Mastering the Chain: The Components of Supply Chain Management
A supply chain management system is an essential for an organization to run smoothly. If it is well maintained it will aid in the smooth running, reputation, and profitability of the organization.
If poor supply chain management exists it can cause delays in supply and quality concerns. This can do extensive damage to an organization’s good name. Hence, it is important for an organization to have to manage its supply chain well.
It is imperative that all the components of supply chain management function well.
The supply chain starts with planning what raw materials are needed to create the final product. These materials are then sourced from recognized suppliers. Once located, the materials need to be ordered, received, and inventoried before storing.
Depending on the industry, it may be necessary to process or refine the materials to manufacture an end product. The resulting product should then reach the customer on time.
In this article, we will cover the four main components of a resilient supply chain management. We will also investigate what interactions and relationships should exist between the four components, and what challenges may stem from each link in a supply chain.
The Four Components of Supply Chain Management
We have already touched on the supply chain management components in our article introduction. To fully understand the importance of these components of supply chain management, though, it is important to examine each in more detail.
Beginning with the first link in the supply chain, the planning component, we will navigate the entire supply chain management process. This ends when the final product passes through the delivery component link in the chain. While cloud-based technologies and instant communications have accelerated and simplified processes, the frameworks remain the same.
Forecasting demand within the supply chain management system involves making predictions on customer demand for an organization’s services or products.
Poor supply and demand management means a company could end up with less stock or resources than is necessary to fulfill customer orders. As such, this skill is critical. It allows businesses to set accurate inventory levels for raw materials while optimizing production schedules and shipping logistics.
Accurate demand forecasting helps to anticipate changes in the market. From there customer needs can be proactively changed by adjusting the supply chain when necessary.
Demand planners will use several data analysis methods and statistical techniques. These include AI algorithms, and time-series and regression analysis.
Sales and operations planning
Sales and operations planning (S&OP) in supply chain management works in a cross-functional manner to align demand forecasts with inventory levels, production capabilities, and customer service goals.
Supply chain managers are responsible for ensuring that operational and sales teams collaborate to develop plans to maximize profitability while catering to customer demand through sound business strategy.
Sales and operations planning will typically involve several rounds of forecasting, strategy planning, and decision-making. S&OP is a critical part of balancing customer service and supply chain efficiency.
In the supply chain system, managing inventory management is one of the most important aspects of the planning component. The efficient management of stock levels is imperative to meet customer demands while keeping inventory holding costs in check.
To do this, supply chain managers need to determine what optimal inventory levels are, and order and receive stock accordingly. Inventory performance metrics like stockouts and turnover rates should also be watched.
Managing inventory well means a more effective supply chain management system. Organizations can balance the costs of inventory holdings against the risks of stockouts, and reduce lead times. By doing so, they will improve customer satisfaction through the timely availability of products.
A part of effective supply chain management is carefully identifying and evaluating potential suppliers. Thereafter, managers select the ones most suited to an organization’s needs. Criteria including price, quality, reliability, and delivery times all form part of the supplier selection process.
Inefficient and inaccurate supplier selection will result in poor supply chain management. This could disrupt the entire supply chain. Good supplier selection is critical to ensure the raw materials, components, and services needed to meet customer demand and satisfaction are sourced.
Some key steps in the supplier selection process involve defining the selection criteria and identifying all potential suppliers. Afterward, a strong supply chain manager will get the raw materials or components provided by the supplier tested and inspected.
Finally, an assessment of the supplier’s performance could lead to negotiating terms and contracts if all is satisfactory.
In supply chain management, important emphasis is placed on negotiation. Effective negotiation skills help to reach favorable terms on service contracts, pricing, and delivery schedules with suppliers.
A good supply chain manager will develop a thorough understanding of the other party’s interests. They will build rapport and trust through authentic and open communication. This makes defining clear objectives and trading points easier for the other parties involved.
Negotiation also means understanding all the legal and ethical considerations necessary for adherence to established procurement procedures and policies.
Once supply chain contracts are agreed on and signed, they need to be administratively managed and monitored to maintain strict compliance with the agreed terms and conditions. Supply chain managers involved in this role are responsible for addressing any issues that may arise during the contract period. They will also manage contract renewals and terminations.
Effective contract management will involve maintaining and enhancing positive supplier relations. This helps mitigate risks and improve supplier performance. To do this well, managers will incorporate business processes like carrying out regular reviews and establishing key performance indicators (KPIs).
Manufacturing in a supply chain management environment means converting raw materials into finished products through a production process. Effective manufacturing requires coordinating resources like labor, raw materials, and equipment in a manner that minimizes operating costs while optimizing production facilities and efficiency.
A manufacturing unit plays a critical role in the supply chain. It ultimately determines the timing and availability of products for customers.
Quality control involves making sure products or services comply with regulated and set quality standards. Through this process, an organization can be confident that its customers’ requirements and expectations are met or exceeded.
This critical function, if carried out properly, doesn’t only ensure the supply of quality goods or services for customers. Effective quality control also reduces any chance of product returns. Ultimately, this improves the reputation of an organization.
Control activities include thorough raw material inspection, monitoring of all the processes of production, and the quality testing of finished products. Should responsible supply chain managers find any inadequacies, their duty is to address these to minimize further repetition.
Methods often used in quality control include total quality management, and statistical process control. Top quality control managers incorporate continuous improvement techniques like Six Sigma into their methodology.
