The process adopted by organisations to monitor all steps connected with developing a product – manufacturing, inventory management and distribution is called a supply chain.
Consequently, the term supply chain management (SCM) refers to streamlining all the above steps to stay ahead of the market competition, yet maintaining customer satisfaction at the same time.
Why is supply chain management essential?
Supply chain management is essential because of several reasons:
- Reduces operating costs – By eliminating the need to search for a supplier of raw materials, supply chain management reduces the cost of obtaining raw materials. Holding contracts with other members of the supply chain also reduces the time spent in negotiating terms. These contracts, usually for a substantial period lowers the risk due to price fluctuations apart from helping an organisation to prepare a proper budget.
- Better cash flow – If SCM works smoothly without getting disrupted at any point, then it ensures proper availability of cash at all points. Smooth cash flow, in turn, will ensure that the production process works efficiently. Similarly, better management of a business’ cash inflow and outflow will boost profit.
- Reducing the cost of inventory – An efficient supply chain management ensures that the cost of storage of both raw materials and finished goods is reduced. Under a well-managed SCM, raw materials are stored for a shorter period since the manufacturing time reduces.
Accordingly, faster distribution means finished goods are kept in storage units for a shorter period, which in turn, aids in cost reduction.
- Improve customer satisfaction – Success of a business is highly dependent on customer satisfaction. Supply chain management allows a business to better respond to the needs of their customers. Strong customer support as part of supply chain management is necessary that will keep a record of customer grievances and accordingly align the demand and supply process of the organisation.
- Timely production – Supply chain management helps in the timely production of goods and services because of effective management at each stage of production and thereby increases savings off the overall working capital.
Supply chain management, therefore, forms a crucial part of any business. A well-developed supply chain management will contribute to an organisation’s growth.
So, SCM is an essential topic that every businessman should know about. There are multiple ways which one can adopt to improve the efficiency of their SCM.
Ways to improve supply chain management –
There are multiple measures, including the ones given below that help to determine the financial success of your business –
- Enhanced distribution network – The distribution network of your business is the foundation of having an efficient supply chain management system. Your distribution network has a major effect in your business model, starting from sales strategy to delivery tracking of the finished goods. An enhanced distribution network not only reduces product decay but also improves customer service.
Hence, possessing a proper distribution strategy facilitates the overall supply chain of the business.
- Proper inventory management – Inventory is regarded as one of the valuable assets. A proper inventory management system helps to keep detailed information of your stocks, which in turn, enhances inventory control and offers easier accounting. An efficient inventory management system allows you to possess the correct amount of stock at the right time. There are several types of inventory management methods, such as JIT, MRP, EOQ, etc.
By adopting the above investment management techniques, an entrepreneur can streamline their firm and apply for a business loan in the future.
Such loans, provided by reputed NBFCs such as Bajaj Finserv, help to purchase better raw materials and production equipment.
Hence, business owners need to incorporate a well-structured supply chain management in their business model.
Moreover, business owners can hire supply chain managers before purchasing the appropriate SCM software to streamline the manufacturing process.