No company is an island. Virtually every business process relies on different types of input, often in the form of physical supplies, that it does not generate internally. The concept of supply chain management (SCM) revolves around controlling and adapting to the way inputs flow into the process and outputs flow out of it.
Overview: What is supply chain management (SCM)?
Supply chain management is just that, management. Organizations can only leverage so much control over a flow of input, especially one that passes through many different entities. This applies to internal communications between teams or departments in a large organization as much as it does the relationships between business partners. Management is the exercising of as much control as is possible and productive, while accepting that there are some factors that are beyond your sphere of influence.
3 benefits of supply chain management
Managing the flow of input into a process is a fundamental best practice that yields benefits at every level.
1. Waste less resources
Developing a detailed strategy for managing the flow of resources into and through an organization lays the foundation for lean business techniques. SCM is a great way to reduce time and resource waste throughout a process.
2. Mitigate more risk
Supply chain disruptions are one of the focal points of business risk management strategies. In some industries, supply shortage can lead to a crippling disruption of service almost immediately. Comprehensive supply chain management greatly reduces these risks by opening up alternative strategies and options.
3. Bolster contingency plans
Every business should have contingency plans for potential disruptions to their essential processes. Engaging in supply chain management intersects with contingency planning as well as crisis management.
Why is SCM important to understand?
Logistics is a complex subject in almost any situation, so there are a lot of things that business leaders need to understand.
Demonstrating industry awareness
Effective and comprehensive management of a supply chain usually requires a broad and intimate understanding of the industry itself. Leaders need to know where the logistical bottlenecks are in key processes for their suppliers or partners so they can anticipate potential impact of new developments.
Know your weaknesses
Supply chains are a major weakness for any company, but they are particularly vital for businesses in manufacturing and other production environments. Studying your supply chain is a perfect time to identify potential external threats to your operations in the market or industry at large.
Just like it helps reveal weaknesses, supply chain management also uncovers major opportunities. Many companies expand vertically into their supply chain as they grow to stabilize their own processes and leverage greater control over their future.
An industry example of supply chain management
A small restaurant in a city recently moved to a much larger location due to a significant increase in local demand. However, the store is now failing to fill a much larger percentage of customer orders due to on-site shortages. To improve the customer service experience, the company conducts a full audit of their inventory, storage facilities and supply usage habits over the last quarter.
The company can use this information and their newly-acquired storage space to order surplus supplies that they keep in storage as a buffer, allowing them to purchase supplies when prices are good rather than as-needed. They also identify alternative suppliers for key products, particularly ingredients for some of their signature menu items. This allows them to adapt to an unexpected problem or delay with their main supplier.
3 best practices when thinking about SCM
All the best practices for SCM help focus the initiative toward adding customer value or improving internal efficiency.
1. Know your supply risks
Some suppliers are simply more important than others. The entire concept of lean management revolves around addressing sources of variability based on bottom line impact. The same holds true for managing supply chains.
2. Learn to prioritize
Along with knowing your risks is understanding how to prioritize solutions. More effective and more affordable solutions should usually take priority when there is a limitation on time, space or budget.
3. Break it down
The nature of continuous improvement strategies necessitates taking your management strategy in steps. It won’t be perfect after the first improvement cycle, or the second, or the third. Focus on manageable tasks with achievable goals as you try to gain more control over your supply chain.
Frequently Asked Questions (FAQ) about supply chain management
What are the 5 components of supply chain management?
The general task of supply chain management is often broken down into 5 distinct stages: planning, sourcing, making, delivery and returning.
Why should companies manage their supply chain?
The simple answer is that it can make or break your business. Learning how to manage your supply chain influences a company’s long-term growth, short-term operations and overall viability.
What are some basic SCM strategies?
Buffering and diversification are two fundamental concepts in most SCM strategies. Buffering prepares companies for shifts in supply, while diversification protects them from shifts in demand.
The power of proactive management
Managing the flow of input and output as it enters and exits a processes is essential for practicing Six Sigma and it’s a basic skill that all successful business leaders must develop. Supply chain management is a powerful proactive strategy that should be one of the first places to start when managing risks, planning for growth or going lean.