What is a Supply Chain?
Supply chain operations are essential to retailers, but consumers probably give them little thought. When a consumer buys a product from a retailer, they probably don’t wonder how it got there; from raw materials to finished product, then transported to warehouses and from there to a store shelf (or shipped directly to the customer).
This is what is known as a supply chain. We will talk about this in more detail later, but the supply chain facilitates the progression of products from raw materials to finished products that consumers purchase. The complexity of a supply chain means that it can be broken down into several aspects, including sourcing raw materials, manufacturing finished products, and ensuring they reach consumers via distribution centers.
Needless to say, this is a serious undertaking: it requires effective demand forecasting and planning to anticipate consumer purchasing patterns, logistics management to keep goods flowing, and inventory management to ensure items reach customers on time.
In this guide, we will take a closer look at supply chain operations. To start, we will explain in more detail what a supply chain is and what it does, before we elaborate on supply chain operations itself. Then, we will discuss the difference between operations management and supply chain management.
We will then look at why supply chain management (SCM) is so important for both businesses and consumers, the various supply chain models, and the challenges commonly encountered along the way. Finally, we will conclude by examining how to manage a supply chain effectively, smoothly, and efficiently.
As we have just discussed, the term “supply chain” covers the various stages involved in delivering products to consumers. Supply chains are often international, adding an additional layer of complexity to some aspects.
The Supply Chain process may incorporate the following aspects:
- Raw material procurement
- Production of basic components
- Assembly of finished products
- Marketing and sales of finished products to consumers
- Delivering orders to customers
There are, of course, various decision-making processes along the way. First, companies need to know where to get the raw materials (or finished products) they need and which suppliers might supply them.
Once the finished products are ready to be marketed, companies must think about how to store them and then how to get them to consumers, both from a logistical point of view (in terms of delivery and shipping) and through marketing campaigns.
In the meantime, the importance of effective inventory tracking and oversight should not be overlooked. According to the National Retail Federation, inventory shrinkage—damaged, lost, or stolen items—cost U.S. retailers an average of 1.33 percent of their sales in 2017, resulting in a total loss of $46.8 billion. Theft, fraud, and simple human error can cause losses and thus hurt profitability, the most important bottom line.
Supply chain managers therefore have a number of complicated tasks to perform. There are multiple stakeholders involved at different stages of the process, and in a post-Covid world the importance of supply chain resilience has become even more evident. A supply chain that runs smoothly and reliably can provide a major competitive advantage.
Difference between Value Chain and Supply Chain
Incidentally, let’s clarify the differences between a supply chain and a value chain here, as some people tend to confuse them. Supply chains cover the various stages of delivering products to customers, while value chains refer to the various activities undertaken by companies to add value and gain a competitive advantage.
Supply chain is the interconnection of all functions, parties, resources and activities involved in moving a product from supplier to customer. Supply chain operations aim to achieve this goal as quickly and cost-effectively as possible, while ensuring customer satisfaction.
Value chain involves going the extra mile to gain a competitive advantage. The idea is to add value at every step, from sourcing a quality product to delivering it to the customer in a timely manner. For example, using branded packaging or a white-glove delivery service.
Supply Chain Examples
Let’s start with an example that can be applied to most retail businesses: the generic supply chain.
It begins with the procurement of raw materials, which are typically taken by a logistics provider to a manufacturer for conversion into finished goods. The products then go to a supplier or distributor, who delivers to a retailer, who sells the product to consumers.
Logistics tenders i.e. RFI, RFP, RFQ?
Large retailers like Walmart keep costs low by having fewer links in their supply chains. They buy generic goods in large quantities, directly from manufacturers. The products are moved directly from the manufacturer to the warehouse, while the stores are large enough to act as distribution centers. With vendor-managed inventory, suppliers are responsible for managing the products in Walmart’s warehouses.
The case of e-commerce is different, when a company sells various products online.
They still need to source finished goods from manufacturers or suppliers, but the delivery goes directly to the customer, eliminating the step of distributing goods to retailers. Once the warehouse receives an order, the items are picked, packed, picked up by a courier, and delivered to the customer.
