Supply Chain Management: Definition, Benefits, and Stages

Supply chain management is a term that refers to a set of strategies and business activities related to the flow of goods and services produced. These activities include planning, supplying, producing, distributing goods and services, until they are accepted by consumers.

With proper supply chain management, your business or business will get higher profits because an optimized supply chain results in lower costs and faster production cycles. Each business unit or business has a different management strategy, adapting to supply and demand.

Therefore, you as a business actor need to know the components and stages of supply chain management in accordance with the needs of the industry and your business development. This article will discuss matters relating to supply chain management and its application in business.

 

Benefits of Supply Chain Management

Summarized from the book Success in Supply Chain Management (Willem, 2019), the right application of SCM will have a positive impact on increasing company profits and growth. Here are the benefits.

1. Consumer Satisfaction

Satisfaction with the goods or services ordered makes consumers willing in the long term. To make consumers stay loyal, you as a producer must be satisfied with the services provided.

2. Increase Income

The number of loyal customers, coupled with the number of company partners, has an impact on increasing the company's overall revenue. The goods produced by your company will not be in vain because they are in demand by customers.

3. Lowering Costs

Proper supply chain management will result in reduced costs incurred for distribution thanks to the achievement of integration of the company's goods or services to the final consumer.

4. Higher Asset Utilization

The company's main asset, namely human resources, will be more trained and skilled so that they are able to empower the use of technology to meet the smooth implementation of the supply chain.

5. Increased Profit

The increasing number of loyal consumers of products produced by your company will have an impact on increasing company profits.

6. The company is getting bigger

From profits that gradually increase, the company will progress and develop so that it grows stronger.

 

Basic Components of Supply Chain Management

Summarized from the Journal of Management Governance 13 (Worthen & Wailgum, 2008), the implementation of supply chain management has several basic components as follows.

1. Planning (Plan)

The success of supply chain management begins with the process of determining strategy by business people. The process of formulating the right strategy aims at achieving efficiency and cost effectiveness and ensuring the quality of the products produced until they reach the hands of consumers.

2. Source (Source)

Companies must choose suppliers of raw materials who are credible and able to support the production process carried out. Therefore, your party must be able to set prices, manage shipments and payments for raw materials, as well as maintain and improve business relationships with suppliers.

3. Making (Make)

Your party must make a schedule of activities needed in the production process, product testing, packaging, and preparation for product delivery. This is the most important stage so your company must also be able to measure quality, production output, and worker productivity.

4. Delivery (Deliver)

This component requires the company to be able to fulfill orders from consumer requests, manage a network of storage warehouses, select and sort out distributors to deliver products to consumers, and set up an easy payment system.

5. Return (Return)

Supply chain management managers must create a flexible and responsive network to address complaints or complaints and return defective products from consumers.

 

Supply Chain Management Stages in Business

The application of supply chain management in business includes six stages in business. Here is the explanation.

1. Customer (Customer)

The supply chain management process starts from the consumer who orders the goods. In this ordering process, the customer will provide information related to the product, such as the order quantity and delivery date.

2. Preparation (Planning)

After the order is received, your company can create a production strategy or plan to fulfill the order. The production team is responsible for providing raw materials according to the required requirements.

3. Transaction (Purchasing)

This stage includes the purchase of product raw materials which are carried out after there are details of the production plan. The purchasing team will contact the supplier for the purchase of raw and supporting materials and record the date of receipt and the amount of raw materials purchased.

4. Raw Materials (Inventory)

After the raw materials are purchased, quality checks will be carried out. If the quality meets the specified requirements, the raw materials will be stored in a storage warehouse for later processing.

5. Production

This step includes the processing of raw and supporting materials to be used as products according to consumer orders. After going through the production process, the goods will be stored in the warehouse first to be prepared for the next stage.

6. Delivery (Delivery)

The last stage in SCM is the delivery of goods from the factory to be distributed to consumers who have ordered products. The main task of the courier is to ensure that each item is delivered in accordance with the conditions, quantities, and dates that have been ordered.

 

Examples of Supply Chain Strategies for Business

The following supply chain strategies can be applied in a business:

1. On-Demand Management

One of the aspects covered by SCM is the consumer. This means that it is very important to look at historical data on what customers need and share that information with all stakeholders in the supply chain.

That way, the cycle can run more efficiently. Your company will also be better able to anticipate future customer demands.

However, this strategy takes time to adopt and getting accurate numbers is tricky. In addition, the analysis of these figures can be interpreted in different ways which will lead to the potential for bias or uncertainty.

2. Agile Management Based on Circumstances

This supply chain strategy focuses on changes in the market, material availability, seasonal fluctuations, and consumer demand and how your company can agilely respond to them. If you can apply this strategy correctly, the supply chain cycle will run more efficiently and effectively.

For example, a company may buy some finished materials and then quickly carry out production accompanied by adjustments in response to current market conditions. This strategy works best if the product can be modified quickly or has a short service life.

You can't apply this strategy to all situations. The application will not be suitable if your company requires more long-term resource planning. Instead of saving money, what happens can increase waste and inefficiency.

3. Collaborative Supply Chain Management

Considering that there are many parties involved in the supply chain, of course the collaboration in line will support increased efficiency. For example, your company collaborates with raw material suppliers in terms of providing specialized transportation services so that delivery can be more guaranteed.

This collaboration is not always an easy thing to do, but it can provide significant savings and improvements in terms of performance. This strategy can also anticipate changes that occur based on market conditions, for example, pandemic conditions that affect all aspects of the industry.

Another advantage of this strategy is the sharing of costs and risks so that it is not borne by one party only. Therefore, there is a need for clear communication and agreement on the priorities and objectives of each collaboration so that this collaborative strategy can run in a balanced and concurrent manner.

Find out more about Supply Chain Management by following various trainers. One of them is the Supply Chain Management Program from prasmul eli. You can get various knowledge about purchasing strategies to supplier selection.