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The Strategic Importance of Supply Chain Management

Michael Wilson | Mar 14, 2017

Supply Chain Management (SCM) is an important part of every organization, whether small or large. SCM is the active management of supply chain activities to maximize customer ...

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Supply Chain Management (SCM) is an important part of every organization, whether small or large. SCM is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage, according to Robert Handfield, Ph.D. SCM also deals with the movement and storing of materials needed to create a product, as well as inventory management, and keeping track of finished goods from where they were created to who they go to. Bottom line: there is no overstating the importance of Supply Chain Management.

According to SCM experts, it's also defined as the design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally. The other areas that SCM is related to are operations, logistics, procurement, and information technology.

If companies use Strategic Supply Chain Management, the organization is then able to function at optimal capacity to provide and distribute various products and materials.

The Interconnected Supply Chain

Essentially, the world can be viewed as one large supply chain. Consumers and producers are constantly communicating with each other, and a product goes through many hands before reaching its destination. Supply chain management deals with major issues such as the growth of multinational corporations, partnerships, global brand expansion, and outsourcing.

Everything that affects the world affects supply chain management, from fluctuating gas prices to environmental concerns. SCM is the single most important business discipline in the world today, and has only gotten more interconnected. The importance of a well-run supply chain cannot be overstated. According to a report from Allianz SE, business interruptions (BI) account for higher proportions of property loss than 10 years ago. From 2010 to 2014, claims from 68 countries were at $2.4 million on average – all because of the increasingly interconnected supply chain.

Integrated and Cooperative Logistics

SCM is necessary for the foundation of all societies. Supermarket operations for example, deal with a wide variety of producers, and are essential to providing goods to consumers. If a supermarket industry does not have a good supply chain management branch, this can affect a wide variety of citizens who need a supermarket to survive.

An effective supply chain that can meet the needs of both producers and consumers is one that takes an integrated approach towards management. Coca-Cola’s supply chain in Western Europe, for example, integrated their entire supply chain, from manufacturing plans to retail outlets by shortening its order to cash and record to report processes.

If operations in multiple locations are cooperating and communicating, this can make supply chains much more efficient. Logistics are also much easier to observe and manage when every part of an integrated supply chain is providing inventory data and procurement data that can be backed by more than one entity.

Better Supply Chain Better Business

Supply chain management has a huge impact on business. Good SCM can directly improve customer service. The right product and the correct quantity must be delivered in a timely manner, to appease both producers and distributors. Consumers want to be able to know the location they must go to obtain the goods that they want.

Consumers also want a high standard of customer support. If goods are not distributed on time, supply chain management branches of a company have to assure them that they will get their products as soon as possible. SCM also has a huge impact on the bottom line of a company.

Large corporations value good supply chain managers because they improve the efficiency of plants, warehouses, and transportation vehicles in a supply chain. Cash flow is directly increased because the delivery of a product is in a timely manner, and consumers can purchase their goods.

Supply chain processes are also changing to meet customer demand and expectation. The massive cereal retailer Kellogg’s plans to save up to $475 million by 2018. Using a supply chain management system called the Kellogg Planning System (KPS), Kellogg’s can maintain production in 19 countries and sell its products in 160. KPS integrates the supply chain to streamline operations, inventory, distribution, and production. 

Forward Momentum

Supply chain management streamlines everything from product flow to unexpected natural disasters. Logistics of a large company are managed completely by supply chain managers. With an effective SCM, organizations can diagnose problems and disruptions correctly. Many organizations lack in the risk management sector due to not being able to effectively deal with potential problems. 

Organizations that want to achieve sustainability over a long period will be wise to invest in a dynamic and advanced supply chain management director. There are many potential saving opportunities that become available once an effective SCM is integrated into a company or network of companies.

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Editor's Note: This blog was originally published March 24, 2014 and has since been updated and expanded upon with new information. 

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