When the global supply chain is managed well, any size business is able to deal with its purchasing, product manufacturing or product acquisition needs efficiently. They don’t run out of key materials to make their products or, in a retail scenario, they don’t have numerous shelves of retail space that sit empty because there’s insufficient stock in the store due to poor supply chain management.
Supply chain management involves different aspects that are tricky to manage including coordinating different suppliers, ordering, distribution, transportation, liaising with related third-party providers that impact the supply chain, and looking after the end customer too.
Here are six benefits for the use of better supply chain management in business:
1. Increased Predictability Through Using Long-term Contracts
When dealing with the supply chain efficiently, everything is planned to run smoothly. Rather than placing small, individual orders with suppliers, long-term contracts are preferable.
This allows the manufacturer (or the supplier of the materials, should your company be the manufacturer) to know what is expected and by when. Their operations are easier to manage with long-term deals because they can plan accordingly too.
While the raw commodity price moves around frequently, by planning for long-term contracts on materials or finished goods, the company can avoid the daily price fluctuations affecting pricing. That may become an issue for companies further down the supply chain to worry about. While your finance team may choose to hedge the current risk or commodity risk away using financial instruments like derivatives and options, they don’t necessarily need to do that when not immediately bearing the risk of sudden fluctuations in commodity prices.
2. Money Savings
Efficient supply chains aim to reduce costs all along the way. With every supplier, they want the best deal possible. There are also deals to be made to negotiate for better prices when sticking with only one or two suppliers. The supplier locks in a percentage of their production capacity to a single customer at a lower price than they’d prefer, but it keeps their factory running at a profit.
By running the supply chain more efficiently, less money goes out the door. This protects the company should the product not sell successfully or hit a temporary, unexpected downturn.
3. Reliable Quality Levels
With an organized supply chain, it’s possible to set standards for what quality is expected from manufacturers or suppliers. Contracts are agreed based on their meeting acceptable standards of manufacture and quality, which likely includes the ISO 9001 international standard; as well as relevant US standards, depending on the industry.
However, when using scores of different suppliers along the chain, it becomes much harder to hold them accountable to an acceptable standard. This is especially true when ordering small amounts where the company is just one of many small value customers placing orders. This compares to having long-term contracts in place for orders that are a significant percentage of the order book for a certain supplier that then takes that responsibility far more seriously.
4. Faster Communications
Clear lines of communication are possible when being a major customer for a supplier. They’re incentivized to respond to important questions quickly rather than leave those questions unanswered or “slow walking” their customer.
For production facilities, where it’s necessary to ramp up, reduce or shutter production on a certain product or part, frequent communication enables the manufacturer or supplier to make immediate adjustments. In the best circumstances, this is done automatically with the members from the supply chain being able to see orders in real-time.
For instance, in the case of PC manufacturer Dell, their suppliers can visually see what products are required, such as processors, RAM memory, motherboards, laptop cases, and more based on the orders placed by customers on the Dell website. With their rapid delivery model, suppliers can continually feed through what’s required for Dell to assemble PCs quickly based on online orders received.
As a result, Dell tends to keep a minimal amount of inventory of parts for production lines despite shipping millions of PCs each year.
5. Securing Hard to Get Inventory
It happens that sometimes securing products or components becomes difficult. This might be due to a manufacturing supply issue or because the product or component is so new that there are only a few of them in the country.
In this situation, a small company ordering a minor quantity of goods from a supplier stands a poor chance of gaining access to hard to procure items.
In this type of situation where a large company wants to order a product that’s currently as rare as hen’s teeth is going to rely on their well-established supply chain to lay their hands on the item. They may well put in a call to their suppliers to let them know that they’d be grateful for their efforts in scouring the country to find a source so they can supply it.
And their suppliers are likely to do their best to meet the request or at least document what attempts they made to show effort was made. Such is the power of well-organized supply chain.
6. Different Shipping Locations
Sometimes, suppliers can agree to ship an item from an east coast depot to a customer in New York instead of sending their goods to the Midwest where your company might be. By avoiding having to wait for the goods to arrive in the Midwest to turn around and dispatch them back to New York where your customer is located shaves off at least a day or two on delivery times to the customer.
Other times, both the supplier and your company have a depot on each coast and can ship goods usually from the nearest depot which reduces the time goods are stuck in transit. With shorter transit routes, the likelihood of damage during transit is also reduced too. This is why Amazon has many hubs across the U.S. to make it easier to receive goods deliveries and reduce shipping times to customers on their Prime shipping subscription plan.
If the idea of working in the supply chain area interests you, or you think it would benefit the company you work for, then consider taking a masters in supply chain management online. It’s a great way to get into this fascinating part of business operations and make a real difference in how the business functions. The course isn’t overly lengthy and is studied entirely online, making it very convenient when you’re already part of the workforce.
When the supply chain is managed well, company operations run far more smoothly. This then helps other departments like customer service to avoid receiving complaints about late deliveries or their order not being fulfilled yet. It’s a vital part of any business that relies on suppliers.