Importance Of Supply Chain Management (SCM)

importance of supply chain management

Supply Chain Management implies management and integration of the entire production process of a product within the organisation and also across all the various channels and members in the supply chain. It involves active management of supply chain activities to maximise customer value and gain a sustainable competitive advantage. Supply chain activities comprise everything from product development, production, packaging, shipping, warehousing, delivery, retailing, and information systems and technology. Technology advancements have unlocked massive potential for Supply Chain Management, enabling supply chain managers to seamlessly work in real-time with the members of the supply chain.

SCM can be bifurcated into five main components- planning, sourcing, manufacturing, delivery and returns. Each of these constituents plays a vital role in the production process, beginning right from outlining the network of manufacturing facilities and determining production levels to actually manufacturing the products and finally fulfilling orders.

The principal objectives that Supply Chain Management seeks to fulfil are-

  • Anticipating Problems
  • Improving Inventory and Fulfilment
  • Adjusting Prices Dynamically

Why is Supply Chain Management Important?

As globalisation makes supply chain processes more intricate, businesses are progressively turning to analytical solutions to improve the efficiency of their supply chains. Supply Chain Management is vital for any organisation because a properly managed and optimised supply chain can introduce several advantages to the organisation in terms of cost as well as time savings. Apart from that, it offers various benefits to the customers as well, making efficient SCM an effective tool to achieve competitive advantage.

Take a look at the following points to understand the importance of Supply Chain Management-

Importance of Supply Chain Management for Businesses

SCM has become an indispensable part of business and is pivotal to any company’s success. SCM has the power to lead a business to great heights. Following are some of its benefits-

Supply chain management profit

1) Reduced Operating Cost

Efficient Supply Chain Management has a trifold effect on operating cost-

  • Decreased Purchasing Cost: Retailers rely on supply chains to deliver products quickly to avoid holding costly inventories in storage units any longer than required. This ultimately brings down the purchasing cost.
  • Decreased Production Cost: Manufacturers rely on supply chains to deliver materials to assembly plants to avoid material shortages that would shut down production, facilitating a seamless and cost-efficient production process.
  • Decreased Storage Cost: Efficient SCM optimises warehouse space and makes use of the most efficient technology, accounting methods and inventory management tools, significantly reducing the cost of doing business. This enables the firm to be more competitive in the market.

2) Greater Efficiency

When an organisation’s supply chain operations, including resource procurement, logistics, and delivery, are tactically devised and executed, businesses can predict demand more precisely and formulate the most efficient strategies to cater to it. This strengthens the efficiency of a company to respond to uncertainty, disruptions, and fluctuating industry trends. Moreover, having real-time data on the availability of raw materials and manufacturing delays allows companies to implement backup plans, like sourcing materials from a backup supplier, avoiding further delays.

SCM important for business

3) Higher Profits

Businesses tend to function at a high level of productivity when they use the best technology and practices to meet the customer demand better, and each segment in the product’s lifecycle is optimised to the fullest capacity. In such a situation, they experience increased sales, better brand image and ultimately greater cash inflow. This, coupled with the benefits in costs, translates to increased profit in absolute numbers, as well as a higher profit margin.

4) Improved Financial Position

Apart from increased profit levels, efficient Supply Chain Management directly affects the company’s fixed assets and cash flow. Optimising the warehouse layout and implementing the appropriate automation solutions to improve productivity go a long way in optimising the company’s fixed assets, such as production units, warehouses, and transportation vehicles in the supply chain. SCM also makes use of the most suitable accounting methods that help reveal the liabilities or unprofitable areas in the business. Necessary decisions can be taken to either improve or amputate such parts. Therefore, in totality, SCM improves the overall financial position of the business.

5) Better Quality Control

Efficient Supply Chain Management directly influences the quality of a company’s products and services. Companies with better control over their suppliers enjoy improved quality control. Process guidelines can encourage suppliers to comply with the company’s quality requirements.  This compliance contributes to customer gratification, standardisation and sustainability. By analysing performance data, corporations can partner with the highest-performing suppliers and vendors to maintain strict quality control. It is a crucial factor in building and retaining a strong brand image.

Importance of Supply Chain Management for Customers

Along with the businesses, SCM extends several benefits to their customers as well. A few of them are-

SCM importance for customers.

1) Lesser Delays

Adequate SCM enables companies to optimise their logistics operations to ensure seamless order fulfilment. Analysing the big-picture and supply chain data can reveal potential risks, allowing companies to formulate backup plans to respond to unexpected circumstances promptly. Such a prudent approach and streamlined operations reduce the possibility of delays in deliveries to the minimum.

2) Lower Prices

Supply Chain Management offers numerous benefits to businesses, which eventually leads to a significant reduction in their costs in terms of production cost, purchase cost and total supply chain cost. Such cost benefits, along with the higher profits, give them enough leeway to cut down on their market price, further transferring the benefit to the customers. Quite understandably, a company with better SCM is in a stronger position to offer the advantage of better prices to its customers than one with poor SCM.

3) Better Customer Experience

Supply Chain Management directly governs the two most crucial parts of customer satisfaction: price and delivery. Building an efficient supply chain increases a company’s chances of beating its competitors on the retail price and improving profitability. Having optimised and streamlined operations also means that it will be able to ensure smooth and timely delivery of products. By choosing the best-suited systems, approaches, tools and partners within the supply chain, a company can give its customers the quality of service, transparency, and visibility they desire. It has complete command over its products’ journey from conception to delivery. It can also implement systems to reduce errors and maximise inventory efficiency. The more optimised and managed its supply chain is, the better the customer experience.

Conclusion

Supply Chain Management or SCM implies management of the entire production flow, but its scope extends well beyond a singular company to all the channels involved in the process. It aims to anticipate problems in the product’s life cycle, improve inventory and fulfilment, and optimise prices dynamically. It provides a plethora of benefits, including better quality control, faster deliveries, lesser delays etc. Still, the ultimate goal of effective SCM is to generate higher profits through improved customer satisfaction and a lower cost of carrying out business, hence, benefitting both the company and its customers.

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