A Simple Guide to Effective Supply Chain Management

Supply and demand – they’re the cornerstones of the business world. But while many organisations are reliant on a unified supply chain, managing processes and workflows to ensure complete financial reliance and profitability can often fall by the wayside.

Managing a supply chain is one thing, but doing so effectively and with an eye for bottom-line profit is another. Businesses striving for growth can often turn the tide simply by paying closer attention to how they manage, oversee and streamline their supply chain – ensuring that they’re leveraging the very best technology, approaches and techniques to guarantee optimal and efficient supply chain management (SCM).

To help you get to grips with what makes effective supply chain management, we’ve put together a simple guide to the process – from what makes SCM so important, to the guiding principles and factors which underpin effective management and control.

Use the links below to navigate, or read on for the complete guide.

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What is Supply Chain Management?

Supply chain management (SCM) is the process of taking a product from concept to consumer. It encompasses product design and planning, supply and demand forecasting, marketing and sales, operations, and supply management.

There are three main elements of supply chain management, including demand, materials and resource capacity. Effective SCM is that which increases cashflow through a considered approach to processes throughout the product cycle – from the cost-effective sourcing of raw materials, to accurate and controlled inventory management.

Supply chain management

Why is Effective Supply Chain Management Important?

Effective supply chain management can have positive repercussions throughout the business, affecting bottom-line profit, company growth and business reputation. Here, we take a look at why SCM matters, and why it should be a key consideration for all supply-chain-reliant organisations.

  • Business Profitability – SCM has a direct impact on profitability. It defines the margins of profit at every stage of your operation, and is capable of freeing up cash which may otherwise have been improperly spent.
  • Valuable Partnerships – Forging valuable long-term partnerships with suppliers and contractors is one of the founding attributes of SCM. By getting a handle on every workflow within your supply chain, you can be sure that the right decisions are being made, for the mutual benefit of your business and partners.
  • Satisfied Customers – The stronger grip you have on your supply chain, the happier your customers. Today’s consumers are more expecting than ever, so reliable processes and a transparent approach can go a long way towards driving advocacy and building a trustworthy reputation.
  • Key Indicator of Business Health – Investors and stakeholders whose capital is on the line will scrutinise every aspect of your supply chain, so effective management can be a proven indicator of business health and successful leadership.
  • Engaged Workforce – SCM doesn’t just affect your customers and investors; it can help bolster employee engagement, demonstrating effective management and clear decision-making at the top. People want to work for organised, diligent businesses, whose supply chains are free from bottlenecks, bureaucracy and disruption which might interfere with their day-to-day work in the long term.

colleagues discussing plans

What is the Process of Effective Supply Chain Management?

If you’re unfamiliar with the principles of effective supply chain management, we’ve put together a comprehensive guide to the process, including definitions for the terms related to SCM processes and organisation.

Stage 1: Demand

One of the core starting blocks of effective SCM is demand management and research. This requires you to answer three main questions: is there demand for your products/services? How big is the demand? And how will you meet this demand while ensuring the profitability of your business channels and processes?

Let’s begin with demand planning – the process of reviewing demand so that you can meet this need and invest in the resources required without overspending. There are lots of ways businesses review product demand, including:

  • Market research and competitor analysis
  • Trend reviews and market predictions
  • Focus groups, questionnaires and interviews
  • Interest in online assets, e.g. social media followers, comments

From here, you’ll have a picture of demand and can plan material sourcing and production accordingly. Consider how many units you’ll need based on demand forecasting; this will ensure consistent profitability and revenue streams.

Stage 2: Supply

Supply management is, as you might expect, one of the pillars of SCM; it accounts for some of the key processes of any effective supply chain. Generally, when we think of supply management, there are five areas to consider, including: supply, production, inventory, capacity and distribution.

Let’s take a closer look at each of these five processes, and how they affect SCM:

  • Supply – this is the concept of fulfilling demand, whereby you need to strike the right balance between consumer demand and material sourcing, with a view to ensure your financial objectives.
  • Production – production covers the processes required to manufacture your products. Consider the cost of raw materials, personnel, equipment and manufacturing processes, and look for ways to streamline workflows to save costs where possible. This is where reliable partnerships can prove invaluable.

worker looking at her tablet

  • Inventory – how many products do you need in your inventory to meet demand without overspending on production and materials? Timing is critical here, so be sure to consider seasonal trends and peak sales periods.
  • Capacity – do you have the capacity in terms of space, equipment, tools and personnel to meet demand during peak periods? This often comes down to considered investments in manpower and equipment, to ensure you’re always operating at optimal capacity.
  • Distribution – your distribution networks are critical to satisfying demand and retaining steady revenue streams. Distribution is a huge area of SCM, encompassing packaging, warehousing and storage, logistics and distribution personnel, so it requires careful consideration and investment.

Stage 3: Sales, Marketing and Operations

Sales, marketing and operations are the processes which underpin every stage of your supply chain. They both dictate and influence supply and demand, and are designed to empower informed decision-making on every aspect of your SCM strategy.

As a business, you should see sales, marketing and operations as an ‘ear to the ground’ which holds huge influence on your supply chain activity. What are your customers responding to? What are they buying and not buying? And how might your marketing efforts affect demand and supply?

For sales, marketing and operations to integrate efficiently with SCM, a unified, dynamic approach is required to ensure that any positive operational activity is reflected at a supply chain level. This is where software such as an ERP system can come in extremely handy – offering a standardised way to unify business processes and help your personnel collaborate across teams and workflows.

If you’ve enjoyed this guide on effective supply chain management, be sure to read the rest of the JS3 Global blog for more insightful business guides and features. At JS3 Global, we’re experts in helping businesses adopt ERP software, and take advantage of the benefits and features such systems afford. For specialist, impartial advice about integrating ERP software into your supply chain management strategy, talk to our experienced team today on +44(0)161 503 0866 or by visiting our homepage.