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Supply Chain Management (SCM): Process, Importance & Benefits

  • Highlights

  • Supply chain management improves efficiency, revenue and customer satisfaction

  • Benefits and importance of supply chain management

  • 7 Tips to improve supply chain management

  • How can supply chain finance help?

As a business owner, striving for efficiency in every aspect is crucial to your business’ success and growth. For better profits, it is imperative that you understand the ins and outs of your business, and implement strategies that allow you to run a lean operation. In this regard, one of the areas you must focus on is supply chain management. While it may sound complicated, supply chain management, in reality, is a simple concept. It refers to establishing a way to run an operation that strikes a balance between customer satisfaction, competitive advantage and cost-effectiveness. Here’s a closer look at the various concepts you should know to run your business better.

What is Supply Chain?

In the simplest terms, supply chain refers to all the processes that your business takes to create, manufacture and distribute a product. It encompasses every step, right from product development to manufacturing, warehousing, maintaining inventory and distributing it to vendors.

What is Supply Chain Management?

Supply chain management refers to optimising all the steps of a supply chain, right from procuring raw material to creating it into an actual product or service. It involves streamlining and improving efficiency to improve the customer’s satisfaction and to position your business ahead of your competitions’ and most importantly, to find strategies that will help you do so economically and effectively.

Benefits of Working Capital Finance for your Business

What is the Main Purpose of Supply Chain Management?

The primary purpose of supply chain management is to simplify the chain of supply from manufacturer/producer to the end-user or consumer. It helps synchronise the supply network through multiple management techniques like demand management, planning for supply, inventory modelling and maintenance, and more.

It also optimises logistics management that help complete a supply chain process, from manufacturing to warehousing and sale to wholesaler, retailer and the ultimate consumer.

An optimum management of supply chain ensures efficient product distribution and fulfilment of supply from the manufacturer’s end to the consumer.

Importance of Supply Chain Management

Take a look at how supply chain management can help you improve various aspects of your business.

  • 1. Importance of Supply Chain Management

    An excellent outcome of supply chain management is that it allows you to cater to the customer’s wants better. You can determine the demand and supply goods accordingly, and identify the delivery speed expected of you and tweak processes to align with expectations. In addition, you can refine your customer support or after-sales support and improve customer satisfaction on the whole.

  • 2. Decrease Inventory Costs

    Holding inventory for a large period of time is expensive. This applies to any business, whether you’re storing grains such as rice and wheat, or high-value electronics such as computers. In both cases, protecting your product from the elements as well as rodent attacks and theft culminates in substantial inventory cost. But, when you’re able to work on the supply chain that links the product to the customer efficiently, the need to maintain large amounts of inventory is diminished.

    For instance, if you run a chain of pharmacies, anticipating periods of the year when malaria medication is in demand will help you amp up supply specifically during those periods of the year. This will allow you to meet the customers’ demands adequately while ensuring that you’re not losing money maintaining copious inventory of malaria medication all year round.

    Similarly, if you work in an industry where technology develops rapidly, having a large inventory can be detrimental. If you assemble and package flash drives, for instance, having a huge inventory may mean that you are left with obsolete stock once technology advances.

  • 3. Improve Your Business’ Cash Flow

    To boost profits, it is important to examine your business’ cash inflow and outflow. By implementing supply chain management strategies, you can eliminate expensive processes that add little to no value to the product or service that you are offering, or find a more economical solution.

    Similarly, this exercise allows you to plug any leaks in your supply chain and ensure that your systems are such that the product reaches the customer as soon as possible. The quicker you are able to provide the final product, the sooner you will be able to charge the payment for it. This outlook will allow you to simplify and integrate processes, increase business output in the same timeframe, thereby improving your bottom line.

Additional Read: Types of Working Capital

Moreover, when you are able to eliminate expenditure on steps that don’t enhance value, you can automatically increase your profits per unit of the product sold. For instance, if you sell flash drives for Rs.500 each, and Rs.50 from this goes towards maintaining a large inventory, when you eliminate this step from your supply chain, you’ll immediately add Rs.50 to your profits. Even if you sell 10,000 units of flash drives, you’ll add Rs.5 lakh to your revenue.

Benefits of Supply Chain Management

The extensive benefits reinstate the importance of supply chain management for all businesses, small and large. Check out some of them listed below.

  • Increase in rate of efficiency via logistics integration, strategies for product innovation, and more. It helps an enterprise make dynamic adjustments to economic fluctuations, urgent demands, etc.

  • Reduction in cost through improved inventory management, increased responsiveness and distributor relationships.

  • Reduced process delays like mitigation of late vendor shipments, reduced errors in logistics maintenance, etc. through an improved communication system.

Other benefits include a boost in cooperation level between manufacturers and their distribution channels, enhanced network of supply chain, increased profit levels of businesses and more.

How Can You Improve Supply Chain Management?

