Supply Chain Management: An In-Depth Guide on Types, Importance & Working Method

Supply chain management (SCM) is about maintaining an efficient flow of goods, services and information in the process of transforming raw materials into finished goods. The supply chain helps in handling supply-side activities to improve business processes and build a strategic advantage in the market.

Organizations seek to optimize their supply chains to reduce costs and take products to market faster. The activities under this supply chain process are aimed at building a supply chain that has the agility and resilience to respond to disruptions and maintain a continuous flow.

What are the different types of supply chains?

There are various supply chain strategies that help a business build an agile, resilient supply chain and gain or maintain competitive advantage. The following are different models enterprises use to optimize their supply chains:

Continuous flow

This is the most common supply chain process among manufacturers that deal in a specific product or service with minimal changes.

Fast chain

This model applies to those who change their product line quickly, for example, the fashion industry. Under this models, teams work with each other to capitalize quickly on new trends with short lifecycles.

Efficient chain

This is applicable for highly competitive industries where margins are low and end-to-end efficiency is required to stay competitive. This model is driven primarily by the movement of raw material prices.

Agile

This model is applicable to businesses that deal in exclusive products wherein the value addition is high. This model requires more expertise and less automation.

Custom-configured

This applies to businesses that deal in pre-production stage development, such as prototype development and custom manufacturing. This model is a combination of the agile and continuous flow models.

Flexible

This model attempts to include all models into one. In peak season, it transforms into a model that reacts accordingly, and in a season with low or no demand, it absorbs and changes approach as needed. To adopt this model, an organization requires the right set of SCM tools for automation along with a workforce and supplier base equipped with the right knowledge.

What are the stages within a supply chain?

Different stages of supply chain management need proper optimization. Here are the five supply chain stages that require management:

Stage 1: Planning – This stage includes demand and supply planning to achieve end-to-end coordination of goods and services from origin to end user. Supply chain planning prepares the organization to deal with risks and disruptions.

Stage 2: Sourcing of raw materials or services – Sourcing includes the activities involved in assessing suppliers, securing supplies and conducting should-cost analysis to determine the right price.

Stage 3: Manufacturing – This stage includes the actual production of goods, which may involve working with partners such as contract manufacturers, or different facilities to optimize the production process.

Stage 4: Delivery and logistics – In this phase, finished products are transported and stored, often with third-party logistics providers, for delivery to customers.

Stage 5: Return (if any for defective or unwanted products) – In the event of quality defects, businesses must be prepared to handle returns and correct the problem.

Managing these stages efficiently enables an organization to improve productivity and build a solid supply chain strategy.

Why should a company understand its supply chain?

The importance of supply chains : Supply chain operations can make or break a business. The importance of global supply chain management is more relevant today due to an increasingly complex, interconnected world requiring collaboration between partners and across borders.

A solid supply chain management strategy and infrastructure not only improves profit margins but can also emerge as a unique advantage in a competitive marketplace.

Benefits of efficient supply chain management: Supply chain management solutions help build efficiency in systems, improve product quality, reduce the impact of risks or disruptions on operations and drive business growth.

• Better team collaboration: Increases collaboration between teams and results in greater efficiency.
• Quality control: Efficiency in supply chain systems plays a critical role in improving the quality of the final product.
• Improved efficiency rate: Visibility into delays and availability of raw material and finished products help in handling product delays more efficiently.
• Demand management: An efficient supply chain mechanism helps enterprises respond to demand signals during peak and off seasons and mitigate bullwhip effects.
• Logistics management: Supply chain management systems are designed to reduce logistics costs and increase business process efficiency.
• Low overhead costs: An efficient supply chain management model reduces overhead costs for the business, thus improving profit margins.
• Better cash flow: Supply chain management, when done efficiently, increases cash flow in the business and overall profitability.
• Reduces risk in business operations: Supply chain systems are designed to reduce risk in business operations.

All the benefits outlined above underscore the importance of supply chain in improving productivity and profitability.

How does supply chain management work?

Supply chain management can be a competitive advantage for companies. For instance, the supply chain networks of companies like Walmart, Amazon, and Zara are known across the world for their efficiency and paramount role in overall business operations.

Here is how supply chain management works:

Supply chain management is broadly divided into three stages – product, information and finance.

At the product stage, the aim is to transform the raw material into a finished product in a short period.

At the information stage, companies disseminate information about every stage with the relevant team, supplier or customer. It can be about sharing sales or purchase orders or any other relevant supply chain data.

At the finance stage, the objective is to share details about payments received, expected, and delayed with the finance team and set processes for each stage.

An efficiently run supply chain is vital to an enterprise’s success

Efficient supply chain management plays an integral role in many organizations. The most recent example was during the COVID-19 vaccine supply. In addition, the entry of Industry 4.0 and recent supply chain attacks have also transformed the way SCM works.

Without the flexibility to respond to disruptions and orchestrate supply chain operations efficiently, organizations will ultimately face higher costs, more frequent disruptions and a loss of their competitive advantage.

Modern businesses must design an efficient supply chain management model that meets their requirements to emerge as competitive and future-ready players in the market. By choosing the right supply chain management model for their businesses, enterprises can unlock new efficiencies, control costs and be prepared for the uncertainties and challenges of a constantly changing environment.