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If you are reading this article, you most likely own a business. Chances are that it is not just any business but a manufacturing outlet. And as an insightful business owner, you have decided to integrate supply chain management into your business. This would point to the fact that you want your venture to flourish and make a profit.
If the concept of supply chain management is entirely new to you, however, then here is an idea. Say you recently opened a bakery, specializing in bread, cakes, and all sorts of pastries. Some crucial business decisions would include the kind of flour to get, where to get it, at what price, etc. The making of these decisions occurs during the supply chain management process. This article looks into supply chain management and its importance to small-medium scale enterprises.
What is Supply Chain Management?
Simply, a supply chain is a series of steps taken to manufacture and distribute goods. Whereas, supply chain management is the management of all processes involved in transforming raw materials into finished products. The steps below illustrate what the supply chain is about:
Raw materials >> supplier >> manufacturer >> processing >> distribution >> customer
Supply chain management aims to improve the standards of customers while reducing operating costs.
Components of Supply Chain Management
By definition, a process is a series of steps taken to lead to a result. A lot of daily activities can be described as processes. Take, as examples, baking a cake, sewing a dress, or crocheting a hat. Consider the process of baking cake where you need to think of the steps to bake one. You would have to decide first, what type of cake to bake. Then, you must choose the brand of flour to use, where to get it, etc.
The same thing applies to supply chain management. There are steps taken to ensure that you achieve your desired end goal when applying it to your business. Here are five major components or steps in supply chain management.
5 major components of supply chain management
No doubt, the planning stage involves a wide range of activities. Still citing the cake example, here are some of the decisions you are likely to make in this stage. Will you bake the cakes beforehand or wait for customers’ orders before baking? You also have to decide if you will do the baking or have someone else do that.
These points only go on to highlight the need to determine the “how,” what,” who,” where,” and “when.” From the example cited above, you must know when to bake and who bakes. Those are some major decisions to be made in the planning stage. In other words, you will need to determine a structure for your production. Whether you will outsource or not falls under this stage. And so does outlining the method of production.
In this stage, you will determine how to source your raw materials. This will apply whether or not you are producing some or all of the materials yourselves. In the case of our baking business, one will have to decide who would supply the flour, sugar, butter, eggs, etc.
Once you have done that, you will contact the suppliers and negotiate a contract with them. The contract will cover major details such as how often they supply you, how much you will pay them, and when payments will be made.
This is the stage where the actual production takes place. You now design, produce, test, and package your goods for delivery. From the example, here is where you mix up your batter, bake, and decorate the cake. It is important to strictly adhere to the rules that guide performance. That way, you can prevent defective units.
This step encompasses everything from warehousing, customer inquiries, distribution strategies, and the actual delivery of goods/ services.
At this stage, customers have decided to patronize your business. If they are in another state or country how soon can you guarantee their order will get to them? What are the costs both of you would have to incur?
If you have several warehouses spread around the state, country, or globe, how do you handle running out of stock where an order is placed? You must provide answers to these as part of your supply chain management.
‘Return’ deals with managing defective products. The products may not be bad. It may simply be that they are not in the state they were promised. In this stage, you must attend to customers’ queries and complaints. Also, you need to find a way to convince them to keep doing business with you.
Types of Supply Chains
The type of supply chain model you adopt is heavily dependent on the nature of your business. Some businesses only produce one type of goods. Whereas, other companies may produce several goods. Again, some businesses may store their finished products in a warehouse. Yet, some others do not require a warehouse because their goods are made to order. Whatever the case may be, there is a model for everyone.
This following are the different types of models for your business:
Flexible models are ideal for companies with unstable/fluctuating demand.
This is suitable for companies that produce goods according to customer specifications.
- Custom figured
This model is a combination of agile and continuous flow methods.
- Efficient chain
The effective chain model is for businesses in very competitive markets.
- Fast chain
It is best for businesses that produce trendy products with short life cycles. Also, it is suitable for a business that changes their products often.
- Continuous flow
Ideal for commodity manufacturing, it is one of the most traditional models. Businesses with one product benefit heavily from adopting this method.
Importance of Supply Chain Management to SMEs
For good reasons, supply chain management is an integral part of a business. Its importance cannot be overemphasized, as it is a must-have for every business. Below are the two major reasons why supply chain management is important:
- It reduces operating costs
The objective of any business is to make a profit while incurring only completely unavoidable costs. Adequately managing your supply chain will enable you to reduce operating costs. This is possible as you get to reduce both production and purchasing costs. Purchasing costs are reduced because your business would have already negotiated a price with the supplier. Such price ideally should be less than the standard price that they offer to everyone else.
- It increases customer experience
Customers expect to get their orders as soon as possible, accurately, and in good shape. This can only be possible through supply chain management. In this sense, one must ensure that businesses have all the materials they need to process customer’s orders on time.
Sometimes, mistakes occur during the delivery stage or there might be a need to return a defective product. In such cases, customers expect it to be sorted out quickly. A right supply chain makes the correction process as seamless as possible. And both the business and the customer benefit.
The reason why supply chain management is important to SMEs seems to speak for itself. When it comes to procurement, companies want to achieve three things – reduced costs, improved efficiency, and, satisfying demands. The ability to properly manage your supply chain brings these goals to fruition. And that is why reading this article to garner knowledge about supply chain management is a step in the right direction.