We like to think that our groceries just pop up in the grocery store. Yet, the truth is much more complex than that when it comes to the supermarket product stocking. They don’t just appear magically in the stock room and get placed on shelves by stock boys for you purchasing pleasure.
Our fresh fruit and vegetables start sprouting at their original farm location, which could be halfway around the world depending on the season and pricing. Then, it’s transported to a wholesaler. The wholesalers sell them to grocery stores across the country. This is what supply chain management and logistics is all about in a nutshell.
Of course, this is just a simplified version of what your average supply chain components can look like. However, depending on your industry, the real thing can be rather intricate. After all, supply chain management can boost your revenue growth in ways you wouldn’t expect, or damage your business if there is a disruption. This is especially evident right now after the Coronavirus pandemic disrupted supply chains for most industries causing prices increases, scarcity, delays, and out of stock products.
If you can’t differentiate between supply chain management and operations management, don’t worry. You’ve come to the right place for leveraging logistics and supply chains. Keep on reading for our full breakdown of all things supply chain management and their key components.
What Is Supply Chain Management?
Before we start our deep dive into the factors that make supply chain management so crucial for your business performance, let’s cover our basics.
In the simplest of terms, supply chain management (SCM) is the popular term used to indicate the process of managing your supply chain activities to achieve a substantial competitive advantage, as well as maximizing the added value to your customers.
Basically, as a business, you’ll try your best to smooth out the process of getting your product from its originating point (probably a warehouse) to your customer’s doorstep. Generally speaking, SCM can only be optimized once you’ve got a thorough understanding of its two core ideas.
The Concept Of Moving Parts
The foundational concept of setting up a successful supply chain management strategy is all about understanding that there will be many different moving pieces.
Think about it this way.
Your product is a train carriage, and every single station has something to add to your train carriage as you go. The final station, which is the customer, gets to enjoy the results of the accumulated efforts of every train station (or organization) along the way.
The Concept Of Underappreciation
Sure, supply chain management has existed for a long time, almost in all industries. Yet, there are a few businesses that actually cracked the code of properly conducting supply chain management.
For a clear example, you only need to take a look at Amazon. This is a company that found the perfect balance between physical and information flows.
Physical Flows vs Information Flows
In addition to those two concepts, you have to keep in mind the two categories of flow when it comes to effective supply chain management.
The first is the physical flow of your actual tangible materials or products. It’s the phase responsible for the storage, movement, and transformation of raw material to your finalized product.
The second is the information flow. This is the critical phase where the various supply chain partners need to keep each other in the loop so that they can achieve their long-term plans.
For example, you’ll want to keep in touch with the right industrial distribution service provider, if you want to ensure a smooth flow of your products from one point to the next.
Supply Chain Components 101
Now that you have a solid understanding of what makes a supply chain strategy tick, let’s break down every single factor that you’ll want to keep in mind when you’re creating your own.
Planning Is Key
The very first component you’ll want to nail down is your planning phase. It’s much more than sitting down and thinking about the different tasks you’ll need to tackle.
There are questions that you’ll want to have a solid answer for before you even start your business. For instance, are you going to be manufacturing the initial components or will you be outsourcing them to a supplier?
Start by sketching the process of information and physical flow from the different suppliers and supply chain partners to the last stage of presenting the customer with the finalized product.
The Sourcing Phase
This is the point when you’ll have to do your research on picking the right supplies and whether they can cover all your business needs.
You’ll want to compare different suppliers’ financial requirements, their services, their reputation, and the quality of their materials.
Once you have your finalists ready, you can start the bidding process.
Balancing Demand And Inventory
No supply chain management strategy can halfway succeed without having their inventory maintained and running like a well-oiled machine.
After all, without keeping a property inventory, you won’t be able to sell your products or even manufacture them in the first place.
The tricky part is that your inventory is directly tied to your demand levels. If you have high demands for your products, then your inventory should match, and vice versa.
The Production Stage
This one is simple to explain. If you don’t produce something, you won’t have an end product to sell.
Production is the make-it-or-break-it component of SCM, as all the previous factors and the factors afterward work as auxiliary forces to the main stage of producing the actual product.
Storage And Transportation
When it comes to storage, you need a place to put all of the raw material and your product pieces. Usually, that space is a warehouse.
Next, it’s you’ll want to break down the transportation process of both the raw material to your warehouse and the finalized product to your customers.
You can have the perfect product, but if it arrives late, doesn’t arrive at all, or arrives in pieces, you won’t have happy customers.
Ready to Shake Up Your Supply Chain Logistics?
We know how overwhelming the process of supply chain management can be, especially for small business owners, or those who are exploring a new market.
Hopefully, our guide was able to shed some light on the supply chain components and how each factor is important for an efficient SCM strategy.
If you liked our article, make sure to check out our business section for all the management tips and tricks you could possibly need. We publish a wide variety of helpful articles on supply chain management, logistics, shipping, inventory managing, warehousing, and manufacturing.