As a business owner striving for efficiency, every aspect is crucial for the growth and success of your business. For better profits, you must 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.
It may sound complicated, but supply chain management is a simple concept. It refers to establishing a way to run an operation that balances 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 a supply chain?
In the simplest terms, a supply chain refers to all the processes your business undertakes to create, manufacture and distribute a product. It includes every step, from product development to manufacturing, warehousing, maintaining inventory and distribution.
What is supply chain management?
Supply chain management or SCM refers to optimising all the steps in a supply chain, right from procuring raw material to converting it into an actual product or service. It involves streamlining and improving efficiency to increase customer satisfaction and position your business ahead of your competition. Most importantly, SCM helps you find strategies that will help you do so economically and effectively.
What is the main purpose of supply chain management?
The primary purpose of supply chain management is to simplify the supply chain from the manufacturer or 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 helps complete a supply chain process, from manufacturing to warehousing and sale to wholesalers, retailers and the ultimate consumer.
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 your business.
1. Ensure customer satisfaction
An excellent outcome of supply chain management is that it allows you to better cater to the customer’s wants. You can determine the demand and supply goods accordingly. You can identify the delivery speed expected of you and tweak processes to align with it. 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 is expensive. This applies to any business, whether you’re storing foodgrain or high-value electronics such as computers. In both cases, protecting your product from the elements and rodent attacks and theft culminates in substantial inventory costs. But when you can work on the supply chain that links the product to the customer efficiently, you do not need to maintain a large inventory.
For instance, if you run a chain of pharmacies, anticipating periods of the year when malaria medication is in demand will help you ramp up supply specifically during those months. This will allow you to meet the customers’ demands adequately while ensuring that you’re not losing money unnecessarily maintaining a high inventory of malaria medication all year round.
Similarly, having a large inventory can be detrimental if you work in an industry where technology develops rapidly. 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 cash flow
It is important to examine your business’ cash inflow and outflow to boost profits. 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.
This exercise also 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 can provide the final product, the sooner you will be able to charge for it. This outlook will allow you to simplify and integrate processes and increase business output in the same timeframe, thereby improving your bottom line.
Additional Read: Types of working capital
Moreover, when you can eliminate expenditure on processes that don’t add 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. Some of them are listed below.
- Increase in efficiency rate 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 better cooperation between manufacturers and their distribution channels, an enhanced supply chain network, and increased profits.
How can you improve your supply chain management?
Now that you know what supply chain management can do for your small business, here’s a look at a few ways in which you can improve it.
1. Focus on all areas of the supply chain
To see measurable results in efficiency and revenue, you must focus on all aspects of the supply chain. Only when all your links are optimised will you accrue maximum benefit. This will also minimise the negative impact of the weak links if any.
2. Develop close relationships with partners
You must have a good relationship with your suppliers, distributors and retailers to run your business smoothly and efficiently. This will allow you to negotiate better supply and payment terms and 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 and identify purchase preferences. As a result, you will be able to cater to your customer's needs on time and make the most of every growth opportunity that comes your way.
3. Develop a vendor onboarding system
It is important to make sure you partner only with the best vendors, suppliers and third-party organisations. For starters, invite bids for your requirement to get a vendor at the best price. Then, check the vendor’s credentials, reputation, and record. You can also request samples and references before you finalise a vendor.
Next, cement your relationship legally by way of a contract. This will help you resolve any future disputes. The same goes for any information that you need from the vendor. When you partner 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 the 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
It is worth investing in resources that can help you achieve better supply chain management. When you look into this area, focus on investing in technology and human resources. For the former, supply chain management software that logs each activity, and RFID scanners, are an immense help. In addition, they also offer a wealth of data on 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 do better year on year, you must review your approach periodically, identify what is working and take corrective measures to fix what isn’t. Apart from hiring supply chain managers, establish a review council comprising senior management from various arms of your business. 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
Having a sustainable, green business is more important now than ever. So, it is important that your supply chain makes your business more profitable and keeps your carbon footprint to a minimum. Apart from doing business responsibly, this approach will also appeal to customers who are evaluating their environmental impact. If your operations are already environmentally friendly, look into further measures to counter the general environmental damage.
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, while logistics is a component of the entire SCM function.
Logistics focuses on hassle-free and efficient product movement to complete the delivery at the right place and at the right time. Packaging, warehousing, transportation, distribution and final delivery are all a part of logistics. Efficient logistics management ensures each function is fully optimised.
On the contrary, supply chain management involves a range of activities like raw material sourcing, availing the best prices, improving coordination between distribution channels, and ensuring transparency in the process for efficient operation of partners.
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 to improve your knowledge as a businessperson, having sufficient funds is imperative.
Look into borrowing supply chain finance instead of depleting your cash reserves or stalling important supply chain activities. Bajaj Finserv offers unsecured supply chain finance that helps you borrow up to Rs. 80 lakh by submitting just a few documents. You can even avail of the funds on a Flexi loan basis and save up to 45%* on EMIs. You can also avail of instant finance with pre-approved offers on supply chain finance. Share a few details and get money in the bank following a one-step verification process. Discover your pre-approved offer here.
Efficient supply chain management is the key to better business growth and profits. So, don’t neglect to budget for this aspect annually, and seek external finance if needed. A quick cost-benefit analysis will tell you why it’s worth the effort.
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