The Value of Supply Chain Management

Crisis is said to be a catalyst for change. As companies around the world strive to find competitive advantage and improve profitability, we believe now is an excellent time to review the value that today's supply chain management (SCM) brings.

Regardless of sector or size, SCM is a critical component of every organization seeking to maximize customer value and optimize profits. With sales plummeting and costs skyrocketing, industries that previously struggled with sourcing and SCM are now turning to it in a bid to find solutions and improve profits.

According to Deloitte, with the pandemic and associated economic slowdown, cost and cash management is seen as essential in almost all industries. In addition, organizations are addressing and managing extreme risk and supply continuity issues. While many companies are not fully prepared for a disruption of this magnitude, some may not yet feel the full impact of the crisis on their business.

However, supply chain management is often vaguely defined and sometimes even viewed as logistics management, so let's start there.

The Council of Supply Chain Management Professionals (CSCMP) defines supply chain management:

Supply chain management encompasses the coordination and collaboration of all planning and management activities related to suppliers and sourcing, transportation, and all logistics management activities Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. Essentially, supply chain management integrates the management of supply and demand within and between companies.

SCM allows for collaborative work that is often done in isolation and ensures that cross-functional efforts are aligned so that you can achieve your goals and find the market and economic value that will provide a competitive advantage.

SCM - Keeping your value chain aligned

According to the Cambridge Dictionary, a value chain involves a series of stages involved in the production of a product or service sold to a consumer, each of which adds value to the product or service.

Organizations are in the business of selling products or services to customers and must deploy significant resources to deliver what they have promised to sell. Your suppliers, your suppliers' suppliers, and even their suppliers, have always been futile and part of your supply chain (this is called the supplier layer, i.e., Layer 1, Layer 2, etc.). Transporting your products or producing the items needed for the services you provide is also part of the supply chain.

Everyone must be aligned in terms of synchronizing goals and actions to keep your customers happy and achieve your goals. Without strong supply chain management, it is common to see a situation where demand and priorities change faster than the supply chain can be built to endure the misalignment that leads to each node within the internal enterprise and throughout the supply chain. The cost of this misalignment is a hit to profits and brand reputation.

Procurement and Supply Chain Management

In reality, supply chain management is part of procurement. However, from an organization-wide perspective, this may not be entirely, depending on your company. Let me give you an example.

Laura works at a manufacturing plant as a purchasing manager. Part of her role is to manage anything that is purchased, including the raw material supply chain. In this capacity, she mitigates risk and ensures that all suppliers, including logistics partners, are working to deliver the goods or services needed to meet the production schedule.

However, depending on the company, Laura may be held accountable for all the balance needed for the organization to meet its commitments to the end customer. The management of subcontracted parts, work in progress (WIP), and outbound logistics is often part of the Supply Chain Manager's job function and is a key component of running lean and controlling costs.

Operational Efficiency

Inadequate supply chain management and sourcing can lead to reduced organizational efficiency and missed customer commitments, which can damage your brand and money. Poor SCM can lead to increased costs due to:

Employee overtime

Machine downtime

Increased scrap rates

Increased inventory levels

Carrier waiting charges

Demurrage charges

Customer refunds

Schedule acquisition and optimization is an important part of optimizing profits, and its complexity and challenges are often underestimated. Once a schedule is in place, the practice of changing routes due to supply chain disruptions comes at a cost. The list of issues that lead to changes is long, from machine breakdowns to inaccurate inventory to late trucks due to accidents.SCM helps mitigate these risks.

Competitive Advantage; Sourcing and Procurement

Again, let's start with clarifying concepts.

Sourcing - Like grocery shopping, transactional sourcing involves a one-time purchase with little or no long-term strategy, inventory management, supplier relationships or supply chain management.

Procurement-Procurement + Inventory Management + Supplier Relationship and Supplier Performance Management + Supply Chain Management.

The key to unlocking competitive advantage is nurturing supplier relationships, supplier performance and supply chain management. This is where the gravy is. Strategic sourcing ensures you get the most out of your volume and suppliers.

Long-term planning, effective sourcing strategies and strong relationship management efforts enable you to capitalize on volume and earn the trust of your suppliers and, more importantly, their efforts will also give you cost and market advantages. Mitigating organizational risk while gaining lower-level visibility and implementing risk management action plans is what healthy supply chain management is all about.

Optimizing Customer Service

"Teamwork. Being together is the beginning. Unity is progress. Working together is success."

Overused and cheesy sayings are best suited for supply chain management.SCM keeps your end-to-end value chain working together so you can get to the finish line and deliver on your promises and profitability.

But I would leave no stone unturned. not to mention the conflicts of interest that often plague organizations and their supply chains and the ambiguity of values and goals that don't help guide decisions.

For example, the sales department consists of every salesperson who fights for his or her customers. Quality fights for quality, while production fights for efficiency, and so on. These conflicting interests can lead to deadlocked decision making, or worse, to shifting priorities.

As departments battle it out, your efficiency and profitability will suffer. The habit of "we bought and did this and that, but now we're going to stop and make this" is a very expensive one that few can afford.

Supply chain management is the ideal tool to improve EBITDA and make it profitable. But do your organization a favor and make sure your destination is as clear as Baccarat crystal.