8 Advantages of Effective Supply Chain Management
Global supply chains today are becoming more complex. This necessitates a data-driven approach to supply chain management. SCM that is data-driven provides visibility to all levels of the supply chain, from procurement through manufacturing to delivery to the consumer. Effective supply chain management is not just about data. Other factors like good supplier and vendor relationships, cost control, securing reliable logistics partners, and using new supply chain technologies also make a difference.
Supply Chain Optimization is not an easy task, but it can bring many benefits to your bottom line. Here are eight benefits of effective supply chain management that you should know about.
1. Better collaboration
Companies face a major challenge in information flow. According to Oracle, 76% of companies do not have an automated flow for information throughout their supply chain. Half of these companies claim that fragmented information leads to lost sales opportunities. Integrated software solutions eliminate bottlenecks and facilitate seamless information sharing, giving a complete view of the supply chain from every end. Streamlined data access allows supply chain leaders to have more context to make informed decisions.
2. Improved quality control
Arshad Hafeez is a Global Expert for Supply Chain Management and Quality Control. He explains the rule of 10 in an article for CIO Review. The rule of 10 states that the cost of replacing or repairing an item goes up tenfold with each step in the process. This can lead to significant costs for companies when quality problems arise.
Quality control is more effective for companies that have greater control over their suppliers and direct suppliers. For example, standard minimum quality criteria can be used to allow direct suppliers to find and partner with secondary suppliers who meet these requirements. Suppliers can also be helped by process guidelines that help them comply with your quality standards.
Some companies provide more than just criteria. They conduct periodic audits and request documentation to verify suppliers’ compliance. Hafeez suggests implementing a Management Operating System for (MOS), which will allow you to monitor key performance indicators such as:
- On-time delivery
- Suppliers have issues with scrap rates, reworks, and other similar issues
- Final product quality (as measured by customers).
- Time to resolve complaints
- Find out the results of supplier quality assessments
Companies can analyze performance data to find the best suppliers and vendors in order to ensure quality control.
3. Higher efficiency rate
Companies can implement backup plans by having real-time information about the availability of raw materials and delays in manufacturing. This allows them to avoid further delays. Companies often lack the time and resources to create a plan B if they don’t have real-time data. This can lead to problems Examples include out-of-stock inventory and late shipments to end-consumers.
Smart automation solutions can also increase efficiency. For example, Healing Hands Scrubs implemented 6 River Systems’ collaborative, mobile robots. This doubled productivity and reduced unnecessary walking by 75%. Your company’s reputation will be enhanced by investing in the best automation solutions and leveraging data.
4. Keeping up with demand
According to VISA, “If consumer sales rise by 5 percent in one week, a retailer might end up ordering 7 % more product as a response to the increase in demand and a feeling of continued demand.” The next link in the chain will then order a greater increase on his supplier if he observes a 7 percent increase in demand. The factory might eventually see an exaggerated 20 percent rise in orders.
This phenomenon is known as the Bullwhip Effect. It often occurs when supply and demand changes are not communicated in a timely manner. Supply chain executives with real-time, accurate, and integrated information can better predict market conditions and respond quickly to changes in the market to avoid problems like a bullwhip.
5. Shipping optimization
Logistics Management’s State of Logistics Report shows that freight transportation costs rose by 7% between 2016 and 2017, while private and dedicated trucking prices increased by 9.5%. The cost of less than a truckload rose 6.6% and the cost of full truckloads rose 6.4%. Supply chain leaders must make shipping optimization a priority due to rising costs. Companies can reduce costs by identifying the most cost-effective shipping options for small parcels and large orders. These cost savings not only boost the bottom line of companies but they can also be passed onto customers to increase customer satisfaction.
6. Reduced overhead costs
Companies can lower overhead costs by stocking low-velocity inventory in order to make space for more revenue-generating inventory. Warehouse fulfillment costs are significant contributors to overhead. Optimizing your warehouse layout and using the right automation solutions to increase productivity, as well as implementing an improved inventory management system will reduce these costs.
Another way to make your operations more efficient is to identify unnecessary spending. Switching to a provider that offers the same quality and service at a lower price is an easy way to save money if you are facing high logistics costs. A large international retailer must have Effective supply chain management (SCM). SCM is complex and combines elements from engineering, marketing, and IT to increase efficiencies and decrease costs.
7. Improved risk mitigation
Companies can identify potential risks by analyzing both large-picture and more detailed supply chain data. This allows them to create backup plans to be ready for any unexpected situations. Companies can avoid negative consequences by taking proactive steps rather than reacting to disruptions in supply chains, quality control issues, or any other concerns that arise. Companies can also be more efficient by understanding risks. 87% believe that they could reduce inventory by 22% if there was a better understanding of the risks involved in their supply chains.
8. Improved cash flow
Companies can make better decisions, select the right partners, predict market and demand changes, and reduce supply chain disruptions. But that’s not all. They also increase their bottom line. Working with reliable suppliers can result in fewer disruptions, happier customers, and better cash flow. It also allows you to invoice and get paid faster for your products and services. Positive cash flow is also possible by finding more cost-effective ways to reduce waste and lower overhead costs.
Supply chain disruptions can have a domino effect on every part of the supply chain. But the same holds true for the positives. Effective supply chain management has both direct and secondary benefits that allow for the seamless, efficient flow of information from procurement to final delivery.