The Importance of Supply Chain Management: 10 Key Points

In our blog titled, “A Comprehensive Overview of Supply Chain Management (SCM)”, we’ve covered value chain in detail: what it is, how it works, and its components. Going ahead, we will discuss its importance in 10 key points.

Here’s a quick recap, Supply Chain Management includes the entire processes of managing the goods and service flow, from procuring raw material and production to delivery. The process includes integrated planning to minimize the cost, while improving quality and meeting demands. SCM is a complex process, and the major benefit of this implementation is to maintain a competitive edge. It controls the entire process from planning, sourcing, manufacturing, logistics, and delivery, to returns. In today’s changing global landscape just-in-time supply chain has become the norm, to ensure customer satisfaction. A well-optimized supply chain gives businesses a competitive edge and reduces the overall cost.

What is the importance of supply chain management?

Today, Supply Chain Management is an indispensable part of any business as it improves the value of the supply chain cycle. It helps organizations reduce time, waste, and cost during the production cycle while improving revenue. Let’s explain its importance in 10 key points:

1. Reduce the Operation Cost: Implementing SCM strategy can reduce operational costs while increasing profit as it can streamline production, operation, and reduce errors. According to number, a leading personal care company saw a 20% expense reduction after integrating supply chain management. This optimization benefits every stage of the supply chain; from raw material procurement to manufacturing and delivery. With data-driven insights retailers can meet customer demands, manufacturers receive materials on time, and businesses can manage inventories more effectively, contributing to a more value-driven operation.
2. Improve Operation Efficiency: A strategically planned supply chain management optimizes the entire process of flow of goods and services. When the procurement, production, and distribution is streamlined using real-time data it minimizes wastage of resources, time, and cost. And when the movement of goods is accurately managed, it reduces lead time, inventory cost, and ensures that there’s no overstocking and understocking. It evidently helps companies adapt quickly to the changing market and reduce bottlenecks.
3. Generate Higher Revenue: Businesses that integrate SCM thrive as they can make data-driven decisions to meet the market demands. And when the demands are met, it ultimately translates to more sales which means a higher revenue. Value chain strategies provide accurate data analysis to help identify potential risks, and set up mitigation in case of disruptions.
4. Enhance Customer Satisfaction: In today’s fast-paced world, a customer-centric supply chain has become the norm as they increasingly demand quick delivery and transparent service. So, when the value chain links are optimized, it can ensure quality production, reduce delays, and ensure that the products reach the consumers on time. Additionally, when transparency is improved, the packages can be tracked in real-time fostering trust.
5. Improve the Quality of Products: Quality is essential in today’s competitive market to maintain a competitive edge. An efficient value chain strategy can have a positive influence on the company’s product and service. Companies can implement grade control and process guidelines at the early stage of sourcing raw materials and eliminate below-par materials, which will improve the standard of the units produced. Doing so will also encourage suppliers to comply with the requirement, leading to an improved outcome.
6. Promote Sustainability: The supply chain is said to be responsible for 80% of the global greenhouse gas emissions, according to research. And since environmental concerns have become a top priority globally, with consumers and investors leaning towards eco-friendly practices, all focus should be on sustainability. Supply chain involves energy-intensive production and transportation and SCM enhances visibility across the network by collecting accurate data. It allows organizations to monitor the movement of goods and also their carbon footprint. So, businesses can focus on mapping out new strategies to reduce carbon emission, such as a new route, upcycling, or waste reduction programs.
7. Risk Management: Supply chain is susceptible to risks, including geopolitical tension, natural disasters, trade disputes, cybersecurity threats, environmental, and many more. Over the past few years, we’ve seen disruptions due to COVID-19, the red-sea crisis, and extreme weather. An effective SCM strategy is equipped with real-time monitoring and predictive analysis which helps identify, prepare, and mitigate threats. It can help businesses prepare for unforeseen circumstances and make their supply chain more resilient.
8. Increase Productivity: When businesses streamline their operation with an effective SCM, they see a significant improvement in productivity. With real-time data and advanced analytics, they can predict demand, minimize latency, manage inventory levels, and ensure prompt delivery. It can help them adapt easily to the changing market, ensure that there’s enough stock, reduce expenses and minimize delays. A well-managed supply chain reduces cost and minimizes waste, resulting in higher productivity and improving customer satisfaction.
9. Enhance Inventory Management: Maintaining the ideal supply level of goods to avoid overstocking and understocking is crucial as poor management have repercussions. Too much stock level translates to an increase in the overall cost, as it’ll include the material, carrying, and warehousing costs. Whereas, a low supply level may reduce the cost, but it’s highly unlikely to meet the market demands and reduce the revenue. With accurate analytical data, organizations will have an overview of the stock level, giving them the ability to use the storage space more efficiently and reduce excess supply.
10. Enhance Visibility: Supply chain visibility gives accurate insights to manufacturers, stakeholders, suppliers, and even consumers to follow the movement of goods. An effective SCM system enhances transparency, helping organizations to make more informed decisions and help cope with potential risks. Enhanced visibility across the supply chain network using real-time and accurate insights assists in predicting market demand, managing stocks, and anticipating disruptions. It also aids the Environmental, Social, and Governance (ESG) initiatives by providing real-time insights into carbon emissions.

The supply chain landscape is one that’s in a constant state of flux, and it’s essential to have an efficient Supply Chain Management in place. By prioritizing value chain strategies, businesses can protect themselves from risks, enhance agility, and pave their way to success. Are you considering implementing SCM to compete in this dynamic environment? Connect with 3SC!