Now that you know exactly what supply chain management can do for your small business, here’s a look at a few ways in which you can bring about a positive change.

  • 1. Focus on All Areas of the Supply Chain

    To see measurable results in terms of efficiency and revenue, it is important that you focus on all aspects of the supply chain. Only when all your links are optimised will you be able to accrue the maximum benefit. This will also ensure that the aspects that you haven’t worked on don’t overshadow the improvement offered by optimising one link.

  • 2. Develop Close Relationships with Partners

    To smoothly and efficiently run your business, it is important that you have a good relationship with your suppliers, distributors and retailers. This will allow you to negotiate better supply and payment terms, as well as ensure that your inventory costs are low. For instance, a distributor or retailer will be able to give you an overview of customers’ demand patterns. You can use these insights to forecast demand in the future and identify purchase patterns and preferences. As a result, you will be able to cater to their needs in a timely manner and make the most of every growth opportunity that comes your way.

  • 3. Develop a Vendor On-boarding System

    To be sure that you only partner with the best vendors, suppliers and third-party organisations, it is important to have certain checks and balances in place. For starters, invite bids for any requirement that you have to get g a vendor at the best price. Then, check the vendor’s credentials, reputation, and past record. If you’re unsure, you can always request samples and references before you sign a contract.

    Next, be sure to cement your relationship legally, by way of a contract. This will help you tackle any disputes in the future efficiently. The same goes for any information that you need from the vendor. When you sign up with another organisation, create a dedicated folder and store a copy of the agreement, share a list of financial documents that you will need, as well as an invoice format. Having these details in place will make it easy for you to settle payments and disputes, if any.

  • 4. Focus on Quality Control

    Make a dedicated effort towards maintaining quality of your products and services. This will allow you to build and maintain your reputation, identify weak links, place accountability and take remedial action. Most importantly, it will ensure that if the cause for concern is because of a third-party’s actions, you aren’t paying the price for it.

  • 5. Invest in Resources

    The right resources can help you achieve better supply chain management and so, are worth the investment. When you look into this area, focus on investing in technology as well as human resources. For the former, supply chain management software that log each activity, as well as RFID scanners are an immense help. In addition, they also offer a wealth of data with regards to your supply chain that you can utilise. Hiring supply chain managers will allow you to cull data that technology consolidates, analyse it and come up with strategies on how you can do better.

  • 6. Review Your Supply Chain Management Regularly

    To be able to do better year on year, it is important that you review your approach periodically, identify what is working and what isn’t, and take corrective measures to eliminate the latter. Apart from hiring supply chain managers, establish a review council comprising senior management from various factions of your business as well. This will give you a clear picture of the obstacles that different departments are facing, as well as the macro picture, ensuring that you’re doing what’s best for everyone.

  • 7. Aim to Create a Sustainable Supply Chain

    Running a sustainable, green business is more important now than ever before. So, it is important that your supply chain not only makes your business more profitable, but also keeps your carbon footprint to a minimum. Apart from doing business responsibly, this approach will also increase your appeal to customers who are evaluating their environmental impact. If your operations are already as environmentally friendly as possible, look into measures and programme that you can put into place to counter the damage to the environment in general.

Additional Read: Working Capital Cycle

Logistics v/s Supply Chain Management

Individuals often use logistics and supply chain management synonymously. Supply chain management is a wider concept, whereby logistics is a component of the entire SCM function.

Logistics functions around focusing on hassle-free and efficient product movement to complete delivery at the right place and at the right time. Packaging, warehousing, transportation, distribution and final delivery are all a part of logistics. An efficient logistics management thus ensures each function receives complete optimisation.

On the contrary, supply chain management brings within its scope a range of activities like raw material sourcing, availing the best prices, improving coordination between distribution channels, improving transparency of the process for efficient operation of partners to the supply chain network.

How Can Supply Chain Finance Help?

As integral as supply chain management is to your business, there’s no denying that working on these practices and strategies is expensive. Whether it is purchasing supply chain management software, hiring a supply chain manager or even doing a crash course in the subject to improve your knowledge as a businessperson, having sufficient funds is imperative.

Instead of depleting your cash reserves or stalling important supply chain activities, look into borrowing supply chain finance. Bajaj Finserv offers unsecured Supply Chain Finance that helps you borrow up to Rs.20 lakh by submitting two documents and get approval in just 24 hours. What’s more, you can avail the funds on a Flexi Loan basis and save up to 45% on EMIs. You can also avail instant finance with pre-approved offers on Supply Chain Finance. Simply share a few details and get money in bank in1-step verification. Discover your pre-approved offer here.

One look at these insights is enough evidence to support the theory that efficient supply chain management is indeed the key to better business growth and profits. So, don’t neglect budgeting for this aspect annually, and seek external finance if you need to. A quick cost-benefit analysis will tell you why it’s worth the effort.

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