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Home Supply Chain

Supply chain management process: Everything you need to know

Swetha Kumaraswamy by Swetha Kumaraswamy
July 21, 2023
in Supply Chain
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supply chain management happay

Table of Contents

Toggle
  • Introduction to supply chain management process
  • What is the supply chain management process?
  • Importance of effective supply chain management process in business operations
  • Benefits of effective supply chain management process
  • Key components of the supply chain management process
  • Supply chain management process flow
  • Steps in the supply chain management process
  • Examples of supply chain management
  • What is the difference between supply chain management and supply chain processes?
  • Advantages of the supply chain management process
  • Challenges in the supply chain management process
  • Strategies for successful supply chain management process
  • Best practices for a successful supply chain management process
  • Role of technology in effective supply chain management
  • Bottom line
  • FAQs

Introduction to supply chain management process

An efficient supply chain management process ensures the smooth flow of goods from suppliers to end customers. However, many organizations need help managing their supply chains, impacting revenue growth and overall performance. 

According to Deloitte, a staggering 79 percent of organizations with enhanced supply chain capabilities achieve revenue growth significantly above average. This shows why you cannot simply brush aside the relevance of a well-managed supply chain.

If you want to get started and know more details about the supply chain management process, this guide will serve as the ideal starting point. So, let’s look into the intricacies of the process and understand solutions that will benefit your supply chain operations.

What is the supply chain management process?

The supply chain management process involves a series of related activities, including planning, sourcing, and distribution. These activities enable the seamless flow of products and services from the origin to the consumer. It involves coordinating and managing various stages, including planning, sourcing, production, logistics, and distribution.

Every step in the supply chain management process is vital in ensuring timely delivery and customer satisfaction. From forecasting demand, selecting suppliers, and overseeing production to managing transportation, a well-coordinated process enables smooth operations.

Also, Read: Procurement Process: Types, Steps, Flowchart & Software

Importance of effective supply chain management process in business operations

Effective supply chain management holds immense importance in ensuring smooth and efficient business processes. Here’s why:

1. Enhanced customer satisfaction

Optimizing the supply chain process helps organizations fulfill customer demands accurately and promptly. From timely product delivery to seamless order fulfillment, a well-managed supply chain ensures high customer satisfaction and repeat business.

2. Cost optimization

Supply chain management enables businesses to identify cost-saving opportunities at every stage. Companies can significantly reduce costs and improve their bottom line through streamlined inventory levels and reduced transportation expenses.

3. Competitive advantage

Organizations with efficient supply chain networks can respond quickly to market fluctuations, launch new products faster, and adapt to changing customer demands. These factors give them a distinct advantage over their competitors.

4. Improved communication

Supply chain management fosters communication and strong relationships with suppliers, distributors, and other partners. Effective communication and coordination among these stakeholders lead to better coordination of activities and improved efficiency.

5. Risk mitigation

Supply chains are susceptible to various risks.. For instance, disruptions and delays can occur due to events like the Covid-19 pandemic. Implementing effective supply chain management strategies enables businesses to proactively identify and mitigate these risks. It ensures continuity of operations and reduces the impact of such events.

6. Scalability and growth

As businesses expand, supply chain management becomes even more crucial. A well-structured supply chain allows for scalability by accommodating increased production volumes and expanding distribution networks.

Quick Read: What is Procure-to-Pay (P2P) Cycle, Process, Steps & Benefits

Benefits of effective supply chain management process

Implementing an effective supply chain management process brings forth the following benefits:

benefits of effective supply chain management process

1. Improved customer loyalty

Companies can ensure timely delivery and accurate order fulfillment through optimized supply chains. Meeting customer expectations consistently leads to heightened satisfaction and increased loyalty, enhancing the business’s reputation.

2. Increased efficiency and cost savings

Efficient supply chain management minimizes wastage and reduces transportation costs. Eliminating inefficiencies and optimizing resource utilization helps with significant cost savings and improved operational efficiency.

3. Enhanced collaboration with suppliers and partners

Effective supply chain management fosters better collaboration among all stakeholders. Organizations can build trust and increase operational effectiveness through open communication and coordinated production planning.

