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What are the components of effective supply chain management?
Posted by T.J. Reynoso on Feb 11, 2020 10:15:00 AM
Effective supply chain management (SCM) is essential for any large international retailer. SCM is a complex discipline, drawing together elements of engineering, logistics, IT, and marketing to improve efficiencies and reduce costs. A well-managed supply chain is more dynamic and flexible, better able to meet the changing needs of consumers and the wider market. It can allow brands and retailers to optimize their prices, improve the allocation of their inventory, and identify potential problems at an early stage.
How can a brand or retailer improve its SCM? There is no catch-all solution that will work for every supply chain, but there are some broad principles that have been shown to result in SCM successes. CIO, the business magazine from Boston’s International Data group, have identified six core components of good SCM: Planning, Sourcing, Making, Delivering, Returning, and Enabling.
In an ideal world, effective SCM would allow a brand to meet customer demand precisely, providing exactly as much product as consumers are interested in purchasing, at the times and places that they want to purchase it. Working towards this ambitious aim requires extensive planning. Each resource involved in manufacture must be made available in the right quantities, at the right times, in the right places. This planning must be built on a foundation of reliable data. Choosing which metrics to use to measure the efficiency and effectiveness of a supply chain can be one of the most important SCM decisions that a brand makes.
With data gathering underway and plans set out, brands must begin the process of selecting suppliers which are well positioned to bring those plans to fruition. This involves answering a number of questions. Is this supplier able to process materials in the quantity required to meet demand? Does that supplier have working connections to deliver their finished components to the product assembly site? Once the best candidates have been chosen, brands also need to be able to monitor their work and manage their brand-supplier relationship over time.
Many different materials, components, and processes are involved in the manufacture of a product, and consequently, quality control is a central factor. Good SCM assesses the quality of raw materials before accepting them, implements processes to minimize errors on the production line, re-examines the quality of the final product and ensures that this quality will not be damaged during packing and shipping. Ensuring a high level of quality at every stage of manufacture not only results in satisfied customers, but also reduces the work that must be done further down the supply chain.
The logistics of supplying products to consumers is highly complex and involves processing orders, scheduling delivery, dispatching loads, invoicing customers, receiving payments, and countless other minute tasks. Good SCM works to coordinate these different logistical elements as precisely as possible, to ensure rapid delivery and minimize overproduction. Most products manufactured today are distributed along a number of different routes to market. The same product may be sold in a company’s own stores, on its website, through other physical retail partners or via third party online retailers. Often this distribution will require outsourcing to haulage and delivery partners, increasing the need for careful monitoring and precise processes.
However effective a company’s SCM is, some challenges are unavoidable. Errors in quality control may result in defective products reaching the market. Shipping problems may create delays for the consumer. In the worst cases, large quantities of product may be damaged or lost, resulting in unfulfilled orders. Handling these problems is also a core part of SCM. A supply chain must be flexible enough to handle returns of defective products, address customer concerns about delays, and issue cancellations and refunds in a timely fashion where appropriate.
At each stage of the manufacture and distribution process, there are a number of support systems at work behind the scenes that must also be managed: finance, HR, IT, facilities, portfolio management, product design, sales and quality assurance. Effective SCM involves building the connections required, within a company and externally, to ensure that these enablers are properly resourced and maintained.
In modern SCM, one further key principle underpins all of these components: sustainability. As we enter a new decade, more and more companies are becoming aware that they cannot take real, impactful action to improve the sustainability of their operations without involving their supply chain. Discovering new ways to reduce waste, minimize energy use, and end the use of hazardous or carbon-intensive resources will be a growing focus of good SCM in the years to come.
ADEC ESG Solutions is a leading provider of ESG solutions, including fully-integrated industry expertise, software solutions, and data management. Contact us to learn more about how we can work with you to design custom solutions for your sustainable supply chain.