Amazon’s supply chain is more complex, as it sells products from brands and independent sellers, as well as its own goods. But it ensures low prices and fast, free delivery through automation, a network of strategically placed warehouses, and its own delivery fleet.
Other successful examples include Nike, which uses lean manufacturing to improve productivity and reduce waste, and Coca-Cola, which keeps its supply chain in-house with company-owned bottling and distribution operations.
What is the difference between operations management and supply chain management?
Before we go any further, however, it is worth clarifying the differences between supply chain management and operations management. The two are often confused because there are some overlapping areas, in particular, the primary goal of both is to increase efficiency and ultimately profitability. However, operations and supply chain management refer to distinct sets of processes.
What is Supply Chain Management?
Supply chain management is, as the name suggests, concerned with managing the supply chain and its various facets: sourcing raw materials, manufacturing, storing and selling finished products, and then ensuring they reach consumers. The supply chain business process includes monitoring production planning, liaising with suppliers and service providers, and overseeing the smooth running of logistics.
Efficiency, consistency and safety
So, what is the purpose of supply chain management? Well, efficiency is a key concern of SCM, but it is not the only one. Supply chain planning and management is also about consistency, ensuring that the various aspects of the supply chain function reliably, and security (including cybersecurity). Supply chain managers must also ensure proper supply allocation, demand forecasting, inventory management, warehousing, and delivery.
Supply chain managers must also coordinate their efforts with suppliers and logistics companies. At the same time, they must subject these partners to rigorous scrutiny to determine whether or not they are meeting required standards of quality, safety, and reliability.
What is Operations Management?
Of course, SCM is an important aspect of improving business efficiency, since supply chain and logistics are so central to the way many companies operate. However, it is only concerned with the supply chain itself. Operations management goes beyond that and is concerned with ensuring efficiency across the board, looking at all aspects of business processes.
Operations Managers are responsible for planning, coordinating, and monitoring business operations. To do this job well, they must be able to balance the needs of competing stakeholders and undertake detailed analysis of relevant metrics. They must maintain high standards, provide accurate forecasts, and ensure that customer needs are met.
The important role of supply chain management
As we just discussed in the previous section, a well-functioning supply chain is central to the way many companies operate. For these companies, if their supply chain fails, it is likely to have serious consequences. Repeated supply chain failures can have devastating implications for many companies.
For example, a series of global events, including the COVID pandemic and the war in Ukraine, led to a supply chain crisis in early 2020. Shipping costs increased, manufacturers couldn’t source parts, and customers faced empty shelves or long delays in getting their items. There were also huge fluctuations in demand for certain items.
While this type of disruption is outside the control of suppliers or retailers, effective supply chain management can mitigate its effects. If your company sources products from local manufacturers and suppliers, goods won’t have to travel as far.
And if you maintain strong relationships with multiple suppliers, you’ll have options if one of them is experiencing major delays. Creating an agile supply chain will help you respond quickly to changes of any kind.
We mentioned in passing earlier that efficient supply chains tend to lead to happier customers. This is because it is easier for these customers to purchase the products they need, as the supply and shipping of goods is smooth. This means that their overall experience using the business in question is better, and in turn, this means that they are more likely to recommend it to others.
According to Optoro’s Tobin Moore, customers who are satisfied with their experience using a company’s returns process are 71% more likely to purchase from that company again in the future. It makes sense that this type of customer satisfaction also drives more growth through word of mouth and referrals. Think of satisfied customers as unpaid brand ambassadors.
Order management is a complicated business and requires a capable pair of hands to ensure everything runs as smoothly as possible. Supply chain disruptions are inevitable, but SCM is all about minimizing them. Effective supply chain management systems enable shipping and fulfillment teams to meet consumer demands.
Supply chain managers, therefore, have a lot of responsibilities when it comes to maintaining good customer relationships. In addition to ensuring that products reach consumers quickly, there also needs to be reliable visibility. In other words, customers need to be able to ascertain where their products are while they are still waiting for them. This helps provide them with additional reassurance.
