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Supply chains are the lifeline of businesses and they exist all around us. We live in a complex world with a large network of businesses interlinked with each other. Larger supply chains are difficult to manage as there is a higher chance of disruptions and risks in them.
Supply chain disruptions can cause a massive 62% loss in finances. Logistics and company reputation are two other business aspects that see an average of 54% hit.
Top companies understand the importance of an efficient supply chain and hire supply chain managers to optimize the process and achieve higher productivity.
Supply chain consists of a series of activities starting from the stage of raw material sourcing to final product delivery. A well-managed supply chain is one which needs continuous monitoring and control at all levels.
Let us look at the definition, concept, and benefits of supply chain management.
Supply chain management – Definition
Supply chain management (SCM) is the process of managing all activities in a supply chain so as to achieve a competitive edge in the market and maximize customer value.
Supply chain management starts with the procurement of raw materials and moves through different phases like manufacturing, storage, transport, and final delivery to the end customers.
SCM plays a vital role in the success of any business as it helps to minimize risks and maximize efficiency. Whether a small organization or a large multinational company, SCM has become inevitable for success.
Effective supply chain management provides the following five major benefits to an organization.
1. Lowered costs
SCM integrates the latest technology and software which can help to identify customer demands and market trends. By analyzing this data, organizations can forecast the future and make strategic decisions to optimize costs.
Supply chain managers perform collaborative planning, data analysis, and demand forecasting to make supply chains more efficient and adaptive to changes. SCM can reduce the bullwhip effect in the supply chain and lower inventory costs. Reducing the safety stocks will result in the reduction of material costs, transport cost,s and labor charges.
2. Increased revenue
Streamlining the production and inventory management process will cut costs and improve positive cash flow in the business. Organizations use technology to respond quickly to changing demands and market environments.
Availability of products in the market, timely delivery, and invoicing can help to increase sales and revenue for a company. SCM enhances the effectiveness of a supply chain, increases customer satisfaction levels, and promises uninterrupted cash flow in an organization.
3. Higher productivity & asset utilization
Another key benefit of implementing supply chain management in organizations is higher productivity and optimized asset utilization. By effectively managing assets such as workers, inventory, machinery, building, etc companies can achieve a higher level of productivity in their supply chain operations. Assets can include tangible and intangible assets of a company that is capable of producing value.
Analysis of real-time data and smart automation solutions can help companies to optimize inventory levels and reduce the wastage of resources. Better planning and strategic decision-making can make supply chains more resilient and cost-effective.
4. Improved risk mitigation
Supply chains are always prone to disruptions and various other risks. Be it quality issues, manufacturing errors, delayed deliveries, or other environmental issues, there are too many challenges involved in a supply chain.
87% of companies believe they could reduce inventory by 22% if they had a better understanding of their supply chain risks.
Supply chain managers devise risk management strategies and come up with backup plans to respond dynamically to changing situations. SC managers take proactive measures to mitigate risks and supply chain disruption. By monitoring real-time data and analyzing potential risks, companies can implement lean operations in their supply chains.
5. Better supplier collaboration
Effective SCM results in good supplier relationships. SCM encourages organizations to maintain healthy relationships with suppliers and distributors. Improving collaborations with suppliers and vendors helps to cut down costs and get more profits for your business. This will also ensure the sustainability of a business in the long run.
Nowadays various SCM software is available to find the right suppliers and compare prices. It helps companies make informed selections depending on their needs.
Wrapping up on 5 top benefits of supply chain management
Apart from the above-mentioned benefits of Supply Chain Management, there are many other advantages of implementing supply chain management. As businesses are becoming more aware of these benefits, they are looking for skilled SC managers who can efficiently manage their SC operations.
If you are keen to explore a career in supply chain management, we recommend you pursue an EMBA in Supply chain and logistics.