Supply chain management coordinates all business activities that are necessary to produce and deliver

goods and services to customers. It includes the handling of the entire flow of goods and services,
starting from procuring the raw components from vendors to delivering the final product to customers.
An example of a supply chain in the food industry includes farming, manufacturing, packaging and
transporting food products. By managing the supply chain effectively, companies reduce production
costs, avoid shortages of raw materials and deliver products to customers timely.

Benefits of supply chain management

Here are some of the most prominent benefits of supply chain management:

Higher efficiency

Efficient supply chain management can help businesses respond dynamically to market disruptions and
economic shocks. A well-established supply chain can help companies respond to challenges faster and
sustain their production and delivery of orders in adverse circumstances. Increasing globalisation and
competition has also forced businesses to enhance the efficiency of their supply chains.

Better customer experience

Efficient supply chain management helps companies build strong relationships with their customers and
establish a positive reputation in the market. Businesses that invest in supply chain management may
witness an increase in customer acquisition and retention as they can fulfil orders on time. They also
usually have better relationships with supplies and vendors, which improves predictability, enhances
productivity and minimises production costs.

Related: Customer Satisfaction: How To Measure And Tips For Improvement

Higher cost-effectiveness

Supply chain management includes inventory management, which can help manage the costs of
transportation, production and storage. Supply chain management helps optimise warehouse
management by enabling on-demand or lean inventory models. This allows supply chain managers to
stock just enough inventory required to meet demand and free up valuable space in storage units and
warehouses.

Increased output

Effective supply chain systems can increase the productivity and output of a manufacturing unit by
maximising the utilisation of resources. This is one of the most important benefits of supply chain
management, as it helps set up an automated flow of resources to sustain continuous production.
Supply chain managers and coordinators usually supervise this flow and identify potential disruptions to
make informed decisions promptly, preventing wastage of resources like raw materials, labour or
machinery.

Uninterrupted cash flow

Supply chain management systems allow companies to make strategic decisions and choose the right
suppliers. By reducing disruptions and maintaining a continuous production cycle, effective management
of supply chains helps maintain cash flow. Implementing cost-effective solutions to reduce overhead
costs also contributes to a positive cash flow.

5 stages of supply chain management

The five critical elements of supply chain management are planning, sourcing, manufacturing,
distributing and returning. Here are more details about each step:

1. Planning

Planning is the most critical step in supply chain management. Proper planning allows companies to
operate at maximum efficiency and enables inventory and resource optimisation. Controlling supply by
source planning and managing demand by demand planning also allows businesses to have better
control over cash flow and improves the ability to meet customer requirements. Planning also helps
companies make more accurate future projections and enhance the scalability of their operations.

2. Sourcing

This stage of supply chain management involves procuring raw materials and components. At this stage,
a company's focus is on identifying vendors that can provide the required raw materials for production.
When selecting a vendor, it is important to consider if they can consistently fulfil orders, maintain
uniform quality standards and offer fixed prices.

3. Manufacturing

The manufacturing stage involves processing raw materials to convert them into finished goods. This
step can include refining, repackaging, bundling or assembling. Manufacturing companies usually
optimise the process to create a minimum variance in output and conform to customer requirements. If
the production or assembly occurs at different manufacturing units, supply chain managers oversee
timely transportation and coordination between them for maximum productivity and output.

4. Delivering

The delivery vendors and established channels help ensure timely delivery of the product to the end
customer. It is crucial for these channels to be able to manage a sudden increase in demand and resolve
problems, like port congestion or unfavourable weather conditions. The delivery system of a
manufacturing business usually grows with the output. Many companies outsource the entire delivery
and shipping process to third-party service providers.

5. Returning

Customers may wish to return products due to several reasons, like transit damage, non-conformance to
quality or defects. Supply chain management accounts for these returns to ensure a smooth customer
experience through reverse logistics. This stage also includes refunds of payment and customer service
to ensure the timely processing of a return request.

Popular jobs in supply chain management

Supply chain management examples

Here are some examples of supply chain management in different businesses:

Supply chain management in a retail store

Retail businesses have well-planned supply chains, which help them remain competitive in an industry
with low margins. Consider a retail store selling a shirt. Retailers usually have efficient links in their
supply chain with generic manufacturers that produce and sell unbranded products. They can use
vendor-managed inventory systems to manage products in warehouses and collaborate with suppliers
who can meet the quantity and frequency of orders at the lowest prices. They may manage delivery to
different locations using internal transportation networks or external providers. After putting their label,
they sell the shirt in their retail store.

