- Strategic planning refers to the design and optimization of the supply chain model.
- Demand planning involves lifecycle planning and predicting the future based on various forms of data.
- Supply planning includes safety stock planning and customer and supplier collaboration.
- Procurement is a three-step process that provides for purchase order processing, receipt confirmation, and invoice verification.
- Manufacturing refers to production planning and product manufacturing.
- Warehouse processing includes inbound and outbound processing, as well as storage, physical inventory, and cross docking.
- Order fulfillment process refers to the sales order and billing processes.
- Transportation includes planning, execution, and costing processes.
What are the Key Benefits of an Effective Supply Chain?
Effective supply chain management allows a business to adjust dynamically to changes in the economy and to predict and meet future demands.
A functional supply chain enables a company to ship products to customers over vast geographical areas at minimal costs and within a short time.
Another key benefit of a high-performing supply chain is that it reduces risks relating to product compliance and quality.
If you want to improve the supply chain of your business, contact The Brimich Group today.