4. Better inventory management and reduced stockouts

Accurate demand forecasting and inventory optimization are integral parts of supply chain management. Aligning inventory levels with demand patterns helps reduce stockouts and avoids excess inventory. The result is improved customer service and reduced carrying costs.

5. Agility and responsiveness to market changes

Effective supply chain management enables businesses to adapt to shifts in demand and customer preferences quickly. The agility allows for timely product launches and rapid response to market opportunities.

Quick Read: Order to Cash (O2C) Process: A Step-by-Step Approach

Key components of the supply chain management process

Here are the key elements of the supply chain management process that work together to ensure seamless operations management:

1. Planning

Planning is the foundation of an effective supply chain model. It involves analyzing demand patterns and forecasting future requirements to develop strategies that meet customer needs. It includes demand forecasting, inventory management, and production scheduling.

2. Sourcing

Sourcing includes selecting and managing suppliers to acquire the raw materials. It encompasses supplier selection, contract negotiation, and supplier relationship management. You can consider strategic sourcing  to build strong partnerships with reliable suppliers.

3. Production

The production component focuses on transforming raw materials or parts into finished goods. It includes managing manufacturing processes and optimizing production capacity. Efficient production practices contribute to meeting customer demand while maintaining quality standards.

4. Logistics

Logistics plays a vital role in supply chain management by managing the physical flow of goods. It involves transportation management, ensuring the efficient movement of products from one location to another. Additionally, logistics involves warehouse management, inventory tracking, and order fulfillment.

5. Distribution

Distribution involves managing the flow of goods from the manufacturing facilities to the end customers. It includes channel management at a distribution center and ensuring timely and accurate delivery. Effective distribution ensures products reach the right place at the right time.

Suggested Read: TOP 10 Procure-to-Pay Software Solutions in 2023

Supply chain management process flow

supply chain management process flow

The supply chain management process flow typically consists of the following stages.

  • Planning
  • Sourcing
  • Procurement
  • Production
  • Warehousing and inventory management
  • Distribution
  • Customer service
  • Reverse logistics

Quick Read: 8 Best Inventory Management Software

Steps in the supply chain management process

The supply chain management process includes five fundamental steps that guide the flow of goods and services from suppliers to customers. Let’s understand each step with an example:

  • STEP 1: Plan

    A manufacturer of electronic components would analyze market demand, review customer orders, and forecast future requirements. They would consider other factors like production capacity and lead times to plan their manufacturing schedule. Effective planning is especially critical when events like the Covid-19 pandemic happen, which affected 43% of electronic manufacturers and suppliers worldwide. 

  • STEP 2: Source

    The electronic component manufacturer would identify reliable suppliers of electronic chips, circuit boards, and other necessary materials to ensure a consistent supply of quality inputs for their manufacturing process. Events like a global trade war between the US and China can affect the supply of raw materials, requiring effective planning measures.

  • STEP 3: Make

    The manufacturer would transform the sourced materials into the finished electronic components. They would utilize specialized equipment and skilled labor to produce the parts according to industry standards and customer specifications. 

  • STEP 4: Deliver

    Once the electronic components are ready, the focus shifts to delivery. The manufacturer would coordinate logistics, arrange for transportation, and ensure timely delivery to their customers.

  • STEP 5: Return

    In some cases, components can be defective or not meet quality standards. The manufacturer would establish processes to handle returns, inspect the returned items, and provide replacements or refunds as necessary.

Read More: 10 Best Purchase Order Software

Examples of supply chain management

Let’s explore some examples of supply chain management:

Example 1: Automotive industry

One example of supply chain management in the automotive industry is the partnership between Tesla and its battery supplier, Panasonic. Tesla relies on a complex and tightly integrated supply chain to produce its electric vehicles. As part of their collaboration, Panasonic supplies lithium-ion batteries to Tesla.

The partnership involves coordination and synchronization between Tesla’s production lines and Panasonic’s battery manufacturing facilities. Through efficient supply chain management, Tesla and Panasonic ensure the timely delivery of high-quality batteries to support Tesla’s vehicle production.

