7 Reasons Why Supply Chain Management Is Important for Your Business
Supply chain management (SCM) is the process of managing the flow of goods and services to and from a business, including every step involved in turning raw materials and components into final products and getting them to the ultimate customer. SCM can help streamline a company’s activities to eliminate waste, maximize customer value, and gain a competitive advantage in the marketplace. In this article, we will explore seven reasons why SCM is important for your business.
Key Takeaways
SCM is the process of managing the flow of goods and services to and from a business.
SCM can help streamline a company’s activities to eliminate waste, maximize customer value, and gain a competitive advantage.
SCM involves five main phases: planning, sourcing, production, distribution, and returns.
SCM can bring various benefits, such as cost reduction, efficiency improvement, customer satisfaction enhancement, innovation increase, risk reduction, sustainability support, collaboration fostering, and competitive advantage creation.
SCM faces various challenges, such as complexity, uncertainty, globalization, and technology.
1. SCM can reduce costs and improve efficiency.
By managing the supply chain, companies can cut excess costs and needless steps and deliver products to the consumer faster and more efficiently. This can be done by keeping tighter control of internal inventories, internal production, distribution, sales, and the inventories of company vendors. SCM can also help optimize the use of resources, such as materials, labor, equipment, and transportation, and avoid overproduction, underproduction, or stockouts.
2. SCM can enhance customer satisfaction and loyalty.
By delivering products to the customer faster and more reliably, SCM can increase customer satisfaction and retention. SCM can also help meet customer expectations and preferences by offering customized products, personalized services, or flexible delivery options. Additionally, SCM can help improve customer service by providing accurate information on product availability, order status, and delivery tracking.
3. SCM can increase innovation and differentiation.
By managing the supply chain, companies can leverage their core competencies and collaborate with their partners to create innovative products or services that meet customer needs or solve customer problems. SCM can also help differentiate a company from its competitors by offering unique value propositions, such as superior quality, lower prices, or better sustainability.
4. SCM can reduce risks and uncertainties.
By managing the supply chain, companies can anticipate and mitigate potential disruptions or uncertainties that may affect their operations or performance. These may include natural disasters, political instability, supplier failures, demand fluctuations, or regulatory changes. SCM can help improve visibility and transparency across the supply chain, identify potential risks or vulnerabilities, and implement contingency plans or alternative solutions.
5. SCM can support sustainability and social responsibility.
By managing the supply chain, companies can reduce their environmental impact and enhance their social impact. This can be done by adopting green practices, such as reducing waste, energy consumption, or emissions; using renewable or recycled materials; or implementing circular economy models. SCM can also help promote ethical practices, such as ensuring fair labor standards, human rights, or animal welfare; supporting local communities; or donating to charitable causes.
6. SCM can foster collaboration and trust.
By managing the supply chain, companies can build strong relationships with their suppliers, distributors, retailers, and customers. This can lead to mutual benefits, such as improved communication, coordination, cooperation, or information sharing; increased flexibility, responsiveness, or agility; or enhanced learning, innovation, or problem-solving.
7. SCM can create competitive advantage and value creation.
By managing the supply chain effectively and efficiently, companies can achieve superior performance and outcomes that create value for themselves and their stakeholders. SCM can help create competitive advantage by enabling a company to deliver superior customer value at lower costs than its rivals; or by creating distinctive capabilities or resources that are difficult to imitate or substitute by its rivals. SCM can also help create value creation by increasing revenues through higher sales volume or market share; or by increasing profits through lower costs or higher margins.
Tips
- Choose your supply chain partners carefully and establish clear roles and expectations.
- Communicate frequently and effectively with your supply chain partners and customers.
- Monitor and evaluate your supply chain performance and identify areas for improvement.
- Seek feedback and suggestions from your supply chain partners and customers.
- Learn from your supply chain successes and failures and implement best practices.
What is SCM and Why Is It Important for Global Business?
Supply chain management (SCM) is the process of managing the flow of goods, services, data, and finances related to a product or service, from the procurement of raw materials to the delivery of the product at its final destination. SCM involves coordinating and integrating the activities of multiple parties, such as suppliers, manufacturers, wholesalers, transportation and logistics providers, and retailers, to achieve efficiency, quality, and customer satisfaction.
