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Supply Chain Management

What is supply chain management?

Supply chain management (SCM) is the process of turning raw materials into finished products and delivering them to customers. SCM responsibilities span from sourcing materials and managing production to transportation and logistics. SCM is also central in controlling costs (and impacting profits), managing time to market, and addressing potential global supply chain disruptions that can cause shortages and prevent products from reaching customers.

What are the phases of supply chain management?

SCM includes the following key activities to manage the flow of materials, components, and products required to serve customers (retailers, wholesalers, distributors, etc.):

  1. Supply chain planning:  Analyze market data, forecast customer demand, and plan production schedules with strategic precision. This involves collaborating with key suppliers, forecasting material requirements, and ensuring equipment capacity supports projected workloads.
  2. Sourcing:  Identify and establish a strong supply network. This includes selecting reliable suppliers, negotiating contracts, and managing ongoing relationships to secure cost-effective and high-quality materials. Effective sourcing is crucial for maintaining a steady flow of raw materials and components.
  3. Manufacturing:  Identify manufacturers and work with suppliers to ensure their production processes meet quality, cost, and sustainability service levels. And make sure that production stays on schedule.
  4. Delivery and returns:  Ensure delivery of finished products (final products) to customers through logistics management service providers that provide order fulfillment, warehousing, etc. And manage returns (reverse logistics) seamlessly from the customer’s perspective.

How do sourcing and procurement teams support supply chain management?

Sourcing and procurement teams are central to SMC success, and their responsibilities include:

I. Sourcing:

  1. Supplier selection:  Sourcing involves identifying potential suppliers qualified to provide required goods and services. This includes evaluating suppliers based on cost, quality, reliability, and their ability to meet the company’s needs for new products and components.
  2. Supplier relationship management (SMC):  It’s crucial to establish and maintain good relationships with suppliers. This includes regular communication, negotiations, and collaboration to ensure a stable supply and to address any challenges that arise.
  3. Market analysis:  Sourcing teams continually analyze market trends, supplier landscapes, and industry changes to identify the best sourcing opportunities and strategies.
  4. Strategic planning:  They develop long-term strategies for sourcing that align with the company’s objectives, considering factors like risk management, cost savings, and supply chain resilience.

II. Procurement:

  1. Purchasing:  Procurement is primarily concerned with the process of purchasing goods and services from chosen suppliers. This includes issuing purchase orders, negotiating contract terms, and ensuring compliance with agreed-upon terms.
  2. Cost control:  They focus on acquiring goods and services at the most favorable prices without compromising on quality. This involves negotiating contracts, seeking discounts, and managing costs.
  3. Quality assurance:  Procurement teams ensure that the goods and services purchased meet the required standards. This may include conducting inspections and managing quality control processes.
  4. Inventory management:  This involves overseeing the order lifecycle from initial requisition to the receipt of goods. It includes managing order processing, tracking deliveries, and ensuring timely fulfillment of orders.

How do manufacturers address supply disruptions?

The supply chain isn’t immune to roadblocks, and disruptions including pandemics, natural disasters, and geopolitical tensions can block the flow of goods and bring the entire process to a standstill.

Strong, established supplier relationships are central to maintaining supply chain operations and associated inventory levels. Vetting reliable vendors, negotiating favorable terms, and ensuring consistent quality are paramount for maintaining a smooth flow of materials. Additionally, diversifying supplier networks also mitigates risk and increases resilience against disruptions.

Diversified supply chains improve resilience and ensure business continuity in today’s dynamic global environment. Companies are using manufacturing insights to assess manufacturing alternatives effectively, consider the impact of region-specific tariffs, and avoid an overreliance on specific regions with potential risks. Manufacturers can use this data, for example, to evaluate the benefits of reshoring or nearshoring.

How are manufacturers using digital transformation to optimize their supply chains?

Digital transformation (DX) can significantly improve supply chain performance. Beyond technology adoption, successful DX initiatives require effective planning and implementation programs that provide employee training to refine processes/flows to drive value.

For example, sourcing and procurement teams are using manufacturing insights solutions to expedite the costing process during global supply chain issues. The automated, simulation-driven software provides comprehensive cost insights associated with raw materials, global factories, manufacturing processes, labor rates, and more. It also applies real-world supply chain conditions and other critical variables to generate accurate cost estimates.

Procurement teams are also using DX tools to collaborate with product development and manufacturing teams during the early design stages to provide real-time insights regarding material availability or other potential challenges across the supply chain ecosystem that can delay launch dates and create cost overruns.

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