Supply chain management in an electronics manufacturing business

In an electronics manufacturing business, the supply chain manager facilitates the transfer and
transformation of raw materials into finished products. They usually plan the entire production process
as per the capability of their manufacturing unit and then approach vendors to provide different raw
materials or electronics parts at reasonable prices. Next, the businesses may assemble or manufacture
new products at their facility, maintaining the required quality standards. Delivery and distribution
happen through company retail stores or wholesalers and multi-brand outlets.

Important benefits of supply chain management  

1. Better collaboration with suppliers 
2. Better quality control 
3. Shipping optimisation 
4. Reduced inventory and overhead costs 
5. Improved risk mitigation 
6. Stronger cash flow 
7. A more agile business
8. Better visibility and data analytics

1. Better collaboration with suppliers 

Suppliers that understand the business’s cost constraints and objectives can be
particularly important for businesses with tight margins. Wing It Cosmetics’ Gahir says
that manufacturers selling to retail outlets that expect a 40-50% markup on the factory
gate price can face a profits squeeze if raw material prices are too high. She
recommends when negotiating with suppliers, retail-facing businesses should aim for a
"golden ratio" of no more than 25% for raw material prices as a percentage of retail
sales.  

But cost is not the only consideration. Flexibility matters too. In volatile market
conditions, Eccles of Employment4Students found that long-standing suppliers were
often more willing to accommodate temporary cash flow difficulties. While it’s tempting
to shop around for cheaper alternatives, Eccles warns against it. “Be cautious about
switching purely on cost and remember that long-term relationships are valuable,” he
says. 

2. Better quality control 

When you and your suppliers are working to the same standards, quality control
problems can be detected earlier. Gahir gives an example: “One of my packaging
suppliers contacted me to say that a batch of packaging that had just arrived wasn’t up
to the required standard and she planned to send it back, which would add three days
to the delivery schedule.” However, for Gahir, this delay was a better outcome than
having to deal with a defective batch of packaging herself. Emphasising the benefits of
trust in supplier relationships, Gahir says: “That conversation was only able to happen
because we're on the same page.” 

3. Shipping optimisation 
Logistics costs are set to rise significantly, potentially impacting small businesses
across the UK. Reducing the number of separate distribution channels and making use
of logistics specialists could reduce your distribution costs relative to your competitors,
helping you to maintain stronger cash flow and profits. “Having too many suppliers with
independent shipping and delivery streams has been the biggest source of inefficiency,”
says Gahir. “We’ve responded to this by looking at storage and shipping aggregators.” 

4. Reduced inventory and overhead costs   

An efficient supply chain can reduce the need to maintain inventory, therefore cutting
overhead costs associated with storage and security. However, a very lean inventory
increases pressure on distribution networks and reduces resilience to supply chain
shocks. So it’s important to identify your optimal inventory level.  

5. Improved risk mitigation 

In general, the further along a supply chain issue is detected, the more expensive it is to
fix. That’s why supply chain management, which offers visibility of the supply chain from
end-to-end, is so important.  

For this reason, around 50% of supply chain leaders own all of the six "links" frequently
associated with supply chain management: product development; demand planning;
supply planning; sourcing and procurement; manufacturing; and logistics and
distribution [4].   

6. Stronger cash flow 

Running an efficient supply chain that is based on good supplier relationships,
maintains strict quality and stock control, and keeps a watchful eye on costs and prices
can greatly benefit a business’s liquidity by improving cash flow.  

7. A more agile business 

“A good supply chain enables us to adapt to opportunities,” says Eccles. For example,
Employment4Students identified a process inefficiency in a client’s business. Eccles
explains: “We realised we had a couple of suppliers whose software could help and
managed to get a process in place really quickly, which they adopted and found really
helpful. So, if you’ve got good suppliers, they can help you unlock new opportunities.” 

As always, however, it pays to be prepared, as supplier capacity can impede business

opportunities. Gahir says that it’s worth investing more up-front to ensure that the
suppliers you have in place are able to scale up as your business grows. 

8. Better visibility and data analytics 

Business managers can keep in constant touch with suppliers using mobile phone apps,
conferencing platforms and shared dashboards. Software tools can also help to manage
stock levels efficiently, track distribution channels and monitor business performance.
Having real-time data metrics at your fingertips will enable you to put in place
contingency plans to enable your business to ride out storms and take advantage of
opportunities as they arise.