SCM is not only a logistical function but also a strategic one that can help companies gain a competitive advantage in the global marketplace. By optimizing the supply chain, companies can reduce costs, improve operational performance, enhance customer value, and mitigate risks. SCM can also help companies respond to changing customer demands, market conditions, and environmental factors.
Global Demand for SCM Industry
The global SCM industry is expected to grow significantly in the coming years, driven by factors such as increasing e-commerce, globalization, digitalization, sustainability, and innovation. According to a report by Grand View Research, the global SCM market size was valued at USD 15.85 billion in 2020 and is projected to expand at a compound annual growth rate (CAGR) of 11.2% from 2021 to 2028.
Some of the key trends that are shaping the SCM industry are:
- The rise of omnichannel retailing, which requires seamless integration of online and offline channels to deliver a consistent and personalized customer experience across multiple touchpoints.
- The adoption of cloud based SCM solutions, which offer scalability, flexibility, security, and real-time visibility into the supply chain operations.
- The implementation of artificial intelligence (AI), machine learning (ML), blockchain, internet of things (IoT), and other advanced technologies that enable data-driven decision making, automation, optimization, and innovation in the supply chain.
- The focus on sustainability and social responsibility, which requires companies to adopt green practices, reduce carbon footprint, ensure ethical sourcing, and comply with environmental and social standards in the supply chain.
Challenges and Opportunities for SCM Industry
Despite the growing demand and potential benefits of SCM, the industry also faces several challenges that need to be addressed. Some of the major challenges are:
- The complexity and uncertainty of the global supply chain network, which increases the risk of disruptions, delays, errors, and inefficiencies.
- The lack of skilled talent and expertise in SCM, especially in emerging markets where the demand for SCM professionals is high but the supply is low.
- The regulatory compliance and governance issues that vary across different countries and regions, which require companies to adhere to different rules and standards in terms of quality, safety, security, taxation, customs, etc.
However, these challenges also present opportunities for improvement and innovation in the SCM industry. Some of the possible solutions are:
- The adoption of agile and resilient SCM strategies that can cope with volatility and uncertainty in the supply chain environment.
- The investment in training and development programs that can enhance the skills and competencies of SCM professionals.
- The collaboration and partnership with other stakeholders in the supply chain ecosystem, such as government agencies, industry associations, academic institutions, etc., to foster best practices and standards in SCM.
SCM is a vital function that can help companies achieve their business goals and objectives in the global market. By managing the supply chain effectively and efficiently, companies can create value for their customers, stakeholders, and society. However, SCM also faces various challenges that require innovative solutions and continuous improvement. Therefore, companies need to adopt a proactive and holistic approach to SCM that can leverage the opportunities and overcome the obstacles in the SCM industry.
Frequently Asked Questions
What are the main components of SCM?
The main components of SCM are planning (matching supply with demand), sourcing (selecting suppliers), production (manufacturing goods), distribution (delivering goods), and returns (handling defective goods).
What are the benefits of SCM?
The benefits of SCM include cost reduction, efficiency improvement, customer satisfaction enhancement, innovation increase, risk reduction, sustainability support, collaboration fostering, and competitive advantage creation.
What are the challenges of SCM?
The challenges of SCM include complexity (managing multiple processes, entities, locations, products, etc.), uncertainty (dealing with demand fluctuations, supply disruptions, market changes, etc.), globalization (operating in different countries, cultures, regulations, etc.), and technology (adopting new tools, systems, platforms, etc.).
What are the best practices of SCM?
The best practices of SCM include aligning the supply chain with the business strategy, integrating the supply chain across functions and partners, optimizing the supply chain for cost and value, enhancing the supply chain visibility and transparency, implementing the supply chain agility and responsiveness, and measuring the supply chain performance and improvement.
What are the trends of SCM?
The trends of SCM include digitalization (using data, analytics, artificial intelligence, etc.), automation (using robotics, drones, self-driving vehicles, etc.), personalization (offering customized products, services, or experiences), sustainability (adopting green or circular economy models), and collaboration (forming strategic alliances or partnerships).
References:
https://research-api.cbs.dk/ws/files/45061016/andreas_wieland_mapping_the_landscape_postprint.pdf
http://fullpaperumtas2012.umt.edu.my/files/2012/07/BE03-ORAL-PP-278-285.pdf
https://www.investopedia.com/terms/s/scm.asp
https://www.oracle.com/scm/what-is-supply-chain-management/
https://en.wikipedia.org/wiki/Supply_chain_management
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