Supply chain management involves a company’s process of production and logistics, which must take place right from the procurement of raw materials to final delivery of products to their distribution centers and points of sale.
The success of any business is intricately linked to its supply chain management. SCM practices are not only benefitted by reducing the amount spent, but also by increasing profitability in investments, commercial growth and reduction in the overall cost of business function.
Businesses with a poor supply chain management have a higher tendencyof being affected by economic crises; therefore differentiation between a struggling and successful company can be judged by an adequate and representative use and upkeep of their supply chain process.
The hard fact is that even though a brand’s success is linked to its supply chain management, this aspect is often underestimated; so much so that while dealing with other areas of business operations, supply chain management receives the least strategic attention. Not only is this, but statistics show that supply chain is also one of the least understood areas of strategic business management.
A 2014 Deloitte survey reflects that companies with high-performing supply chains achieve 79% more revenue growth as compared to just 8% of businesses with less capable supply chains.
So where does all this lead us? It simply illustrates how important the supply chain and its management are to the success of businesses operating in today’s local and global markets.
Let’s take a deeper look at the importance of the supply chain management and how it can make or break a brand’s overall performance. The following 4 points will provide a glimpse as to why it is important to improve supply chain management for a successful business model.
- Consumer is the backbone
A sure sign of a business success lies in its profitable revenue growth. One of the most important factors to drive this is customer service and fulfilment of consumer expectations. A customer’s satisfaction and loyalty are highly dependent on a brand’s supply chain service performance, which means that the customer must be of prime importance while designing the supply chain strategy.
7-Eleven, an international chain of convenience stores, based out of Dallas, Texas isfocused on selling basic food items, medicine and toiletries, and magazines. Their main stores are located across the United States and Asia. They supply a huge variety of customer needs 24 hours a day in most locations. For this brand, customer loyalty and satisfaction is part of their supply chain strategy. Their supply management focussed on delivering exception customer service have made 7-Eleven one of the biggest and most productive companies in the world.
A company’s supply chain performance can have a direct impact on customer’s perception of the brand. Customer satisfaction is one of the main points as to why a company should improve its supply chain management.
- Amount save is amount earned
Another way to improvise on the supply chain management is by recalculating the cost of meeting customer demand. The outlay of supply chain can make up a large proportion of product costs. Also, an excess of inventory may tie up the working capital and block the cash flow. Managing the costs of serving customer demands is one of the ways to understand how supply chain costs affect business success.
According to a 2013 study by Aberdeen group, top-performing companies implementing supplier performance management initiatives achieved average cost savings of around 12%.
“Cost to serve analysis” methodology more often reveals shocking realities about supply chain costs. The same applies to certain products that the company markets. Some products might inevitably incur more costs than others in the process of manufacturing or buying, storage, and delivery to customers. There is a thin line between appropriate and excessive supply chain cost-cutting. Instead of focussing on cost-reduction alone, emphasis should be on trimming away processes and activities that add no value.
- “Suppliers” is the weakest link
No matter how excellent a company’s supply chain management is, some of the links are unlikely to be under the direct control of your business organization, the supplier for instance.
To an extent, the suppliers have a lot to do with a business success, which makes it essential to work in collaboration with them to minimise supply chain uncertainty.
Coco-Cola – main makers, marketers, and distributors of drink concentrates and non-alcoholic syrups have an extremely successful supply chain. The company’s preparation, distribution and transportation logistics are aligned with the segmentation strategy for their customers when it comes to the size and presentation of their products. Also, the brand realizes the importance of supplier role in the whole supply chain performance, which is why they have strategized their supply management to make the suppliers the strongest of links in the supply chain.
Uncertainty in the supply chain will in-turn cost money and impact customer service, making it a particularly disruptive factor in overall business performance. Collaboration between an organization and its key suppliers is the only way to guard against supply bottlenecks and inventory shortages, both of which can otherwise get in the way of business success.
In the eyes of the customers, there is no distinction between the performance of a company’s suppliers and the company itself. World-class companies have understood this fact for a while now and have responded accordingly with positive results.
- Inventory management impacts working capital
There is no business that doesn’t reply upon inventory. Even if a company is a service provider, chances are that things are moved through a supply chain – spare parts, consumable items or equipment.
On the other hand, if a company’s profit depends upon product delivery, it requires an inventory management system. Just as customers are something on which your business depends, so is inventory. The way in which a company deals with its inventory management makes a great difference in the fortunes of a business as a whole.
Inventory management has a significant impact on working capital and potentially, on cash flow too. If a company wants to reduce its working capital and improve supply chain performance, it should certainly investigate its inventory management system.
One of the reasons why Amazon have attained such huge success is because their supply chain goes down to the lowest levels of inventory, through the logistics of the order itself all the way up to an exceptional distribution chain of their products in at international scale. Currently, Amazon can ship close to 10 million different products. The diversity of products and the company’s skill to manage its inventory gives it an edge against competitors and makes it a perfect example of what efficient supply chain management can accomplish.
Developing a best-in-class supply chain is definitely not an easy task. But taking out time to strategize it is worth the efforts. Considering the fact, that supply chain performance is directly proportional to the success of a company; its importance cannot be neglected at any cost.