What is Supply Chain Management and the Principles for Doing it Correctly?

Regardless of what your organisation offers to its client base, every process requires collecting and inputting raw materials and information into various internal systems until they are transformed into final products or services.

To create a secure, competitive advantage in your industry, you will need an effective supply chain management system that offers numerous benefits for your businesses, such as cost savings, greater customer service, stronger supplier management, and improved quality control measures.

Here we answer, ‘what is supply chain management?’, as well as the core principles that need to be adopted to ensure its success.

What is Supply Chain Management?

So, what is supply chain management? Essentially, it covers each process involved in taking initial materials or information and converting them to deliver a finished product or service to an end consumer. It involves the overall coordination and management of services, goods and communication from suppliers and manufacturers, distributors and retailers, and, of course, your business’s customers.

The primary objective of supply chain management is to optimise all internal processes to minimise costs and ensure deliverables are at a high standard. As such, tasks typically include:

  • Sourcing & procurement: Identifying and acquiring the materials and services needed to produce or provide a product or service
  • Transportation & logistics: Planning and coordinating the movement of products or materials from one location to another
  • Warehousing & distribution: Storage and delivery of products and materials
  • Inventory management: Monitoring and controlling the level of stock at various points in the supply chain
  • Order fulfilment: Receiving, processing, and delivering customer orders

Supply chain management is not just limited to physical goods, either. It also involves managing the flow of information and finances between multiple organisations throughout the chain itself. As such, the use of various digital technologies, such as inventory management software, is becoming a necessity to improve visibility, predictability and efficiency.

Why is Supply Chain Management Essential to Your Business?

Regardless of the size of an organisation, operating with refined and powerful supply chain management systems will significantly impact overall performance. By optimising the entire process, businesses can reduce their costs, improve the quality of their deliverables, elevate their customer service, create competitive advantages within their industry, and even increase the flexibility of internal operations, ensuring the capacity to adapt quickly to changing market conditions and customer needs.

Businesses can also better respond to new opportunities by adjusting their supply chain processes, delivering them a competitive advantage in the marketplace.

What are the Benefits of Good Supply Chain Management?

Improve the internal flow of information & materials

By streamlining processes, businesses can ensure that the right materials and components are used when appropriate, and that their products and services are delivered to customers on time and in quality condition. Naturally, this leads to improved efficiency and productivity, creating more freedom for internal staff and partners to further elevate their workflows.

Develop better pricing strategies

Good supply chain management also allows organisations to have a clearer understanding of the costs associated with each step in the process. As such, businesses can gain a more accurate understanding of the costs involved in producing their goods and services, as well as have more visibility around industry standards, allowing them to better price their own offerings.

Lower operational expenses & wasted resources

Effective supply chain management can help businesses reduce their operational expenses and costs of goods sold by eliminating redundancies, bottlenecks and inefficiencies. By identifying areas of duplication, delay, or difficulty in the supply chain, teams can devise creative solutions to speed up the process and reduce wasted resources. Again, this can lead to significant cost savings, more rapid delivery, and, ultimately, increased profitability.

Refine quality control measures

Organisations utilising well-optimised supply chain management systems can adopt more ingrained quality control measures to ensure their deliverables remain at a higher standard that meets customer expectations. Over even just a short period, this can lead to significantly improved customer satisfaction and loyalty.

Identify & find solutions to supply chain risks

With the added visibility of effective supply chain management, businesses can have the benefit of early identification of potential risks. By monitoring and tracking their inventory, transportation, and logistics, businesses can spot issues with supplier management, international disruptions, and other external and internal factors, helping them to take corrective actions before they become major problems. This can help businesses avoid costly disruptions and ensure the continuity of their operations.

Build stronger supplier relationships

Outside of physical materials and technological processes, there are also relationships to be nurtured through ongoing supplier management. By working closely with your suppliers and introducing more refined methods to improve the experience for both parties, businesses can ensure that products and services are delivered on time and in optimal condition.

Key Supply Chain Management Principles

Now that we have discussed what supply chain management is, it helps to understand a few core principles that will help organisations ensure that integration is successful within their operations.

Introduce supply chain specialists into your team

Having dedicated professionals within your team is crucial for the effective management of the supply chain. Rather than introducing additional duties for other team members, these specialists will have the necessary knowledge, expertise and focus to address all standard operations within the supply chain, make recommendations for improvements, and identify and rectify any issues. It also helps to ensure constant career development to keep your team abreast of new technologies and methodologies as they arise within the industry.

Nurture stronger relationships with supplier management systems

Strong relationships with suppliers are crucial for effective operations. By working closely with your external business partners, you can create mutually beneficial arrangements and have an equal commitment to achieve shared goals. It helps to partner with suppliers that hold similar values and principles as your own organisation, but at the very least, implement processes within supplier management systems to effectively monitor your responsibilities and manage supplier performance.

Apply economies of scale for better cost reduction

When making regular purchases from suppliers, it pays to fully utilise economies of scale. For example, when you submit just a single, bulk order, rather than making multiple orders throughout a more regular schedule, you can find a selection of discounts available related to higher volumes, given the lower admin and warehousing costs associated.

Introduce demand forecasting & inventory management systems

Holding the right amount of stock on hand is one of the most difficult tasks for a modern business. Overstocking can increase warehousing costs and diminish the quality of the items over time, but understocking can push out delivery times and leave customer satisfaction at new lows.

As such, supply chain management should incorporate an element of demand forecasting to estimate the number of future sales and make stock orders accordingly. Inventory management software can then help businesses monitor and track their stock levels, as well as transportation and logistical elements, ensuring appropriate levels are maintained.

Monitor performance with supply chain management KPIs

There are several quick formulas and key performance indicators (KPIs) you can utilise to monitor how well your supply chain management system is operating, including:

    • Cash to cycle time: Average length of time between payment for raw materials & receiving payment for delivered goods
    • Fill rate: The percentage of orders completed with the first shipment
    • Landed costs: Associated costs to importing stock (i.e. logistics fees, shipping costs and handling fees)
    • Inventory days of supply:

Inventory on hand divided by the average daily inventory usage

  • Inventory turnover: Costs of goods sold during a specific period divided by the average inventory level
  • On-time delivery & shipment: Percentage of orders delivered/shipped on (or before) the agreed date
  • Supply chain costs as a percentage of sale: The total cost of the supply chain as a percentage of total sales

These areas can help businesses identify areas of improvement and make necessary changes to optimise the supply chain.

Utilise integrations with enterprise planning software (ERP)

Utilising integrations with ERP software can help businesses automate and streamline many of their manual or repetitive supply chain processes, improving efficiency and productivity. What’s more, when these platforms offer cloud software, your team can have direct access to the information they need wherever they are located.

Why Use Frameworks in Your Company?

Frameworks is the preferred management software for building, plumbing and electrical trade suppliers across Australia and New Zealand. Our inventory management capabilities offer a particular set of benefits, including:

  • Able to manage a large number of items with ease
  • Advanced multi-location inventory management
  • Flexibility in selecting various costing methods
  • Capacity to handle multiple units of measure and vendors for a single item
  • Seamless integration with buying groups and the ability to import pricing catalogues

Speak with our team today for more information.
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