We should remember that good supply chain management and good customer service are intertwined: you can’t have the latter without the former. SCM therefore has an important role to play in minimizing customer issues and thus reducing the pressure on customer service teams.
However, supply chain managers’ responsibilities are not just on the customer side. As we have discussed, they must also take responsibility for maintaining good relationships with suppliers. It should be obvious that supplier management must be handled with great care, as deterioration of relationships can cause any number of complications.
A company’s ability to deliver to its customers depends on its suppliers, which is why strong working relationships with suppliers should always be a top priority. In particular, communication is key to successful business partnerships. Managers must make it clear to suppliers what is required of them and determine that they can provide it.
Ultimately, effective supply chain management enables companies to better understand the different links in the chain, the people and organizations involved at each stage, and the ripple effects of any disruption.
It demonstrates the importance of clear communication between manufacturers, suppliers, distributors, retailers and customers. Increased awareness also encourages your company to work hard to meet its obligations, in order to avoid unnecessary delays.
These models can be grouped into two general categories: those oriented towards responsiveness (agile, customized and flexible supply chains) and those oriented towards efficiency (efficient, fast and continuous flow supply chains).
However, they all have the same basic goals: improve productivity, keep costs low, reduce risk, and keep customers satisfied. Companies typically operate a hybrid of one or two models, as supply chains must be both efficient and responsive to meet demand.
For example, efficiency-oriented models could be used by a manufacturer that makes low-cost footwear in a market flooded with very similar products. They need to stay competitive and create volume to keep costs low, which is their customers’ primary concern. However, the potential downside of these models is that you may end up with excess inventory.
Responsive supply chain models could be used by manufacturers that produce on demand or for a variety of different industries. This is because they need to be able to handle uncertainty and require the flexibility to quickly change raw materials. To use these models successfully, you will need the ability to accurately predict trends.
Supply Chain Management and Operations Challenges
The complexity of supply chains inevitably means that many things can go wrong. One thing is for sure: there is rarely a dull moment in supply chain management. There are many challenges that companies will need to be prepared for. We will focus on some of the most important ones here.
One of the most important things to remember about supply chains is that seemingly minor issues and inefficiencies can cause much bigger problems down the line, and even the most detailed plans can go awry. If there is waste in the supply chain, or if productivity in one area is sub-par, this can negatively impact profitability.
We have discussed the importance of customer and supplier relationships and how the two are interconnected as part of the same ecosystem. If a company allows relationships with its suppliers to deteriorate, customers are likely to suffer as well. Conversely, if there is genuine goodwill and loyalty between a company and its suppliers, customers should benefit through improved reliability and product quality.
It is inevitable that some items will be lost or held up somewhere along the way. However, an efficient and robust supply chain with reliable tracking and authentication can go a long way in reducing the risk of goods being lost or delayed.
For this to happen, supply chains need to be transparent. This can be difficult because there are so many different aspects, especially when considering globalization, with multiple business units involved. Communication is key to supply chain transparency: everyone needs to be able to ascertain what is happening upstream and this knowledge needs to be communicated to the relevant internal and external stakeholders (and ecommerce return logistics italy)
Supply Chain Management Process
Now that we understand the importance of effective supply chain management and its challenges, let’s take a look at how the process actually works:
Planning phase
Like any successful process, SCM begins with a plan or strategy. This stage is where you outline how you will manage the various elements to ensure the right products are in the right place at the right time. In addition to meeting customer demand, you will want to design a plan that will help you maximize revenue (and b2c logistics turin).
Your plan should be based on a set of measurable metrics and benchmarks for success, which in turn should be based on your business goals and resources. For example, is it feasible to offer next-day delivery? Is there a contingency plan for events like power outages? What software system will you use?
Procurement phase
Now that you have a plan in place to manage your supply chain, the next step is when you source raw materials and/or suppliers. You may need to source components to create products or just the finished products. In either case, it pays to select reliable partners and build strong relationships with them.
