In the era of globalization where companies are in constant competition to provide the best quality goods and services to the consumers and satisfy all their expectations to gain their trust, supply chain management plays an important role in this.
In the study of commerce, Supply Chain management is an important part. A supply chain management (SCM) is a management that takes care of the movement of flow of goods and services, which involves the storage, and movement of raw materials of work inventories and of finished goods as well from point of origin to the point of consumption.
A Supply Chain Management is said to be a broader range of functions and activities that requires proper planning and execution for a product’s pass from acquiring raw materials, and process production via the distribution to the final customer in the most sleek way and cost effective manner.
Supply Chain Management encloses the desegregated planning and execution of the processes that are needed to optimize the flow of goods, information, and the capital used in the areas that widely include the order of planning, production, sources and inventory management and storage. To endeavour the creation of competitive advantage of this management, both business strategies and some specialized softwares are put into use.
This kind of management is an expensive and complicated agreement that relies on each person involved from suppliers to manufacturers and more in order to make the management run well. Due to all that, to make an effective chain management, it also requires change in the overall management, collaborations and risk management to form alignment and communication amongst all the entities.
How is Supply Chain Management defined?
A Supply Chain Management is defined as interconnected networks, channels, and even node business in combination with delivery of products and services that are widely required by end clients in a supply chain. To put simply, supply chain management is defined as designing, planning, controlling, executing, and monitoring supply and chain activities with the intention to create a net value that builds a competitive infrastructure, worldwide logistics, and link supply with demand by the means of measuring the overall performance globally.
This management performs heavily from the industrial engineering areas, operation management areas, system engineering, information technology, and logistical areas to help in marketing and striving for an integrated proposition. It is seen that marketing channels play an important role in the SCM. The researches and studies of the supply chain management are anxious about the topics regarding the sustainability and risk management.
Supply chain management is typically seen to remain between the completely vertical desegregated firms, where the whole flow of goods is owned by one single firm, that includes those where each of the channel members operate alone. Therefore, the coordination is required between the various players in this chain management, which is considered as the key for its effective management.
Researchers constantly compare supply chain management with a well-balanced and well-practiced reliable team. In such a team the relationship amongst the fellow workers, grow stronger who directly engage into the work of passing the baton, besides that the whole team needs to provide coordinated efforts to win the race eventually.
Supply Chain Management Decisions
The supply chain management has many classified decisions; those classifications are of two broad categories – Strategic and Operational.
Strategic decision is the typical form of decisions that are required while the process of management occurs. They are made over a long time horizon, and are closely related to corporate strategy and helps in guiding the policies of the supply chain management seen from a perspective of designer. Whereas, operational decisions are short term that focuses on the activities and functions of the management on a day-to-day basis. In this type of decision, the efforts are effectively and efficiently used for managing the flow of product in the strategically planned way of the supply chain.
There are four main categories of decision areas in supply chain management:
- Location,
- Production,
- Inventory, and
- Transportation or distribution
In addition, all of the above decision areas have both strategic and operational elements in each of them.
Location Decisions
The geographic location placement of the facilities of production, sourcing points, and stocking points is the natural first step to create a supply chain in the process of management. The location of facilities includes a commitment of the resources for a long-term plan. Once the size, location, time, and numbers are resulted, the possible ways through which the product will flow to the customers are even determined.
These decisions are considered as one of the greatest importance to the firm since they represent the most basic strategies for getting the customers accessed to the markets that will eventually have considerable impact on the cost and revenue along with the outcome level of the service. All these decisions should be taken into considerations by an optimized routine that includes the involvement of odd taxes, production costs, drawbacks of the duty, local contents and tariffs and even the production limitations.
Despite being primarily strategic, location decisions have huge implications in the operation level.
Production decisions
The strategic decision decides on what products to produce, which all plants for production will be included, allocations of the suppliers for the plants that are in use for the process of production, plants for the DC’s and the DC’s for the markets of targeted customers. As said earlier, all these decisions have a huge impact on revenues, customer services, and cost levels of the firm. These even help in making assumptions on the existence of the given facilities, to determine the exact definite pathways via which a product will flow to and from those facilities.
Another vital and critical issue is the amplitude of the facilities related to manufacturing relies on the degrees of vertical blending within the firm. The operational decision focuses on the detailed schedule of the production, which widely includes the construction of the schedules of master production, production of the machineries and the equipment maintenance. Well, other considerations involve balancing of workload and the control measures at the facility of the production.
Inventory Decisions
Inventory refers to the means of ways by which the inventories are managed. Inventories are something that is needed in every stage of the supply chain management, as either raw materials finished or semi-finished goods. They are often found in the requirements of the in process between the locations. Since keeping the inventories on hold, it may cost anywhere between 20 to 50 per cent of their face value. Efficient management of them are critical in the process of supply chain management. It is strategically goal oriented which helps to set top objectives for the management.
