Most companies have moved from in-house vertical supply chain to supply chain management. With that, all parties in a supply chain have got a chance to get more benefits and the boundaries in supply chain management have got increased. An effective supply chain management has brought benefits like improving quality, reducing the wastage and unnecessary costs, match demand and supply easily, configure distribution network easily, better collaboration and seamless information flow etc.
In this article, we are going to discuss the main benefits of having an effective supply chain.
What you will learn?
What is supply chain management?
All the parties involved in business processes from getting raw materials and sending final products or service to the final user can be defined as a supply chain. Management each and every party can be defined as supply chain management. In other words, supply chain management can be described as managing supply chain activities to meet customer needs and achieve organizational goals and objectives. In earlier stages, companies have done the majority of supply chain activities inside the firm. But with the industrial revolution and the development of technology, companies have moved to a new method. And here the companies only do the activities which they are specialized for. Other activities are outsources based on volunteer and trust-based relationships.
Benefits of effective supply chain management
Supply chain management has become a critical factor which decides the future and the success of a business. The reason is, supply chain management is involved in each and every part in the organization. From getting raw materials to sending goods to end customer, supply chain management is involved. Hence, supply chain management helps all the functions of the business including operations, finance, sales and marketing, human resource management etc. Here are the key benefits of supply chain management.
Boost customer satisfaction
Meeting the needs of customers is the main objective of any business. Mainly customer expects responsiveness and the low cost. Based on the customer desire, company establish their competitive strategy and the supply chain strategy. With a good supply chain management, a company can quickly boost the customer satisfaction by giving the quality products and services to the right customers, at the right time in the right location for the right price. So when there is effective SCM, customers can meet their expectations about the responsiveness, quality, costs and sale support.
Better inventory management
Inventory AKA stocks are mainly impacted to the profits in an organization. So better inventory management can save a considerable cost and increase profitability. Supply chain management focuses on the collection, storage, dispatching of the inventory with the lowest cost and high responsiveness. As we discussed above, a firm can be low cost or highly responsive or both at a balanced level. If the company focus on the cost, supply chain management give the decision to maintain lower stock levels to minimize the cost. If the focus is on responsiveness, SCM provides the decision to keep a higher level of stocks in different places. Accordingly, SCM helps to manage the inventory to increase profitability.
Match demand and supply
SCM is all about forecasting and planning. Better Supply chain helps the management to match the demand and supply easily. As we discussed before, supply chain management involved many parties such as suppliers, manufacturers, wholesalers and retailers etc. With SCM, a firm can easily forecast the demand that an end-user, retailer, the wholesaler may require. With that information, a firm can easily manage the production, storage, replenishments etc. This is another great benefit of effective supply chain management. It’s a huge benefit among the benefits of effective supply chain management.
Reduce the costs
Efficient supply chain management can lower all kinds of costs in business from procurement to managing customer order. As an example, supply chain management helps to configure the distribution network. It means supply chain management decide how to deliver the products and services to the customers. Here SCM focus on providing with the lowest cost by keeping the responsiveness at a higher level. This situation might change according to the company’s competitive strategy, which we are going to discuss in later paragraphs.
Increasing job opportunities
Supply chain management is a new concept, and it still has some developments which are going to happen in future. SCM mostly benefits people by creating new job opportunities. Earlier there was no one involved n supply chain management, and when it comes to nowadays, we can see there are supply chain managers, supply chain experts, Supply chain professionals etc. All these new job opportunities were araised with the growth of supply chain management. It’s a huge benefit among the benefits of effective supply chain management.
Reduce fixed assets and related costs
Earlier the firms have to worry about having large storages, transportation facilities, manufacturing plants, pickup sites etc. But with the development of Supply chain management, firm gain the chance to focus on their primary business activities. Nowadays, they have opportunities to outsource what they are not capable of. So there is no need for having large storages. You can simply outsource it.
Likewise, the supply chain management has brought so many benefits to a business. The benefits of the effective supply chain are more than these. It helps in marketing with good customer relation management, increasing sales, motivating the employees etc. At the end of the article, I would like to give additional knowledge about the firm’s competitive strategy and supply chain strategy and how they integrate with each other.
Competitive strategy and supply chain strategy
Competitive strategy is about how a firm gong to meet the needs of the customers. Mainly a customer for three things. Those are responsiveness, low cost, both responsiveness and low cost. According to customer desire, the firm establishes its competitive strategy if the customer focuses on cost, competitive strategy focus on the same.
A firm cannot achieve both responsiveness and low cost because responsiveness always comes with a high cost and low cost disturb the way to responsiveness. In supply chain management, firms try to balance both areas accordingly.
In supply chain strategies, firmly decide the suppliers, locations, inventories, pricing sourcing, information flow etc. The competitive strategy creates the base for supply chain strategies. If the company focus on low cost, supply chain management try to reduce the prices of the products and services. Likewise, competitive strategy and supply chain strategy has a relationship with each other.
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