Example 2: Technology hardware industry

Apple Inc is another notable example of supply chain management in the technology hardware industry. They have a sophisticated and globally distributed supply chain to manufacture and distribute its popular products like iPhones and iPads. 

The company collaborates with numerous suppliers and contract manufacturers worldwide to source components, assemble products, and deliver them to customers. Apple’s supply chain is known for its meticulous planning, just-in-time inventory management, and close relationships with key suppliers. 

These aspects ensure a seamless flow of materials and finished products to support its global operations. This well-orchestrated supply chain has played a significant role in Apple’s ability to deliver high-quality products to its customers worldwide consistently.

Quick Read: 9 Best Vendor Payment Management Software

What is the difference between supply chain management and supply chain processes?

While “supply chain management” and “supply chain process” are related, they refer to different aspects within the broader scope of supply chain operations.

Supply chain management includes the strategic planning and coordination of all activities involved in the flow of goods and services to customers. It oversees the entire supply chain ecosystem, including suppliers, manufacturers, distributors, retailers, and customers. Supply chain management focuses on optimizing the overall performance and achieving the desired supply chain outcomes.

The supply chain process refers to the specific steps or activities involved in moving products or services within the supply chain. The operational aspect of supply chain management details the sequence of actions required to fulfill customer demands.

Read More: What is the Difference Between Procurement and Purchasing? 

Advantages of the supply chain management process

Besides the standard benefits of the supply chain management process for your operations, here are some other advantages that can positively impact your organization’s bottom line:

1. Risk mitigation

Effective supply chain management enables businesses to identify and manage potential risks and disruptions. Focus on diversifying suppliers and implementing contingency plans to mitigate risks related to supply shortages and market fluctuations.

2. Increased profitability

Optimized supply chain management directly contributes to increased profitability. Reducing costs and enhancing customer satisfaction help achieve higher profit margins and maximize financial performance.

3. Sustainability and social responsibility

Sourcing materials ethically and implementing environmentally friendly processes allows businesses to enhance their reputation and meet regulatory requirements. Organizations can also align with the values of environmentally and socially conscious consumers.

Challenges in the supply chain management process

While supply chain management offers numerous advantages, it has its challenges. Let’s explore some of the common challenges that companies face in the supply chain management process:

1. Demand forecasting

Changing market trends, seasonality, and unpredictable customer behavior make demand management complex. Inaccurate forecasts can lead to excess inventory or stockouts, impacting customer satisfaction and operational costs.

2. Inventory management

Maintaining optimal inventory levels is crucial for balancing supply and demand. Managing inventory across multiple locations and accurately tracking stock can be challenging. Poor inventory management can result in excess holding costs and missed sales opportunities.

3. Supplier management

Building and managing strong supplier relationships is essential for a smooth supply chain. However, challenges related to supplier reliability and lead time variations can arise. Businesses must carefully select suppliers and implement effective supplier performance monitoring.

4. Logistics and transportation

The efficient movement of goods from suppliers to customers is critical in supply chain management. Challenges related to transportation delays and capacity constraints can thwart the efforts. Managing logistics effectively requires optimizing transportation routes and implementing contingency plans to mitigate disruptions.

5. Information and technology

With the increasing complexity of supply chains, proper information flow and technology integration are crucial. Challenges can arise from data accuracy and compatibility of systems. Adopting robust information systems and leveraging supply chain management software can help overcome these challenges.

6. Sustainability and ethical practices

Challenges in ensuring sustainability and ethical practices throughout the supply chain include managing environmental impacts and complying with regulations. Balancing cost-effectiveness with sustainability goals requires careful planning and supplier audits.

7. Global supply chain complexity

Operating in a global marketplace introduces complexities related to international regulations and cultural differences. Coordinating activities across multiple countries, time zones, and languages requires careful coordination and cultural sensitivity.

Read More: 10 Best Purchasing Software for Organizations

Strategies for successful supply chain management process

To ensure a successful supply chain management process, organizations can employ the following strategies:

1. Adopting advanced technologies and automation:

Leveraging new technologies, such as supply chain management software, artificial intelligence, and data analytics, can significantly improve supply chain operations. Automation streamlines processes, reduces errors, and enables real-time inventory, demand, and logistics visibility. Embracing digital transformation empowers businesses to make data-driven decisions, optimize operations, and enhance overall supply chain performance.

