How can each partner in a supply chain increase its profits? By improving the process that keeps it all together – supply chain management. This article will discuss the key benefits of effective supply chain management and the foundational steps that are needed for a truly functional supply chain.
So let’s begin with the benefits.
One of the main benefits of effective supply chain management is improved operational efficiency, which ultimately leads to increased productivity. The aim of a supply chain is for sourced raw materials to be delivered to the end customer in the form of a product. There are many phases between points A to Z.
Any delay in any of the phases causes disruption to the entire supply chain, increasing downtime, and consequently lowering productivity. Yes, issues are to be expected in any large operation. However, they should be planned for. If potential delays are predicted and communicated in real-time, they can be effectively resolved.
To provide a simple example – if there is a delay/issue with sourcing raw materials, manufacturing is put on hold until the problem is resolved. Supply chain management necessitates having a plan B for such a situation – sourcing materials from an alternative supplier.
However, the time frame in which the operation can be shifted determines the effectiveness of the supply chain management. If communication is done in real-time, plan B can be implemented almost immediately and the delays minimized. Thus, production can continue without a noticeable drop in optimal efficiency. This principle applies to all phases of a supply chain.
Another benefit of effective supply chain management is increased quality control, which ultimately lowers costs and improves customer satisfaction. Companies that implement official quality criteria and potentially conduct audits have better control over their suppliers.
As a supply chain incorporates multiple suppliers, the implemented quality standards are extended to all participants in the chain (i.e. a company’s supplier’s supplier needs to be in compliance with the minimum quality standards, etc.). Consequently, companies can find partners that meet their standards.
While it is clear how quality control improves customer satisfaction, how does it lower costs, when additional resources need to be invested? Due to the rule of 10. The rule of 10 is a principle that states that the resources needed to fix a defective product increase by 10 (approximately) at each quality assurance stage.
Thus, to oversimplify, you could pay $1 to replace faulty materials at the supply stage, $10 at the manufacturing stage, and $100 dollars if the end product is returned by the customer. Taking into account how many legs a true supply chain has, it becomes clear how quality control at each phase can lower costs significantly.
In any larger operation, information flow is a challenge. However, accurate and timely sharing of information is the key to making informed and correct business decisions.One in two companies state that fragmented information has led to lost sales opportunities.
Additionally, one in three state that production takes the same amount of time or is quicker than the sharing of information regarding changes in demand to the outer partners in a supply chain. Consequently, one of the benefits of effective supply chain management is an increase in sales and a better understanding of supply in demand.
This leads us to the next point.
Accurately predicting demand is one of the most important (and complex) facets of a supply chain. Making decisions based on correct information about the market conditions can prevent inflated production, consequently lowering costs and increasing profitability.
One of the biggest challenges in a supply chain is avoiding the bullwhip effect – when small changes at the retail stage cause increasingly larger fluctuation at each preceding upstream stage of the supply chain, up to the sourcing of raw materials.
In other words, if a retailer sees an increase in sales of 2%, they may order 4% more of a product, predicting that the increase in demand will continue. The next link in the chain, the wholesaler, sees the 4% increase in demand and orders 6% more from their supplier. This process can continue all the way up to the sourcing of raw materials, significantly inflating production.
The aim of effective supply chain management is to avert the bullwhip effect by accurately transmitting information upstream and correctly predicting demand.
One result of accurately predicting demand is better inventory management, that is, reduced overhead costs. Slow-moving inventory (which can result from oversupply due to inaccurate demand predictions) can be replaced with fast-moving products. Storage space is a significant factor in the overhead cost and effective supply chain management is meant to optimize it.
Optimizing logistics operations should be a priority for supply chain managers. Shipping costs are consistently increasing, thus effectively managing the shipment of smaller goods, bulk orders, finding optimal routes, minimizing disruptions, etc., eventually lower operative costs and lead to higher profits for all participants in a supply chain. And optimized logistics operations are one of the key benefits of effective supply chain management.
Finally, we get to improving customer satisfaction, which is one of the main aims for most companies. This can best be accomplished with effective supply chain management – late, damaged, or lost packages can negatively impact a company’s reputation. It may even lead to a loss of customers. Conversely, if delivery to the end customer is done on time and safely, it will improve their satisfaction.
We have talked about the benefits of effective supply chain management, but how can it be accomplished? In truth, it is an incredibly complex procedure, but supply chain management should always include these 5 basic steps:
UNIVAL Logistics provides end-to-end shipping solutions that can boost your supply chain efficiency and help you keep customers satisfied. We provide API integration with your websites to streamline the process, full-value package insurance for high-value items, and real-time package tracking.
With UNIVAL, you can be assured that your packages will arrive expediently and safely, via the best shipping routes. If you need a partner that can minimize disruptions to your supply chain, contact UNIVAL Logistics.
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