Supply Chain is the network between various functions, individuals, entities, suppliers, manufacturers, and distributors to produce and deliver a specific product or service to the final customer. The supply chain incorporates the various steps and processes it takes to ship the product or service from its origin to its final destination. Two types of flows link the business nodes that form the supply chain –
Physical flows include the alteration, transportation, and storage of products and raw materials.
Information flows assist the various links within the supply chain to formulate their long-term strategies. They also help regulate the flow of goods and services.
Components of a Supply Chain
- Strategy – Meeting the customer’s demand is a top priority for any business. For this, planning and managing the resources is essential. Hence, the company puts an organised supply chain in place. After this, various parameters measure the company’s efficiency. These processes aim to deliver quality goods and services to the consumers and meet the company’s predetermined goals.
- Supply – The company creates a network of contacts and hires suppliers for raw materials required to create their product. During this step, it is the supply chain managers who maintain the company-supplier relations. Ordering, receiving, managing inventory, and authorising supplier payments are the primary functions of a supply chain manager in this component.
- Manufacture- The supply chain manager accepts raw materials, supervises the manufacture of the product, quality control and packaging. Furthermore, ensuring quality, optimum production and worker output is also necessary.
- Delivery – This component includes the arrangement of customer orders, scheduling delivery, dispatching products, sending bills to customers, and receiving their respective payments. It is dependent on an elaborate system of transport which delivers orders to customers. Many times, the products are fragile or scheduled for last-mile delivery. In these cases, several enterprises outsource significant components of the dispatch process to specific companies.
- Return – On a return request, the company arranges pick up for the defective, excess, or undesired products. A rapid and workable system is necessary for the same. The manufacturers repair or throw away the damaged products. Although, if the product has been returned but is in good shape, the company will take it back to the warehouse for resale.
- Assessment – The supply chain needs numerous processes to assess the happenings within itself. The rules and regulations also need to be enforced. Finance, HR, IT facilities, portfolio management, product design, sales, and quality assurance are a few processes in the enabling component.
How do we manage a Supply Chain?
SCM is the detailed assessment of all factors that affect the supply chain. It uses this assessment to maintain the standard of quality and healthy customer relations throughout the supply chain. The customer’s needs must be the top priority while managing the supply chain. Modification of the product and keeping the prices low helps achieve customer satisfaction.
Once the strategy for SCM is established for the company, all decisions made within the supply chain must ensure that they adhere to this corporate strategy.
- SCM mainly concerns all ventures’ active and efficient supervision, starting from prime suppliers to the final customers.
- SCM is a fundamental exercise in some areas, while it is moderately less relevant in others. Procurement and Supply Management (P&SM) experts should become more engaged in SCM, hence playing a prominent part in its advancement wherever possible.
- For the most beneficial outcomes, SCM needs a suitable onsite supervisor.
- SCM has a pivotal part in the industry, including predicting and satisfying end consumers’ interests.
- Supply Chain managers have a vital role in managing cost, as they can control and regulate the whole price base throughout the supply chain.
- SCM generates possibilities for the P&SM experts to contribute towards the company’s progress as they learn and engage with the supply chain management itself.
Why is SCM important?
A well-functioning supply chain is instrumental for the accomplishment of customer’s orders in a business. When executed accurately, it can also result in lesser production costs and a quicker manufacturing process. SCM is the umbrella phrase that includes product growth, procuring, manufacture, logistics etc., when it comes to developments in the supply chain. Without it, businesses are at the risk of losing their clients and the advantage over their rivals in the respective industries.
SCM is essential to decrease uncertainties in the chain and ensure everything runs efficiently. Each step can go wrong in several ways that may derail the customer’s order. Reducing delay in order fulfilment, transportation time, inventory hold time, and the order dispatch processes are all practices that achieve customer satisfaction. Without a proper SCM process, the chain can break down at any step.
Over the last two decades, the supply chains of manufacturers and merchants have become highly interlinked. Numerous enterprises place repetitive orders to a single manufacturing company due to direct sales. Once manufacturers sell their goods, they refill their own shelf using a well-established and punctual supply chain. As collaboration increased, further information from supply chain partners has allowed businesses to use special analytical tools to improve results further. Examples include:
- Recognising possible difficulties before they happen.
When a consumer orders more goods than the company can produce, the usual answer has been to compact the order. However, due to this, the customers may feel trivial and that the company’s service is lacking. Businesses that predict the shortcomings in the product before the customer is dissatisfied may give a replacement good or another incentive to prevent the client’s discontent.
- Optimising price dynamically.
Yearly produce, especially fashion goods, have a short shelf life. Companies discard unsold goods by the end of season or sell them at high discount rates to unload the warehouse. Airlines, hotels, and other businesses with an insufficient, but a perishable product, modify costs dynamically to suffice the requirement. Even though doing this is more challenging for apparels and goods where the supply of goods manufactured may differ significantly, similar forecasting techniques help in enhancing margins.
- Enhancing the allocation of available resources to guarantee inventory.
Modern methods help in allotting supplies and plan businesses based on the sales estimate, genuine orders, and guaranteed shipment of raw materials. Once the customer places an order, companies guarantee a delivery date, essentially reducing faults in order fulfilment.
How should the Supply Chain be measured and monitored?