It makes sense to use local suppliers where possible to reduce transportation costs. Also work with multiple suppliers in case one of them has a problem, but not so many that it is difficult to keep track of them. You will need to negotiate pricing, payment terms, and shipping logistics.
Production phase
The production phase is a critical part of SCM. You will need to decide whether to order products far in advance or “just in time” to meet demand. Even if you buy ready-made goods, you will still need to consider the time it will take to produce, test, and package them before moving them to your supplier’s warehouse.
Of course, if your company has its own manufacturing facility, you won’t need a supplier, which speeds up the process a bit. You’ll also be able to monitor progress with metrics to measure quality levels and employee productivity (and b2c logistics milan).
Distribution phase
Now we come to the distribution and delivery stage, where you actually get your products into the hands of consumers. Depending on your business model, goods can be delivered from the supplier to your warehouse for processing and subsequent distribution, to a retail store for sale, or directly to customers.
This is sometimes called the logistics phase, where you and your partners (vendors, carriers, 3PL providers) work together with your internal teams to get the goods out on time. Here, a robust order fulfillment system that includes picking, packing, and transportation can transform your company’s supply chain (and b2c logistics parma).
Return phase
As a retailer, returns are probably the bane of your existence. But they are increasingly something you have to deal with, especially if you sell online. The most obvious reason is that merchandise was damaged or defective, but e-commerce customers can return items that arrived too late or because they ordered multiple options.
Returns can arrive in the mail or at a physical store, even if they were purchased online. You need a robust system to process them, ensuring that customers are refunded quickly, that undamaged products are returned to your inventory, and that unresellable items are disposed of or recycled. Your customer service team should also be ready to handle customer inquiries and complaints.
Lead Time Calculation in Supply Chain Management
If you don’t calculate your lead time effectively, you’ll end up running out of high-demand products or running out of storage space for a stockpile. The shorter the lead time, the faster your goods can be sold, but your calculation must be accurate. Here’s how to calculate it:
Reorder Delay + Supply Delay = Delivery Time
Reorder delay is the time it takes a supplier to accept, process, and produce your order. Supply delay is the amount of time it takes for your shipment to reach your warehouse after you place your order.
Let’s say you decide, based on last year’s successful sales, that your brick-and-mortar store will sell a particular Christmas ornament made in China. It takes the manufacturer five days to process the order and create the requested items, plus 14 days to ship them to your warehouse. It takes another day to move the boxes from the warehouse to your store.
5 days + 15 days = 20 days
So, if you want the items to be available in store right after Halloween, you will need to place your order at least 20 days in advance.
How to Reduce Lead Times in Your Supply Chain
Reducing lead time can help you streamline operations, improve productivity, and increase revenue. Accurate forecasting (which we’ll cover in the next section) is the best way to do this, as you’ll learn the optimal time to place an order.
Efficient inventory management processes, such as automatic stock replenishment or Just-In-Time strategy, also help you reduce lead times. You may also consider ordering partially assembled products and finishing them in-house, provided you have robust warehouse processes.
Good supplier management cannot be overstated. Strong relationships mean you will be kept informed if there is a potential problem and you can offer incentives to encourage suppliers to prioritise your business. Using locally sourced goods will also reduce delivery times (and d2c logistics italy).
Why is forecasting important in supply chain management?
Forecasting is a crucial aspect of SCM, as it tells you what to order, when to order it, and in what quantities. It helps you mitigate supply chain risks and the problems of having too much or too little inventory.
Supply forecasting involves considering potential disruptions in the global supply chain. Demand forecasting requires analyzing past sales figures and customer behavior, while price forecasting takes into account likely market fluctuations.
Logistics vs. Supply Chain: Key Differences
Logistics is an essential component of supply chain management. While SCM covers a broad range of activities and governs overall operational performance, logistics is about moving and storing goods and services within the company (and b2b logistics italy).
Focusing on the efficient and cost-effective delivery of goods to the end customer, logistics ensures that the right products are in the right place at the right time. It involves managing and monitoring the people and resources needed to achieve this goal (and b2c logistics italy).
