The Internet is one of the greatest inventions of all time. Thanks to it, almost 33% of the world’s population, that is 2.71 billion people, shop online. This number is growing every year, helping businesses scale online and operate globally without any limitations. But wait, how do companies get their products into the hands of customers on the other side of the globe?
Well, the straightforward answer to that question is supply chain management. Supply chain management is a critical pillar of the business that deals with manufacturing a product and getting it delivered to every last-mile customer. It is the most vital and complex in nature business process that every business thrives to get right in order to attain success. If you’re an aspiring supply chain management professional looking forward to building supply chain strategies in the near future, learning about the fundamental components of supply chain management would just be an excellent starting point for you.
Given below are the following topics we are going to discuss in detail:
Overview of Supply Chain Management
Supply chain management is not a behind-the-scenes operation; it’s the backbone of business that keeps everything connected and moving. In formal terms, it is defined as the process that starts with the procurement of raw materials, transitioning through product manufacturing, inventory management, and getting those products delivered to the customers.
Key Components of Supply Chain Management
Management of the supply chain is a complex process; however, in terms of components, it can be mapped into five key components as follows:
Component 1: Planning
Planning is the first component of the supply chain management process, and it all begins there. This is the phase where the strategy for the entire supply chain is laid out. Here, you configure demand for the product and how you can optimize costs in terms of manufacturing processes, procuring raw materials, and logistics optimization.
In this step, businesses first need to answer one critical question: Will the organization manufacture its products in-house or source ready-made goods? If the decision is to manufacture, the next challenge is identifying where the raw materials will come from. Should you rely on local suppliers, regional partnerships, or international sources?
The same question applies even if your organization opts to purchase ready-made products for direct distribution to consumers. Where will these finished goods be sourced from? Whether it’s raw materials or finished products, this step sets the foundation for the entire supply chain strategy. You also go ahead and do a risk assessment in this stage to make sure there aren’t any risks that can impact your supply chain, such as political implications, environmental changes, supplier failure to meet deadlines, etc.
Component 2: Sourcing (Procurement in Supply Chain Management)
One of the most crucial elements of supply chain management is sourcing. This step produces the most significant cost savings. From choosing a supplier to purchasing, receiving, and controlling inventories to ensuring that supplier payments are authorized, sourcing oversees the entire procurement process. Sourcing is much more complex for most businesses, with a few companies relying on thousands of suppliers.
Professionals in supply chain management find vendors that can fulfil a business’s requirements and negotiate contracts to get the products that are required. This can be done by focusing primarily on developing supplier relationships and keeping a network of suppliers to reduce risks and quickly address shortage problems if they arrive at any point in time.
Finding a supplier, evaluating them, negotiating with them, and signing a contract are the most essential steps in the sourcing process. Considering the company’s ethical and quality requirements it involves evaluating a supplier’s ability and credibility. An effective sourcing process enhances product quality, reduces costs, and strengthens relationships with suppliers.
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Component 3: Manufacturing and Production
Manufacturing and production are the most-metric-intensive components of supply chain management. However, before starting with the production mechanism, the first thing companies need to look into at this stage is inventory. Organizations must find answers to the questions:
- Do you have enough supplies required to build products for the month?
- Are supplies and their quality validated consistently?
By asking these questions, you will build inventory visibility using tracking software and technology.
Next, the product development phase begins. Companies carry out rigorous R&D of product development mechanisms. They will look into optimizing waste production while ensuring the developed product meets the highest quality standards.
During the manufacturing phase, companies generally ensure that they are developing just the right amount of products by figuring out market demand. They further optimize metrics like production output, production costs, production quality, employee productivity count, etc. Supply chain managers arrange the tasks required for production, testing, packing, and delivery preparation during the manufacturing phase. At this stage, companies can evaluate quality standards, production volume, employee productivity, etc., to make sure supply chain management optimization brings out the desired results.
Component 4: Distribution (Transportation, Warehousing, And Logistics)
In any supply chain, logistics and transportation play a major role in the actual physical transfer of goods from their source of origin to their destination. This section ensures that goods are transported effectively at many points of communication.
It usually addresses an organization’s requirements for producing the right amount and quality of products according to predetermined standards. Other considerations include how the products are stored, such as in warehouses, and how they are transported from these warehouses to retail locations.
Component 5. Return of Goods (Reverse Logistics)
This is the last fundamental component of supply chain management, where products that customers want to return are taken back to the manufacturers and processing plants. This particular component defines the strategy for handling customer returns. Returns, in general, can happen for multiple reasons, such as product defects, customer dissatisfaction, etc. That’s where having a defined set of regulatory return practices becomes critical.
In this stage, businesses would go ahead and plan protocols to handle the returns, such as performing quality checks, restocking for resale, or allocating them for disposal, etc. If the protocols are set up optimally, companies can attain waste reduction, value recovery, and customer satisfaction due to seamless returns.
Conclusion
In the end, the supply chain is about the effective beginning of integrated components that work as a symphony; each component has a different role in the business operation. Everything from the initial planning phase to the actual delivery phase demands certain tasks that require accuracy and the capacity to adjust as required.
As an aspiring supply chain professional, you consistently need to figure out effective techniques and technologies that can be used to optimize each component of the supply chain to achieve operational excellence. That’s where the need for upskilling becomes apparent. If you’re serious about learning supply chain management best practices from top global experts, check out Intellipaat’s supply chain management training program in collaboration with IIM Ranchi right now.