Nevertheless, most researchers have overcome the management of inventory from a perspective of operational decision. All o0f these include the deployment strategies, control the policies that includes the determination of the most advantageous levels of the order amounts and reorder points that helps in setting the safety stock levels each of which are at stocking locations. These levels are considered critical since they are the primary determinants of the levels of the customer services.
Transportations or Distribution Decisions
The choice of aspect of these decisions is the most strategic ones. They are closely related to the decisions of the inventory, since it is said to be the best choice of mode that is oft4en found by trading off the expenses of using the specific way of transportation with the most indirect cost of inventory assonated with the mode involved.
Whilst shipments by air might be faster which involves warranty that is lesser than the safety stocks, yet they are expensive. In the meanwhile, shipping by the seashores or by the railways be little cheaper but they consociate holding on to the larger quantities of inventories to buffer against the implicit uncertainty that are related to them. For which the customer service levels and the geographic areas play the most vital role alike decisions that are to be made.
Well since transportation is said to be more than the 30 per cent of costs of logistics, efficiently operating makes that of a good economic sense.
Every management has a set of benefits that pull the business to a completely new level, let’s look at some of the benefits
Benefits of supply Chain Management
A supply chain management is responsible in creating efficiencies, increase the profit making, minimize the costs and other petty expenses, and boost up the collaborations and many more. Supply Chain Management helps in enabling the companies to manage the demands better and supply the products and services accordingly, to deal with the interruptions, carry out the proper amount and quality of the inventories, to hold the cost to a minimal level, and even meet the customer demands in the most polished and effective way possible. All these SCM benefits are met via the apt strategies and the softwares to help managing the growth of complexity of today’s supply chain.
All the companies are highly dependent on efficient and cost effective ways of supply chain process. Let’s look at the major benefits of supply chain management. The major key benefits of supply chain management are stated below:
- The supply chain management helps to develop a better relationship between the customer and the service.
- It is responsible in creation of sharpened mechanisms of delivery for the products and the services that are in demand with no or minimum delay.
- Strives to do offhand functions of productivity and business goals.
- Helps to minimize the costs of the warehouse and transportations.
- Along with that help to minimize direct and indirect costs.
- Guides in achieving right products through shipping at the right place and right time.
- Cooperates in enhancing the inventory management and supporting in the successful execution of stock models on time.
- Takes charge in assisting the companies to adapt to the new challenges of globalization, economic disruption, expansion of the consumer’s expectations, and some more related differences.
- Assists the companies to take eco-friendly measures by minimizing waste disposal, cutting down unnecessary costs, and achieving the efficiencies all throughout the process of supply chain.
These are some of the key benefits of supply chain management. After taking a quick glance at the long concept and major benefits of supply chain management, let us further look at the main objectives of this kind of management.
Objectives of Supply Chain Management
Every active firm or business struggles to match the supply with the demand in the timely fashion with the help of the most efficient use of the resources. Below mentioned are some of the important objectives of the supply chain management:
- The members of the supply chain management work in partnership and collaboratively at various levels to maximize and increase the resource productivity, build up the standardized process and to curb down the duplication of the efforts that generally reduces the inventory levels.
- The most essential goal is to minimize the expenses of the supply chain especially during the time of economic uncertainties that are prevailed in the company related to their wishes to preserve the capital.
- The objective includes efficient and pocket friendly products that are actually necessary to have, where the supply chain managers need to concentrate on the creations of the values for their targeted customers.
- To work the extension of the customer’s expectations on a daily basis is the efficient way to satisfy them.
- High expectations of audiences for the variety of higher products, custom built goods, availability of off-season inventories and fulfilment in no time at a moderate cost that is comparable to in-store offers that needs to be matched.
- To accomplish consumer expectations, managers of the supply chain need to clout the inventories as a communal resource and put them into use to distribute order management technology in order to complete all requested orders from the optimal growth in the process of supply chain management.
Lastly having said all that about supply chain management it aims at the contribution of the financial stability of an enterprise as well. In addition to that highlighted, it aims to lead the whole enterprise by using the supply chain to improve differentiation, to increase sales, and to penetrate new markets and new challenges. Its overall objective is to make a competitive benefit and keep up with shareholder value.
Author Bio:
The management author here is Rawi E. Abdelal who is a well-known manager of a renowned American Company. Ph.D. in Government from Cornell University and has years of work experience. He is a management educational expert as well.
He is working as an online analyst on management and supply chain management for the past couple of years and has assisted many students regarding this subject. He has an experience of working on over 500 different kinds of projects as a managing director or being at the managerial post. He now urges to look to have new challenges upcoming his way while working on the assignments to learn more.