Companies use various methods to evaluate well-established supply chains. Metrics assist people in concentrating on the most critical exercises and improve existing practices. Critical metrics maintain the regularity of agreements, security, and prior commitments. Other metrics observe and enhance performance, improve service, and generate more profits.
Supply chains depend on various metrics. Some of them are:
- Perfect orders – The percentage of error-free orders.
- Cash to cash cycle time – The time between paying for raw materials and receiving returns for the sale of final goods.
- Order cycle time – The time from order receipt to product delivery.
- Fill rate – The percentage of orders that are delivered as ordered on the first shipment.
In reality, there are many vital metrics. The aim is to choose the appropriate ones based on industry and company.
Examples of Supply Chains
There are two primary examples of a supply chain –
Generic Supply Chain
Procurement and receipt of the raw materials is the first step in the generic supply chain. This raw material is then made into the final product by the manufacturer. It is sold in a wholesale market, and from there, it is bought by the merchant. This product reaches the customer through the merchant stores.
Supply Chain for an e-Commerce Company
The e-commerce company sells various products online. When a consumer orders an item, the order is prepared by technologies as a checkout cart or a third-party product. The payment transactions are handled by its processors, which leads to the formation of a new supply chain.
Usually, some third-party service providers like banks are employed for the transaction processes; however, they use their systems for a few payment processes. Once warehouses receive the order, they deliver it to the customer. The warehousing company can be either in-house or a third-party logistics provider. The next step is shipping the order and its arrival to the customer, hence completing and fulfilling the order.
Supply Chain Roles
CPO – A Chief Procurement Officer (CPO) is in charge of acquiring the raw material and supply chain management for a business. A CPO is supposed to make sure that the costs of goods stay in control and work towards decreasing them. They have to ensure that the company guidelines are being adhered to in internal and external matters during the procurement process.
CLO – A Chief Logistics Officer (CLO) is supposed to maintain the stable functioning of the supply chain. They have to regulate the movement and transportation of products and services. The timely delivery of the exact products mentioned in the order within the stipulated time is the responsibility of the CLO. They provide logistical support to the central administration in managing the roadblocks the business may face. Truck driver deficits, heavy rents due to emergencies and technological deficiencies are problems CLOs deal with regularly.
Supply Chain Manager – A manager operates jointly alongside professionals engaged in the supply chain outside the business. They work closely with the manufacturers to produce the commodity. Supervision of the inventory and sales comes under their set of duties. They will assess supplier settle agreements with merchants. Supply Chain Managers are usually comparable to Operations Managers, who practice a more inward strategy towards procedures.
What is the Extended Supply Chain?
The extended supply chain involves every component which plays a role in the sales of a product. Hence, it includes all starting from the supplier who provides raw material to the manufacturer to the customers to whom the company’s clients sell those goods.
In case of issues, one starts with reviewing the source and the starting point that is the supplier. Companies that control the supply chain may reach out to the largest supplier of the manufacturer. For example, if a famous baseball hat is not available in the market, the typical reaction of the store manager is to contact the manufacturer. However, if the merchant assesses the extended supply chain, the store manager would understand the supplier was facing difficulty getting the raw materials. If extra raw materials were not available to the manufacturer by the initial supplier quickly, the merchant would have time to seek a different supplier.
What is the impact of globalisation on the Supply Chain?
Availability of cheap resources abroad were the major attractions for businesses to set up global supply chains almost twenty-five years ago. In general, it made it easier by reducing the delivery costs that may have spiked due to production in remote areas. However, wage arbitrage profits are decaying as earnings in third-world countries are growing. Advanced methods and robotics have enabled factories to run with far fewer individuals, and local companies are emerging as formidable rivals in every industry.
One of the benefits of the global supply chain has been distributing franchise licenses globally. This enabled businesses to record profits in countries with low corporate taxes.
Perception of SCM
- 57% of organisations agree that SCM improves their business tactics making them better than their rivals (GEODIS, 2019)
- Many industry experts(70%) exclaim that the supply chain is instrumental for greater customer satisfaction. (Accenture, 2018)
- The reasons that supply chain spending increased in 2018 are reducing costs (25%), SCM automation (25%), and market expansion (23.7%). These were followed by data and analytics (6.6%), customer service (4%), hiring new staff(4%), eCommerce (2.6%), direct-to-consumer sales (2.6%), and mobile-enabled consumers (1.3%). (Reuters, 2018
SCM includes collaboration between outsourcing associates, suppliers, and consumers. It starts from preparing products from raw materials to the shipment of the final order; it also provides for the control of crucial data flows. All these activities should also achieve better ties between numerous bodies of the supply chain. It aims at gaining a sustainable advantage over rival companies through regular quality checks and making premium products. SCM tightly engages enterprise resource planning (ERP) and electronic commerce systems as well.
Future supply chains will be more progressive and consist of collaborative value networks in which profitability and efficacy are continually increased. Companies will have to ensure that prices and downfalls are equally distributed throughout the supply chain. Risk management has been a necessary strategy, especially for manufacturers managing global supply chains. Risk categories include:
- natural disasters
- market risks
- commodity risks
- transportation risks
Enhanced safety and augmented resilience are needed to alleviate these hazards. Routine examination of infrastructures using simulated disruptions can present a greater comprehension of possible concerns and deficiencies. Companies that rely upon SCM must produce relevant standards for assessing and measuring supply chain performance.