|Type of paper:||Essay|
|Categories:||Supply chain management|
Supply chain management (SCM) is a critical part of any business operation weaving through daily operations from sourcing raw materials and manufacturing products to packaging, warehousing, and shipping to the end-user. Efficient SCM comes with a host of direct and indirect benefits, such as reduced overhead and storage expenses, increased customer satisfaction, and improved brand loyalty. Less apparent advantages of SCM include compliance improvements and accountability, as well as innovation across all business operations.
At the same time, developing and implementing an integrated SCM system requires experienced personnel and resources, including advanced software packages and relevant training. Moreover, building the supply chain into the business model hinges on top management’s critical decision-making, as well as the willingness to invest in new processes and operational frameworks. The complexity of the issue is also an adoption barrier that can be overcome by splitting the process into several stages that focus on the sole aspect of the SCM system. The six steps of SCM may include setting strategic, tactical, and operational objectives, managing demand, production, resource, and inventory, setting up procurement and logistics, aligning supply chain metrics and incentives with the business goals, and reviewing the SCM strategy alongside regular business planning.
Establishing Goals for Strategic, Tactical, and Operational SCM
Businesses that offer unique benefits to their customers survive and thrive, while the rest are left in the dust. Therefore, defining a unique competitive advantage and business goals around it throughout all processes, including SCM, is the way to beat the competition. For example, startups may focus on delivering a single product within 24 hours of the order, while established businesses do not have to fight for record-breaking shipping times and can afford to broaden their offers. SCM objectives will differ greatly for these two cases.
At the same time, goal-centric SCM includes three levels that serve different purposes within the business. Strategic SCM deals with long-term decisions, holistic infrastructure, as well as overarching decisions, such as the choice of suppliers, facilities, and technologies. Tactical SCM brings to life the strategic vision and works with shorter time horizons, establishing performance metrics, best practices, and measurable deliverables. Operational SCM deals with the daily supply chain procedures and logistics, from shipments to invoicing and reporting. Successful SCM is impossible without a cohesive operation of all three levels. Strategic decisions remain unfulfilled without tactical and operational measures, and focusing on daily operations without having a clear strategic vision may result in short-sighted decisions.
Managing Demand, Production, and Material Requirements
Evaluating customer demand is the first milestone of SCM. With the advances of disruptive technologies, like big data and machine learning, businesses gather historical data and analyze seasonal trends to estimate potential demand in the short-term and long-term horizons. The estimates include a list of products, quantities, and specifications based on experience. Precise estimates promote efficiency across the supply chain, including manufacturing, sourcing, shipping, and warehousing, while relying on erroneous demand forecasts can result in significant additional expenses.
The estimates derived through historical demand analysis are used in production and material requirements analysis. The former encompasses the choice of manufacturing technologies, equipment, and facilities. The latter includes the inventory of materials and other resources required for production. Depending on the choice of planning methodology, material requirements may include financial and human resources necessary to address the market demand within the reference period.
Global and local crises may disrupt the established demand, production, and materials planning, as the global supply chains are suspended or broken. Still, additional data collected through the economic recession, pandemic, and wartime can be incorporated into the forecasting models to account for potential future threats to supply chains and business operations.
Inventory management is present throughout the supply chain system. It includes the inventory of all materials, resources, and products used by every division. Businesses need to monitor and control raw materials and parts as well as the supply of the finished products in storage. Established long-term businesses objectives and demand management are crucial in inventory management to avoid overstocking or understocking the retailers or distributors. The former will increase expenses, while the latter may result in customer dissatisfaction and a dip in brand loyalty.
While undesirable under normal conditions, inventory management issues are possible in the early stages of establishing a system. At this stage, all supply chain links coordinate pre-existing stock of raw materials, resources, and finished products with the demand estimates and production requirements. After an initial balancing period, the SCM system leads to significant long-term benefits.
