Supply chain management (SCM), is the process of controlling the flow of services of a company, mainly manufactured goods. This covers everything from the initial process of design and turning raw material into desired products, to planning, and execution. Monitoring all supply chain activities during product conception all the way down to delivery ensures that the services are of good value, and that there is a demand for them. Aside from the logistics, efficient supply chain management also helps an organization build a thorough infrastructure, and allows business owners to maintain their establishment’s performance. To put it simply, follow this easy guide to understanding how supply chain management works.
The 5 Components of SCM
The supply chain management process involves five key components which are plan, source, make, deliver, and return. This cycle follows the creation of goods, tracks their delivery and overall performance, as well as monitors cash flow, resources, and design improvements. Here, businesses will ensure there’s no shortage of raw materials to create products, manufacture them as designed, and sell and deliver final products to end consumers. For a more in-depth review, read on to learn the steps taken during supply chain management.
Step 1: Calculate Market Demand
If there’s no demand for your product, you won’t get your company off the ground. On the other hand, if there is a demand for your product, there’s likely to be competition not far behind. Therefore, the first step in SCM is to calculate market demand for your offerings and ensure you are filling a void in the market. Merchandise planning is the best way to ensure you have a well-thought-out approach to buying, selling, and planning your merchandise to ensure you make a sustainable profit. This also ensures you maximize return on investment (ROI).
Moreover, looking into marketing techniques such as trade promotion planning helps you increase demand for products. This is a commonly used method in SCM to evaluate product performance in retail stores. Trade promotions are a great way to increase short-term retail consumer demand.
Keep in mind that during the process of demand management, you are focusing on reliability. This ensures that you won’t face a shortage of materials to offer consumers. You want the demand for your products to be continual. Therefore, demand planning is crucial to determine the accuracy of revenue forecasts, and to stay ahead by aligning inventory with earning seasons to enhance profitability.
Step 2: Manage Supply
When managing supplies, planning revolves around the following cycle: supply, production, inventory, capacity, and distribution. With this, an organization determines the best way to fulfill needs addressed in the demand plan. The objective is to ensure a supply chain that meets the financial and product requirements of the enterprise.
When beginning production planning, the organization focuses on manufacturing and resources. These resources include employees, material, and capacity planning. Then, supply planning comes into play, which focuses on collaboration with suppliers and schedules. Once these steps are taken care of, businesses focus on inventory management. This is crucial to ensure optimal quality of products; most companies rely on inventory management software, as this is almost impossible to track without AI support. Inventory planning also requires the planned delivery timing of supplies to align with production and sales needs. Then, the focus is redirected to capacity planning, which determines the equipment needed as well as production staff to ensure the chain works in a timely manner to meet product and consumer demands.
The final step in supply management is distribution. Networking and planning are involved to oversee the goods and their movement following distribution. This allows the business to keep track of the product from the manufacturer/supplier to point of sale. Distribution management also includes packaging, warehousing, and analyzing logistics.
Step 3: Plan Sales and Operations
Sales and operations planning (S&OP) is a process that is integrated, monthly at least, into support leadership in bettering operations or at least maintaining performance. This step focuses on aspects like finding the key supply chain drivers, monitoring sales and marketing, as well as scouting for sales-boosting techniques, as well as observing production, inventory, and new product introduction. S&OP has a huge impact on business finances, which is why it is crucial to make better-informed decisions regarding all processes of supply chain management.
It is important for companies to keep in mind that products will have an expiration date for their profitable life; some products may not sell well at all. The final step in SCM is product portfolio management which is the process of documenting the lifespan of a product from idea creation to market production. Not only does this help to commercialize products to maintain market demand, but it also helps improve product creation, gauge how well a product contributes to sales, and helps to plan new product introduction.