MU insights | What is supply chain management and why is it important?

What is supply chain management and why is it important?

The global economy that we live in is driven forth by an intricate networks and systems that join forces with one another to support and facilitate resource extraction, production, manufacturing, transportation, and sale of goods worldwide. This is known as supply chain, and it plays a huge role in providing products and services to consumers.

The outbreak of COVID-19 in 2020 has forced many businesses and factories to close down, which had a serious impact on the global supply chain. The effects of the pandemic and its global lockdowns showed how crucial yet fragile the world”s highly interconnected supply chains were.

As a result, the term ‘Supply Chain Management’ (SCM) emerged as the power driving forth the flow of goods and services from a business. Supply chain management is the backbone of any successful business operation as it encompasses the planning, execution, and optimization of all activities involved in the procurement, production, and distribution of goods.

Understanding supply chain management

At its core, supply chain management (SCM) is the centralized management of the flow of goods and services. It involves overseeing the movement and flow of materials, completed goods, and processes to ensure products are provided to customers. Through involving the coordination of various entities such as suppliers, manufacturers, distributors, and retailers, supply chain management encompasses every stage of the product process, from sourcing raw material to delivering the final product to the end customer, with the goal of maximizing profit and efficiency, and minimizing costs.

Here are some of the different aspects of supply chain management:

  • Planning and managing resources: this involves determining metrics, processes, and systems to ensure an efficient and effective supply chain that meets company’s goals
  • Sourcing and choosing suppliers: this includes choosing suppliers to provide the necessary materials, goods and services. Managing and maintaining relationships with suppliers through purchasing, receiving, inventory management, and payment.
  • Manufacturing: this is where the company uses its resources and labor to transform raw materials into something that will become the final product.
  • Delivery: once products have been produced and sales are finalized, the company will need to deliver these products to its customers in a timely, safe and cost-effective manner.
  • Returns: the return process is also called reverse logistics, and it can also be a valuable form of feedback. Whether the company would like to conduct a product recall or a customer is not satisfied with the product, the transaction with the customer must be resolved.

The core of MU Group’s supply chain management strategy focuses on strategic cost-reduction, transparency in communication, leveraging data-driven insights, integrating sustainable practices to ensure that we provide efficient and effective service for our international clients.

Supply chain management strategy planning and operation

Supply chain management (SCM) strategy is an overarching plan that involves planning, designing, coordinating, executing, and optimizing the supply chain activities. Supply chain management strategy should align with corporation goals and aim to maximize customer value while performing activities in a way that best executes strategic priorities at minimum cost.

There are multiple components that make up the supply chain strategy:

  • Network design: selecting the optimal locations and capacities of facility for production to reduce transportation costs and lead times.
  • Supplier relationship management (SRM): building good relationships with suppliers to ensure a stable supply of goods are both high-quality and are at competitive prices.
  • Risk management: identifying potential risks that may occur in the supply chain process, such as natural disasters, market changes, or supplier bankruptcies, and developing strategies to mitigate these risks.

Developing a supply chain management strategy that is agile and effective is important for a company to maximize efficiencies, but it is a long-term process that may need to be adjusted and refined to adapt to changing market demands.

Multiple sourcing in supply chain management

One critical aspect of SCM is multiple sourcing, also known as multi-sourcing. Multiple sourcing is an approach in which products or services are contracted to mitigate risks associated with over-reliance on a single source. By maintaining relationships with multiple suppliers, this helps to reduce the risks of causing sudden supply chain disruptions from unexpected factors or events such as natural disasters, geopolitical tensions, or supplier bankruptcy. This approach also ensures flexibility, continuity of supplies even in the face of unexpected challenges, which in turn, enhances the resilience and adaptability within the supply chain. However, one of the challenges with multiple sourcing is it can be difficult to develop and maintain a good, working relationship with multiple suppliers at the same time.

Benefits of supply chain management and why is it important?

Supply chain management is important because it can help reach and accomplish different objectives in the business world. For example, product quality can be improved through controlling the manufacturing processes, and as a result, reduce the risk of returns and lawsuits while building a stronger company brand. At the same time, having control over shipping procedures and costs can improve customer service by avoiding costly shortages.

The benefits of effective supply chain management are multifaceted. Here are some of its benefits:

  • Efficiency: enhances operational efficiency by streamlining processes, and minimizing wastage.
  • Reduces costs: optimizes inventory levels and distribution networks, SCM facilitates just-in-time production and delivery, thus reducing carrying costs and enhancing responsiveness to customer demands.
  • Collaboration: fosters collaboration among supply chain partners, leading to better communication, distribution of information, and overall revenue.

Issues in supply chain management

There are also issues linked to supply chain management, some of these common issues include:

  • Material shortages and scarcity: material scarcity can have negative effects on the business, such as inability to meet customer needs, loss in profits, revenue losses.
  • Changing customer attitudes: change in customer demands can lead to slower vendor onboarding, revenue loss due to demand mismatch.
  • Inflation: with the increasing inflation, businesses must be prepared for inflated costs of the procurement of raw materials, final products, and more. The consequences of inflation can often lead to higher storage fees, lowered revenue and more.

As e-commerce becomes more popular globally, MU Group have taken and will continue to take proactive steps to overcome supply chain challenges and mitigate the impacts of these challenges and disruptions.

Purchasing and supply chain management

As mentioned above, supply chain management involves the coordination of flow of goods across various entities, such as suppliers, manufacturers, distributors, retailers, and customers to ensure a smooth and efficient movement of products and services through the supply chain.

Purchasing also plays a crucial role in supply chain management as it serves as the bridge between suppliers and the rest of the supply chain. Purchasing involves the process of acquiring goods or services from suppliers, such as identifying potential suppliers, negotiating contracts, placing orders, and building and managing relationships with suppliers. Effective supplier selection ensures that the supply chain has reliable sources of goods and services to meet operational needs. Additionally, purchasing departments often engage in ongoing relationship management with suppliers to ensure quality, reliability, and alignment with business objectives. Overall, the main goal of purchasing is to ensure the acquisition of the best quality of goods and services are obtained at the best price from the right suppliers, and at the right time to meet the company’s needs.

Conclusion

Effective supply chain management is crucial for businesses to achieve a competitive advantage, meet customer needs, ensure customer satisfaction, and adapt to the changing demands of this competitive market. MU Group is always ready to take on different challenges, continuously provide products with better quality and ensure our customers are satisfied!

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