Overseeing Sourcing and Logistics
Procurement procedures include everything from searching for necessary resource suppliers and affordable prices to establishing communication networks and upholding relationships. Sourcing occurs at every level of the supply chain and often requires dedicated staff. At a strategic level, procurement is aligned with business goals and helps optimize the sourcing process for long-term benefits. At a tactical and operational level, procurement staff is responsible for building strong relationships with suppliers to drive efficient and mutually beneficial performance.
Logistics divisions or managers are responsible for the shipping and storing of all materials, resources, and products throughout the supply chain. While most businesses invest in building a strong logistics system to ensure timely delivery for customers and efficient warehousing to reduce expenses, few remember to take care of reverse logistics. It deals with transporting returns to the supplier or storage facility, providing refunds, and servicing products. The rise of the environmental movement added a recycling dimension to the logistics chain, as a growing number of manufacturers collect used packaging or products. The initiative is especially pertinent for single-use packaging, such as plastic water bottles, single-serving coffee capsules, etc.
Establishing Supply Chain Performance Metrics and Incentives
Once the cardinal business objectives are set, and the supply chain procedures are established, managers set up standard metrics to gauge performance. However, there can be no universal deliverables when the SCM is aligned with the long-term strategy, as different objectives call for different tradeoffs and compromises. Therefore, the company that highlights order processing and delivery speed can not have the same supply chain metrics as the one that focuses on a broad range of products or emphasizes the lowest prices. The metrics should reflect the cardinal business objectives and help fulfill them instead of becoming a formality reserved for appearance’s sake. Not only will this approach lead to wasteful expenses, but it will also fail to support the fulfillment of business objectives.
Like performance metrics, employee incentives must be aligned with cardinal business objectives throughout the supply chain system. Managers responsible for procurement, supplier relationship management, logistics, and other SCM specialists should realize the overarching objectives and be aware of the key performance indicators driving their benefits. However, sales and marketing managers must fall within the same incentive framework and keep track of the inventory and other supply chain metrics. Failure to account for the sales department’s tendency to overstock may bloat warehousing and storage expenses while sacrificing flexibility which may go directly against the established long-term objectives.
Revising the Supply Chain Management Strategy
Businesses do not consider supply chain planning a priority and, as a result, uphold the same outdated practices, approaches, and metrics for decades. The resulting misalignment of business objectives and SCM system leads to galloping expenses and overheads and diminishing revenue caused by reduced customer satisfaction and sales numbers. Instead of preserving the supply chain strategy, top managers should incorporate it into the holistic planning framework that calls for a review and overhaul every year or two.
As startups mature into established small, medium, or large businesses, their priorities change through a series of pivots, and SCM must remain in alignment with big-picture objectives. For instance, early adopters may be willing to wait months or years to receive their crowdfunding perks, allowing for just-in-time logistics that eliminate the warehousing expenses. However, regular customers may require expedited order processing and shipping that hinges on high-performance inventory and warehousing solutions. Losing track of the strategic business shift and customer needs may result in significant losses and ultimate failure. Therefore, regular supply chain revision is a prerequisite for long-term business survival.
SCM is an integral part of running a business responsible for sourcing, transporting, storing, and delivering the right products to customers in the right place and at the right time. Inefficient SCM systems are out of sync with business objectives and remain stagnant for decades without regular overhauls. Ongoing business success hinges on aligning SCM with the general business strategy and reviewing it regularly to ensure the supply chain meets ever-changing market requirements. Aside from managing demand, resources, production, inventory, and sourcing, supply chain managers are also responsible for establishing logistics. They can be encouraged to deliver their best performance by using clear key performance indicators and incentives that align with business objectives. While establishing and implementing an updated supply chain system may cause issues initially, long-term benefits of improved customer experience, growing sales numbers and revenue make SCM a profitable investment for businesses of all sizes.
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Supply Chain Management in Six Steps. Essay Sample. (2022, Apr 01). Retrieved from https://speedypaper.com/essays/supply-chain-management-in-six-steps-essay-sample
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