2. Building solid relationships with suppliers and partners

Establishing clear communication channels, mutually beneficial agreements, and collaborative initiatives fosters trust and cooperation. Working closely with suppliers and partners helps businesses achieve better coordination and efficient problem-solving abilities that drive supply chain performance.

3. Implementing robust risk management practices

Implementing robust risk management practices allows businesses to identify potential risks and develop contingency plans. It includes diversifying suppliers, establishing backup logistics options, and monitoring external factors that could impact the supply chain.

4. Embracing sustainability and ethical practices

Businesses should prioritize environmentally friendly practices and fair labor conditions. Embracing sustainable supply chain practices enhances corporate social responsibility. It also reduces waste and meets the expectations of environmentally conscious consumers.

5. Continuous monitoring and evaluation

Key performance indicators (KPIs) can help measure performance related to delivery time, inventory turnover, and customer satisfaction. Analyzing data and implementing process improvements can enhance efficiency and effectively meet customer demands.

Read More: How to Form a Successful Procurement Plan

Best practices for a successful supply chain management process

Companies can adopt the following methods to achieve successful supply chain management:

1. Foster collaboration

Establish strong relationships with suppliers, partners, and customers. Build open communication and collaborate on demand forecasting for inventory planning and process improvement.

2. Embrace technology

Leverage advanced technologies and supply chain management software to optimize processes. Automation, data analytics, and real-time visibility tools can enhance decision-making and streamline workflows.

3. Focus on demand planning

Utilize historical data and customer insights to forecast demand. Regularly update demand forecasts, align them with production schedules, and collaborate with suppliers to ensure adequate supply.

4. Implement lean principles

Apply lean principles to eliminate waste and optimize processes. Streamline workflows, reduce unnecessary steps, and improve sourcing, production, and distribution efficiency. Lean practices help minimize costs, improve quality, and enhance customer responsiveness.

5. Monitor key performance indicators (KPIs)

Key metrics like on-time delivery, inventory turnover, and order accuracy provide insights into operational effectiveness. Regularly review KPIs and identify areas for improvement to enhance performance.

6. Mitigate risks

Establish risk management processes, develop contingency plans, and diversify suppliers to minimize disruptions. Monitor external factors like geopolitical events and market fluctuations that can impact the supply chain.

7. Continuous improvement

Encourage feedback and conduct regular performance reviews. Regularly assess supply chain practices, seek innovative solutions, and adapt to changing market dynamics.

Learn About: 15 Best Expense Management Software in India

Role of technology in effective supply chain management

Let’s explore the role of technology, particularly supply chain management software, in effective supply chain management.

1. Streamlining operations

Supply chain management software automates and integrates various processes to eliminate manual tasks and reduce errors. It helps streamline demand planning, inventory management, procurement, production scheduling, and logistics coordination.

2. Enhancing visibility

The software provides real-time visibility into critical data and metrics across the supply chain. It enables businesses to monitor inventory levels, track shipments, analyze demand patterns, and evaluate supplier performance.

3. Demand forecasting and planning

Supply chain solutions utilize advanced algorithms and historical data to support accurate demand forecasting. It helps businesses analyze market trends, customer behavior, and historical sales data to generate reliable demand forecasts.

4. Data analytics and insights

Supply chain management software leverages data analytics capabilities to derive meaningful insights from vast supply chain data. It enables organizations to identify trends, uncover patterns, and make data-driven decisions.

5. Supply chain visibility and risk management

The software helps businesses monitor and manage risks by providing supply chain visibility. With real-time data and alerts, companies can respond quickly to disruptions and ensure business continuity.

Read more: Top 10 Expense Management Tips for Your Business

Bottom line

Today’s dynamic business landscape, where customer expectations are high and competition is fierce, calls for mastering the supply chain management process. Aligning supply chain activities with strategic business goals will help your organization enhance efficiency, reduce costs, improve customer satisfaction, and achieve long-term success.