To maximize efficiency and lower costs in production, organizations employ supply chain management to coordinate their production scheduling. This scheduling entails planning production activity that meets the ongoing demand of customers.
When done correctly, production scheduling managers look at production lead times, capacity, and available inventory levels. They then devise plans that improve the utilization of resources while minimizing waste.
Supply chain managers incorporate capacity planning, raw material requirements planning, and production sequencing into their activities. This helps to achieve reduced lead times, make deliveries on time, and improve the overall performance of the supply chain.
Effective logistics management provides for the smooth planning, execution, and monitoring of the physical flow of goods from suppliers to customers. This means coordinating the transportation, warehousing, and inventory function to provide for optimal supply chain performance.
Logistics managers play critical roles in devising processes for deliveries. these processes include planning routes and scheduling, and ensuring that orders are fulfilled.
They are also responsible for handling reverse logistics. This means the return of any products from customers to suppliers or manufacturers.
Transportation management handles the planning, execution, and monitoring of all transportation to move raw materials, other goods, and finished products from one place to another. A transportation manager will likely answer to the logistics manager in the supply chain.
Transportation management optimizes modes of transportation and sets up third-party courier systems. They also manage transportation costs and freight rates and ensure deliveries happen on time. They are also involved in route planning, carrier selection, defining loads, and tracking shipments.
Fulfilling customer orders is of primary importance in the delivery process. Supply chain managers of this type will often be found in distribution centers. They define the processes involved with receiving and generating customer orders and picking and packing products for delivery. Finally, they ship them off to customers.
To make sure customers receive their products on time, good management ensures efficiency by coordinating inventory management within the distribution center and warehouse. They ensure accurate delivery through effective transportation and order shipment tracking.
Interactions and Relationships Among the Components
It is impossible for supply chain management to function as it should if one or more of the four critical components is not operating as it should. Likewise, if a certain component is operating better than expected, it could lead to improvement in the other components as well.
For example, the raw materials required for production could be delayed in delivery due to failings by a new supplier. This, in turn, could potentially delay every other component of the supply chain.
Poor supplier selection can cause delays in manufacturing if there are quality issues or delivery delays. This, in turn, could cause orders to not be fulfilled properly.
However, if inventory is managed well, and extra materials are kept on hand, the delay would not affect the production schedule. This means that outstanding orders can still be fulfilled.
From the above, it is evident that one component of supply chain management can affect the others, either adversely or in a positive manner.
Challenges in Managing the Components of Supply Chain Management
Several challenges exist in managing the components of supply chain management in a successful manner. These include:
Globalization and outsourcing introduces new challenges related to cultural differences, language barriers, and legal complexities.
Cultural differences can affect communication, decision-making, and relationship-building processes. A difference in culture could also influence business practices and ethical considerations between cultures.
Language barriers can hinder effective communication. This creates misunderstandings and increases the chance of error-making and decision-making delays.
Countries can introduce new rules and regulations, which can pose problems for global supply chains. This means organizations would need to navigate legalities that could be risky in order to remain compliant and minimize liabilities.
Supply chain complexity
The complexity of a supply chain can be affected by multiple tiers of suppliers within the chain. Limits in the chain’s visibility, and long lead times can also be decisive.
Multiple tiers of suppliers
Having multiple tiers of suppliers introduces additional risks and dependencies. These can impact quality, delivery, and cost. As a result, stringent management of supplier relationships and strategies for risk mitigation are more necessary.
Limited visibility in a supply chain management system reduces transparency. This increases uncertainty and trust in the supply chain. This means it becomes more difficult to identify and address pressing issues that could impact cost, quality, and performance.
Long lead times
Longer lead times impact supply chain complexity by delaying the fulfillment of orders. They force an adjustment in the supply chain in response to changing market conditions or customer demand.
Environmental and social concerns
Social and environmental concerns can cause challenges in supply and demand management due to possible increased regulations. Limited access to resources and increased sustainability expectations could also create further challenges.
Increasing regulations mean new compliance requirements in supply chains may be imposed. These could bring about further ethical considerations for organizations to adhere to for a reduced impact on the environment. Organizations would need to promote greater social responsibility in their chains of supply.
Limited resources can impact environmental and social concerns in supply chain management. A limit to resources can constrain an organization’s ability to invest adequately in technologies, sustainable practices, and social responsibility programs. This makes it more challenging to find a balance between its economic, environmental, and social objectives.
Broader sustainability expectations increase the pressure on organizations to reduce their carbon footprints. There is also more pressure to adopt more effective sustainable practices and promote social responsibility in their chains. They need to rise to these challenges to meet the expectations of their customers. Any imposed regulatory requirements also warrant consideration.
The four basic components of effective supply chain management are separate by definition. They work in tandem, however, to ensure proper planning, cost reductions and customer satisfaction.
Delivering a final product to a customer on time would not take place without a product being made efficiently. The product could not be manufactured efficiently without the cost-effective sourcing of the raw materials needed to start the making component.
Without first planning the processes needed to find out what to source, the supply chain would struggle to start in the way it should.
Each component works hand-in-hand with the ones before and after it in the supply chain. As such, it is vital that each is managed effectively and efficiently. In this way, successful overall supply chain management ensues.
What are the four components of supply chain management?
The four basic components of supply chain management are planning, sourcing, making, and delivering.
How does each component affect the others?
Every component in the supply chain management process works hand-in-hand with the others. If one doesn’t fulfill its role due to poor supply chain management, it will have a knock-on effect on all of the others. The success of the entire supply chain process depends on every component functioning well.