What is Supply Chain Management?
Supply chain management is the effective management of the flow of goods and services that includes procurement of raw material, manufacturing and delivery of the final product or service to the end consumer.
Supply chain management includes supplier management, production planning, inventory management and operations and logistics optimization. It ensures optimum planning and clarity of communication between all stakeholders within the supply chain to increase the quality of the final product, reduce inventory costs and improve delivery times to maximize customer satisfaction.
How Supply Chain Management Works
For manufacturers, the goal of supply chain management involves a complex network of interconnected processes and stakeholders, all working together to meet customer demands, save costs and minimize shortages
It connects manufacturing to shipment and distribution from the time a product begins as a raw material until it gets delivered to the customer.
Important Aspects of Supply Chain Management
Efficiently coordinating between all stakeholders in the supply chain leads to an improved bottom line for the enterprise. Traditionally, a supply chain system will have the following five components –
- Planning and Forecasting – Developing a plan for the production process starts by analyzing market trends, historical data, and customer demands to predict future needs accurately. This data-driven approach helps in aligning production and inventory levels with anticipated demand, predict staffing needs, equipment capacity, and prevents overstocking or understocking issues.
- Sourcing and Procurement – Supply chain management is dependent on initiating and nurturing strong relationships with suppliers who provide premium-grade raw materials on time. When sourcing materials, it is important to identify the right vendors, negotiate contracts and maintain relationships with vendors. Efficient procurement ensures that the supply chain has a steady inflow of materials essential for production.
- Production and Manufacturing – Manufacturing processes transform raw materials into finished products. Organizing all necessary activities of the manufacturing process such as optimizing production schedules, ensuring quality control, and minimizing wastage is an integral part of SCM. Businesses are now using technology to enhance efficiency, with automation and data analytics aiding in real-time monitoring and decision-making.
- Inventory Management – It is one of the most important aspects of supply chain management. Businesses employ inventory control methods, such as Just-In-Time (JIT) or Vendor-Managed Inventory (VMI), to minimize excess inventory holding costs while ensuring products are readily available to meet customer orders.
- Delivery – When the final product is ready it is part of supply chain management to supervise all activities involved in the delivery of goods and services to the final consumers. Creation of robust logistics and transportation channels is essential for timely and safe delivery.
What are the Five Basic Steps of Supply Chain Data Management
- Data Collection – The data is collected from every unit of the supply chain that includes suppliers, logistical information, consumers and internal systems data. The data gathered may be in any format and coming in through multiple channels.
- Data Analysis – After the data has been collected, it is analyzed to derive actionable insights that help in improving the supply chain operations. Various tools and techniques can be employed for analysis like predictive analysis, Artificial Intelligence and Machine Learning algorithms, consumer behavior analysis and market trends forecasting.
- Data Sharing and Collaboration – With valuable information received after analyzing the data, enterprises can share this information with partners within the supply chain and streamline all operations through setting up better communication channels.
- Reporting and Visualization – The insights generated previously need to be presented in a way that makes understanding areas of concern easier. Reporting and visualization tools are useful in these scenarios and the data can be presented in the form of graphs, charts and dashboards.
- Implement Changes – The conclusions drawn from the analysis of supply chain data can now be used to bring improvements to the supply chain process. These changes will ensure that costs are saved, all supply chain operations are optimized and improve consumer satisfaction.
Why Forecasting is Important in Supply Chain Management
Forecasting is the backbone of supply chain management and helps optimize and coordinate all aspects of the supply chain. Forecasting helps understand the demand in the market to be able to work closely with suppliers to ensure that the production capacity is sufficient. It also assists in keeping tight control over the inventory to maintain optimum inventory levels throughout the year.
- Inventory Management – Forecasting helps in optimizing inventory levels. By predicting future demand, companies can maintain just the right amount of inventory to meet customer needs while minimizing carrying costs.
- Resource Allocation – Accurate forecasts guide resource allocation, including labor, equipment, and capital investment. This ensures that resources are deployed efficiently to meet anticipated demand.
- Customer Satisfaction – Accurate forecasting helps in meeting customer demand promptly. When customers receive their orders on time, it enhances their satisfaction and loyalty to the brand.
