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Supply Chain

Supply chains play an important role in the modern world, as it allows businesses to receive and dispatch goods on time and maintain profitability. Without an efficient, well-functioning supply chain, many businesses are likely to suffer. 

What Is a Supply Chain?

A supply chain is defined as the entire system or network between a business and its vendors, for the production and distribution of a particular product or service. The first “link” in the supply chain is often the sourcing of raw materials, and it ends when goods are delivered to consumers. 

The supply chain focuses on all primary activities within the organization that are required to convert raw materials or specific components into finished goods. From sourcing raw materials to managing inbound logistics and handling goods in the workplace, there are several aspects of the supply chain that must be carefully monitored. 

Common entities or components within the supply chain are as follows:

Supply Chains – A Brief Overview

Essentially, all of the steps required to get a product or service in the hands of a customer form the supply chain. Apart from the steps involved, there are several functions in a supply chain as well. These include product development, operational management, marketing, logistics and distribution, financing, and customer support. 

Several links in the supply chain require specific expertise or skills, and it’s imperative for businesses to focus more on supply chain management to reduce costs and inefficiencies. 

Why Is It Necessary for Businesses to Understand Their Supply Chain?

Businesses should map out their supply chains when developing a strategic plan. Without a clear map of the supply chain, a business will have difficulty in identifying its existing market and figure out where it wants to expand in the future. 

When creating strategies at the top level, companies often need to make important decisions, such as whether to remain in one particular industry, or expand into other industries. Since each link in the supply chain is often a separate industry itself, businesses must decide whether to scale vertically, such as focusing on raw material extraction or even building a logistics network. Or, the business must decide whether to focus more on expanding horizontally. 

Understanding Supply Chain Management

Businesses that fail to focus on supply chain management often suffer from cost inefficiencies and other issues like delayed deliveries. An efficient, highly optimized supply chain can ensure that orders are delivered on time. More importantly, it allows for a faster production cycle while simultaneously cutting down costs. 

Supply chain management simply refers to the handling of the entire flow of production of a product or a service, starting from raw material extraction to the finished good being delivered to the customer.

Traditional supply chain management systems have five key components, according to CIO:

  1. Planning: This is the stage where a business plans all of the resources that are required to meet consumer demand. The business defines metrics and KPIs to measure the efficiency of the supply chain and how it can help in meeting the company’s goals. 
  2. Sourcing: This is the second stage, and involves businesses meeting with vendors to source the raw materials they require. A process for managing vendor relationships has to be developed at this stage, which involves managing inventory, placing orders, and receiving goods. Managing invoices and accounts payables is also a key component of sourcing.
  3. Manufacturing: The business must plan activities to use the raw materials and manufacture finished goods. Steps for quality assurance and packaging are key parts at this stage.
  4. Logistics: At this stage, the finished, packaged goods are delivered to retailers or wholesalers, from where they’re sold to end-consumers. A process for scheduling deliveries, dispatching orders, and receiving payments must be developed for effective management.
  5. Accepting returns: Businesses must create effective processes for accepting defective or damaged products and issue refunds. 

The Importance of Supply Chain Management (SCM)

The main objective of supply chain management is to take a holistic look at the company’s entire supply chain, identify issues in core areas, and take steps to improve overall efficiency and performance.

Supply chain management is critical as it helps in mitigating risks and ensures that everything works smoothly, from the point of sourcing until order fulfilment. 

Since there are so many risks associated with each step, it is important for businesses to identify each one and take steps to mitigate them. Here are a few reasons why supply chain management is so important. 

Reduces Operational Spend

Supply chain management helps businesses reduce production and procurement expenditure, which in turn reduces operational spend. Businesses can eliminate expenses by finding vendors that offer favorable prices, instead of working with middlemen who keep a surcharge. 

Improved Vendor Relationships

Optimizing the supply chain ensures that vendor invoices are cleared on time, allowing you to build more effective relationships with them. Effective vendor management can help businesses with strategic discounts and improved goodwill.  

Allows Businesses to Balance Supply Based on Demand

Effective supply chain management helps businesses balance supply based on demand. By forecasting demand, businesses can better determine whether they need to amp up production or reduce it to reduce the chances of overstocking. More importantly, if the company expects demand to rise in the future, they can increase production or source more raw materials, which eventually boosts sales. 

Improved Customer Service

Arguably the biggest benefit of supply chain management is that it allows companies to improve customer service. An optimized supply chain eventually results in goods being delivered to customers on time, which not only improves the company’s reputation, but also fosters loyalty amongst long-term customers.

Because there’s also a defined process for accepting refunds or offering exchanges, it also improves consumer confidence. 

As you can imagine, the primary goal of supply chain management is to not just improve customer satisfaction, but also boost profits and reduce the cost of doing business. By controlling costs and reducing expenses, when possible, without compromising on quality, businesses can improve efficiency and gain a competitive edge. 

3 Common Supply Chain Models Examples

While there are several types of supply chain models, usually dependent on the needs of the industry and the structure of the company, there are some that are more commonly used than others. Here are three commonly used supply chain models.

1. Fast Chain Model

This model is ideal for companies that sell goods that have limited appeal, and will fall out of fashion after time. Businesses often use this model to adapt quickly and take advantage of prevailing market trends. As you can imagine, the focus is to move quickly from the prototyping stage to production, and eventually distribution. 

The primary focus is to reduce time-to-market as much as possible, while improving the accuracy of trend patterns and forecasts. 

2. Continuous Flow Model

This is the traditional model used around the globe. This model is ideal for companies that produce similar types of products with little to no change. Because there is little to no fluctuation, companies can easily focus on streamlining and managing production times.

They can also predict more accurately the variations in demand and supply, and gain tighter control over inventory. Managers are required to continuously order raw materials and manage lead times to ensure that there are no production delays. 

3. Flexible Supply Chain Model

The flexible supply chain model is ideal for companies that manufacture seasonal goods. As demand tends to increase in specific seasons, companies have to rapidly scale up production.

This is then followed by prolonged periods with minimal demand. As a result, flexibility is very important; these supply chains must adapt quickly and ramp up production before demand starts to decline. 

Improve Supply Chain Management with P2P Automation

One of the best ways to optimize and manage your supply chain better is through P2P automation. SoftCo’s Procure-to-Pay solution is one of the best ways to optimize and manage your supply chain better. It offers greater visibility over vendor contracts and simplifies the entire process, ranging from procurement to posting payments. 

It helps boost vendor relationships by providing an effective onboarding process and offers invoice matching and eProcurement solutions for streamlining the purchasing process.