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What is Supply Chain Management and Its Importance?

Akansha Gupta

| Updated: Oct 05, 2021 | Category: CFO Service

What is Supply Chain Management and its importance

As globalisation raises the complexities of supply chain activities, organisations are increasingly adopting analytical standards to strengthen decision-making capabilities and supply chain efficiency. To thrive in a competitive market and maintain qualitative growth, a company must invest in responsible supply chain management in order to respond to disruptions effectively and sustainably.

When responding to ever-changing consumer needs, a well-functioning supply chain enables the timely fulfilment of goods and services.

Regardless of operating locally or worldwide in a fiercely competitive market, no business in the supply chain environment can thrive long-term without SCM. Modern supply change management (SCM) entails the strategic alignment of end-to-end business processes in order to achieve market and economic value while also providing a firm with a competitive advantage over its competitors.

Meaning of Supply Chain Management (SCM)

The phrase supply chain management (SCM) refers to all of the operations involved in managing an organization’s procurement in order to:-

Meaning of Supply Chain Management (SCM)

Since there are expenses involved in attaining these goals, companies must develop and implement supply chain plans or strategies that establish service levels as well as long- and short-term procurement targets. These objectives must be linked to and compatible with a company’s strategic plans.

Once such a plan is in place, logical and informed decisions about how raw materials shall be bought and completed items delivered to consumers may be made. This comprises policies governing who the company purchases from, the proper product quality requirements, and how products are supplied. A SCM strategy assists supply chain managers in determining the best course of action to follow when things go wrong, like what to do when a supplier fails to deliver on time or how to deal with quality concerns. SCM is the active management of supply chain operations in order to optimise customer value and create a long-term competitive advantage.

Simply defined, the supply chain is a series of activities that begin with design, planning, raw material acquisition, inventory, execution, production, and ends with the ultimate supply of the finished commodity to the consumer. Supply Chain Management (SCM) entails the optimal execution of all of these events in a sustainable, cost-effective, and low-carbon footprint manner while adequately meeting the needs of customers. SCM also concerns with the transportation and storage of resources required to make a products, and also inventory management and tracking completed items from where they were produced to who they are delivered to.

Significance of Supply Chain Management

Significance of Supply Chain Management

1. Reduce Operating Costs

  • Lowers Purchasing Costs – Organizations usually desire fast deliveries of pricey items and raw resources to minimise costly inventories.
  • Lower Production Expenditures – A dependable supply chain provides supplies to assembly facilities while avoiding any costs that might arise as a result of delays.

2. Improvement of Customer Services

  • Accurate quantity and quality – The consumers expect the appropriate amount of products and quality of items to be delivered.
  • On-time delivery — Customers want the right product mix and amount to arrive on time. A dependable supply chain may assist to prevent bottlenecks and guarantee that consumers receive their products on time.
  • Services — One of the most essential parts of every business is after-sales service. If an issue arises with the product, the consumer expects it to be resolved as soon as possible. A proper supply chain guarantees that consumers receive the service they desire.

3. Customer Retention and Experience

Efficient supply chain management assists businesses in establishing a solid market reputation. It improves a system’s ability to respond to consumer requests. This not only attracts new consumers, but it also impacts their loyalty to a company. Companies that place a premium on customer service invest in excellent SCM to ensure a continuous flow of goods and services.

4. Better Risk Assessment and Management

Proactive quality control is also a product of responsible supply chain management. Businesses that do so are not only able to foresee risks, but also have corrective measures in place to avoid or replace losses caused by interruptions.

According to one research, 87% of businesses feel that iterative risk assessment and management may assist supply chains cut inventory by 22%. Businesses that have access to real-time, fact-based data may more precisely forecast demand and prevent what is described as the supply chain bullwhip effect.

5. Improved Relationships

Fostering successful connections with suppliers and distributors is part of supply chain management. Collaboration with vendors may be strengthened via efficient communication and cooperation, which helps to increase production and reduce expenses.

One of the primary benefits of supply chain management is that organisations now have software and performance data that enable them to make informed decisions when selecting suppliers or contractors.

6. Reduces Legal Liabilities

Efficient supply chain management assists businesses in avoiding unwanted publicity and legal penalties caused by violations of global CSR guidelines[1].

When organisations have a good idea of where the risks are, they may better mitigate them, whether through insurance policies, updated resources, new technology, or improved work procedures.

7. Uninterrupted Cash Flow

One of the most significant benefits of supply chain management is that it promotes data-driven decision-making and lucrative collaborations. There are also methods and technology in place to undertake predictive risk assessments in order to better respond to changes and disruptions.

As a consequence, we have a well-functioning supply chain in which customers are happy and invoicing procedures can be simplified, maximising a company’s efficiency and driving development.

8. Benefits of Technologies

The importance of digital technology in improving the functioning of supply chain management cannot be overstated. Technology plays a significant role in optimising every element of the supply chain, from efficiency, performance, and risk management to quality and consumer experience.

Supply chain management is benefiting from improved technologies that allow managers to stay linked to operations even when they are on the road as firms embrace cloud-based computing. Businesses can grow their services sustainably and cost-effectively if they have cutting-edge software and comprehensive tools in place.

9. Qualitative Improvements

Appropriate supply chain management has a direct influence on the quality of a company’s products and services, which are manufactured in accordance with worldwide CSR standards and guidelines. This conformity leads to the long-term viability and consumer satisfaction.

This is crucial since the expense of repairing or replacing an item due to quality concerns is prohibitively expensive, which can be detrimental to small businesses on a tight budget. Documentation and quality compliance rules are in place in a well-functioning supply chain to expedite quality control when it comes to suppliers & partners.

Conclusion

Everything from product flow to unanticipated natural calamities is streamlined through supply chain management. Companies can accurately detect problems and interruptions with an effective SCM. SCM is critical in transporting goods swiftly and effectively to their destination. With the development of rivalry in the present market climate, an effective supply chain may provide a firm with the competitive advantage that it requires.

Read our article:What is the difference between Logistics and Supply Chain Management?

Akansha Gupta

Akansha is a Delhi-based lawyer who is actively involved in publishing articles on a plethora of aspects of Indian and International laws. She holds Master in law (LL.M) focused on Business Laws from Amity University, Noida. Having expertise in the same, she has authored several publications on legal topics related to corporate, M&A and commercial laws.

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