With a solid know-how of the supply chain management process and a commitment to continuous improvement, it will be easier to navigate the complexities. It will also help create a resilient, agile, and customer-centric supply chain that drives growth and profitability.

FAQs

1. What are supply chain management processes?

Supply chain management processes involve planning, sourcing, producing, delivering, and managing the flow of goods and services from suppliers to customers.

2. What is a supply chain management example?

An example of supply chain management is a manufacturer working closely with suppliers to procure raw materials, coordinating production processes, managing inventory levels, and delivering finished products to retailers or customers.

3. Why is supply chain management important?

Supply chain management is crucial because it allows organizations to optimize operations, reduce costs, improve customer satisfaction, enhance collaboration with partners, and mitigate risks.

4. What are the six steps in supply chain management?

The six steps in supply chain management include planning, sourcing, making, delivering, returning, and enabling. These steps cover the entire supply chain process, from initial planning to reverse logistics.

5. What are the five supply chain management processes?

The five supply chain management processes include plan, source, make, deliver, and return. These processes represent the essential activities in managing the flow of goods and services.

6. What are the eight supply chain processes?

The eight supply chain processes encompass plan, source, make, deliver, return, enable, customer relationship management, and supplier relationship management. These processes cover various activities that allow effective supply chain management.

7. What are the seven functions of supply chain management?

The seven supply chain management functions include procurement, production, inventory management, logistics, demand planning, forecasting, and customer service. These functions work together to ensure smooth operations and meet customer demands efficiently.

8. What are the four pillars of supply chain management?

The four pillars of supply chain management are planning, sourcing, making, and delivering. These pillars represent the core components of managing and optimizing the supply chain process.

9. What are the three functions of SCM?

The three supply chain management functions are procurement, operations, and logistics. Procurement involves sourcing and acquiring materials or services, operations encompass the manufacturing or production processes, and logistics focus on the movement and distribution of goods.

10. What are the two types of SCM systems?

The two types of SCM systems are supply chain planning (SCP) systems, which assist in demand forecasting, inventory planning, and supply chain optimization. The other is supply chain execution (SCE) systems, which facilitate the execution and coordination of various supply chain activities like order fulfillment and logistics management.

11. What are the benefits of SCM?

The supply chain management benefits include improved efficiency, reduced costs, enhanced customer satisfaction, increased collaboration with partners, and better inventory management.

12. What is the difference between a supply chain and a distribution channel?

Supply chain is the entire network of activities in delivering products and services, including sourcing, production, and distribution. Meanwhile, a distribution channel focuses on how goods move from a manufacturer to the end customer.

13. How do supply chain management processes affect profits?

Effective supply chain management processes can positively impact profits by optimizing operations, reducing costs, minimizing waste, and improving customer satisfaction.

14. What are the three steps in the procurement process?

The three steps in the procurement process are identification of needs, supplier selection and negotiation, and contract administration. These steps ensure the procurement of goods and services in a timely and cost-effective manner.

15. What are the four stages in the supply chain?


The four stages in the supply chain are: 

1. Procurement (sourcing of raw materials)
2. Production (manufacturing of goods)
3. Distribution (delivery of goods)
4. Reverse logistics (returns and exchanges).

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Table of ContentsToggle Table of ContentToggle

  • Introduction to supply chain management process
  • What is the supply chain management process?
  • Importance of effective supply chain management process in business operations
  • Benefits of effective supply chain management process
  • Key components of the supply chain management process
  • Supply chain management process flow
  • Steps in the supply chain management process
  • Examples of supply chain management
  • What is the difference between supply chain management and supply chain processes?
  • Advantages of the supply chain management process
  • Challenges in the supply chain management process
  • Strategies for successful supply chain management process
  • Best practices for a successful supply chain management process
  • Role of technology in effective supply chain management
  • Bottom line
  • FAQs

Related Articles

  • Understanding the Difference Between Cash Flow and Fund Flow
  • Vendor vs Supplier: Understanding the Key difference
  • Cash Flow: What is it, Types, How does it works,…
  • Cash Flow Forecasting: What is it, Components,…
  • Financial Planning: What is it, Types, Objectives,…
  • Accounts Receivables: Definition, Types, Components,…
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