Supply Chain Push vs. Pull
A push supply chain strategy is one in which your products are “pushed” from manufacturing to retailers based on forecasts. You order or produce a large quantity because you know it will sell. This is useful for meeting consumer demand, but if you make a forecasting mistake, you could end up with excess inventory.
A pull-based supply chain, on the other hand, is entirely demand-driven. Similar to the Just-In-Time strategy, goods are produced and purchased only when they are needed. It is useful when there is limited demand for a certain product or when you want to reduce storage costs. But a sudden spike in demand could cause a stockout.
Of course, it is possible to use a combination of the two models.
Procurement vs. Supply Chain: Key Distinction
Procurement is one of the links in the Supply Chain. It is the process of acquiring all the goods and services a company needs to deliver finished products. This includes finding suppliers, forecasting demand, negotiating prices and contracts, communicating with suppliers, and settling invoices.
While procurement aims to ensure a steady flow of supplies, Supply Chain encompasses the end-to-end process that gets products into the hands of customers.
Traditional Supply Chain vs. Supply Chain Network
Parts of a traditional linear supply chain often operate in silos, with limited visibility and data sharing. They can only react slowly to changing conditions, rather than using real-time data and forecasts for a proactive approach.
Thanks to digital technology such as machine learning and artificial intelligence, many organizations can now transform corporate supply chains into supply networks, which are ecosystems of tightly connected partners. With integrated systems and processes, information and materials flow seamlessly between these links, allowing companies to remain agile and responsive.
How to effectively manage a supply chain
Managing a supply chain is a major undertaking. It requires diligence, the ability to stay on top of industry trends, a fully strategic mindset, a propensity for hard work, and great attention to detail. The challenges of SCM are only becoming more complex as global markets (and e-commerce logistics parma) continue to expand.
However, there are some general rules that you should follow to effectively manage your supply chain operations. As we have said, communication is of vital importance. You need to communicate with your stakeholders, suppliers and customers in a clear and consistent manner. Any uncertainty or lack of clarity can cause a lot of damage, leading to confusion, delays and potentially lower productivity and profitability (and ecommerce logistics parma).
We also mentioned the importance of keeping up with new trends. This includes not only new types of methodology, but also new technologies. Systems that help you manage supply chain integration can cover a range of bases, including inventory planning, real-time reporting, visibility, and fraud prevention.
Overreliance on historical data can be more of a hindrance than a help when it comes to supply chain management. Real-time planning can enable more effective responses to unexpected disruptions; with real-time visibility across the supply chain, companies can improve inventory control and therefore improve efficiency.
Many companies are taking advantage of the revolution in artificial intelligence and automation, and this process is rapidly transforming supply chains around the world. Brightpearl’s workflow automation system allows companies to process more orders with the same number of staff, reduce errors (thus making customers happy), and facilitate faster, more flexible deliveries (and e-commerce logistics turin).
Frequently Asked Questions about Supply Chain
What is Supply Chain Management?
Supply chain management is the control and optimization of the supply chain process, which sees your goods travel from supplier to customer. It covers supplier communication, sourcing, logistics, transportation and everything else to get the goods to the right place at the right time.
With the right supply chain solutions you can minimize costs and maximize customer satisfaction (and ecommerce logistics Turin)
What is lead time in supply chain?
In the Supply Chain, lead time is the period of time between placing an order with a supplier or manufacturer and the arrival of the product in the warehouse or store (and e-commerce logistics Milan).
If you sell online or use dropshipping, you also need to consider the customer lead time, or the time it takes for an order to arrive at the customer’s address (and ecommerce logistics milan).
What are the factors that can influence supply chain management?
Factors that impact SCM include internal issues such as poor planning and inefficient processes, which can lead to out-of-stocks, waste, and delayed customer deliveries. These can be addressed by using the right software for supply chain management and other retail operations (and ecommerce logistics italy).
Other factors, such as a shortage of raw materials, a weather event, or a pandemic, may be out of your control, which is where risk management comes in. For example, mitigating a spike in transportation costs by using local suppliers and e-commerce logistics Italy)
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