Before you deliver products to your customers, you need to find the raw components that go into those products, then prepare them for delivery (and, unfortunately, be ready to take them back if there’s anything wrong with them.) That, in a nutshell, is supply chain management (SCM).
In detail, supply chains all look different given the industries they serve and the companies that create them. But from 50,000 feet, all supply chain management involves the following processes:
- Planning
- Sourcing
- Making
- Delivering
- Handling Returns
Reasons to study supply chain management
When you break down the five processes (as have the people who created the Supply Chain Operations Reference, or SCOR model), you’ll better understand how to reengineer your business processes to optimize the supply chain. Then, and only then, can you recognize the “players” on your supply “team” as part of your overall business team.
And when managed right, the extended supply chain becomes a value chain. All players contribute to the value the final customer receives, while also realizing increased value themselves. And that’s better business for everybody involved.
Benefits of supply chain management
Systematically squeezing costs out of the chain is the tip of the SCM iceberg. It isn’t the only benefit, but it’s the most prominent. Permeating every step from procurement through to requisition and on to reconciliation, costs go down thanks to more volume discounts and less “maverick spend.”
SCM participants willingly share information up and down the supply chain so every player can, for instance, better manage resource planning using access to a shared inventory system. That system, in turn, helps foster greater understanding of (and better relationships with) suppliers. In fact, the which involves lots of supplier relationship management).
The players also gain:
- better business intelligence
- more accurate inventory control
- the ability to practice strategic sourcing and fine-tune operational procurement
- improved contract management and compliance
- spend analytics
Advanced uses of supply chain management
All the information a sophisticated supply chain management system produces enables businesses to approach supply chains in ways that weren’t previously possible.
For instance, a buyer might distribute information that potential suppliers can use to propose ways of meeting the buyer’s needs. The buyer may then “play” suppliers against one another in reverse auctions, even to the extent of making each supplier’s bid visible to its competitors.
A proper system enables supplier performance management. In other words, it helps the buyer monitor and evaluate existing relationships, since it can:
- store service level agreements, pricing agreements and other covenants between buyer and sellers
- track actual performance
- flag any variances between the two
SCM tools, whether stand-alone or a component of an enterprise resource planning (ERP) system, can enable value-added processes including, in no particular order:
- warranty and returns management
- inventory trackers
- production scheduling
- resource scheduling
Perhaps most importantly, an SCM system must be accessible to every player in the supply chain, no matter the size or financial resources of the supplier. Otherwise, certain players may stick to faxes, letters, couriers and keying all the resulting paper into silo systems.
Indeed, bringing all the players onto the same field is the first step buyers must take if they are to captain a great team of suppliers. Once they do so, the SCM playbook can help them score more customer successes than ever before.