The Main Function of Supply Chains

Some individuals confuse the supply chain with internal logistics. While the two concepts are closely
related, internal logistics only relate to the movement of product within your own company. The supply
chain includes each business that touches a particular product.

Understanding more about the supply chain can help you learn how to move product throughout your
own warehouse faster. It can also help you develop ways to speed up the whole process, ensuring the
end-user receives their product faster.

What is a supply chain?

Simply put, a supply chain is the series of processes that make up the production, storage, and dispatch
of goods. It may involve several different companies or departments and multiple individuals playing
numerous roles. Most organisations liken the supply chain to a game of baseball, where each person or
company acts as a player. The operation can only be successful if each person plays their role well and
collaborates with others.

The supply chain networks a company to its suppliers, those responsible for transportation, dispatchers,
and the final customers. It comprises each and every business a company deals with in regards to a
particular product or SKU. This includes those responsible for manufacturing raw materials, assembling
parts, and delivering items to warehouses. Supply chain management is an important warehouse task,
as optimising the process increases productivity while lowering costs.

Importance of reliable suppliers

Reliable suppliers are essential to any effective supply chain process. You need to be sure that the
quality of the items they produce is high and up to your company’s standards. In addition, you must be
sure they can completely fill your orders on time, without delay. Backordered product holds up the
entire process at your warehouse, meaning that even minor issues with suppliers could cost you a lot of
money.

If you already have reliable suppliers, continue holding them to high standards, both in terms of material
quality and delivery dates. If you have a longstanding relationship with a particular company, you may
want to be slightly tolerant of the occasional hiccup or delay. However, it is important that this does not
become a pattern. If you routinely receive substandard products or late shipments, you need to consider
switching suppliers.

Make sure you complete thorough background checks on any individual or company you invite to
become part of your supply chain. The reputation of your business depends on the ability of each one of
those companies to hold themselves to your high standards. Ask to speak with references before
agreeing to work with any company. You should also be sure you sign clear-cut, professionally
negotiated contracts with each business, setting out expectations and penalties.

Supply chain management review

Approximately 10 years ago, the Supply Chain Management Review conducted a study of over 100
manufacturers, distributors, and consumers about commonly used strategies and techniques. The
results were consolidated into seven basic principles. These principles are still relevant today. They are
as follows:

1. End-users/customers must be segmented based on the needs of each distinct group. Managers
should adapt the supply chain to meet the needs of each one of those segments.

2. Review existing logistics frameworks, customising them to meet the needs of your consumers. Focus
on increasing profitability.

3. Continue to study the market, periodically adjusting your strategies to compensate for busy or slow
periods.

4. Try to speed up each part of the supply chain, bringing the product to the consumer in less time.

5. Reduce the operational costs by effectively managing your inventory.

6. Invest in technology that streamlines the supply chain process, while giving you easy access to
information about product movement.

7. Adopt methods you can use across the entire supply chain to help determine how successful you are
in meeting your goals.

Main principles of supply chain management

Skilled supply chain managers can think about the supply chain as a whole, connecting each step in the
process to the next. Using this information, they optimise the process, focusing on increasing
productivity while cutting back on costs.

Delivering a high quality product to the final consumer in as little time as possible is the basis of each of
the principles of supply chain management. Managers who spend time reviewing, evaluating, and
learning more about their warehouse processes are the ones who reach those supply chain goals.

Supply Chain Processes

Effective supply chain management involves familiarising yourself with each process in the chain. Each
process depends on the other. Operations may affect the type of product procurement acquired. The
size and specifications of your storage facility impacts the type of product you can reasonably hold.

Managers need to be sure there are clear and open lines of communication between each one of these
processes to avoid chaos and disorganisation. A robust knowledge of each stage helps develop a more
efficient plan, and helps you better optimise each area.

Procurement
Procurement focuses on finding the right supplier who can deliver the products you need with agreeable
terms. Basically, it’s the same as shopping for an item – you want to be sure you get a high quality
product with a fair price and a good warranty or return policy. The procurement process is shopping for
your warehouse, looking for the best suppliers for each product you stock.
The procurement stage usually starts with sourcing for a particular part, product, or material.
Companies may focus on locally sourced items, regionally sourced items, or globally sourced items.
Global sourcing has grown exponentially in popularity since the 1990s.

The type of sourcing you engage in depends on your company’s governing philosophies and sales
principles. Some businesses pride themselves on only using local items, some search for fair trade
products from third world countries, and others simply look for the best price with the best purchasing
terms.

Orders are usually placed using a purchase order system, with detailed invoices recording each
transaction. Periodically review your procurement processes using that documentation as a base to be
sure you are still receiving high quality items for reasonable costs. Do not be afraid to suggest switching
suppliers if you notice a decline in product quality or a steep increase in cost.

Production
The production process involves the manufacture, conversion, and/or assembly of materials into
finished goods. This stage can happen at the warehouse level or by a third party with the finished
products shipped to the warehouse for storage and dispatch.

Smooth production is key to a well-functioning supply chain. Delays at this stage can result in backorders
at the receiving warehouse, and an overstock of materials on the production side of the chain. One of
the key roles of a warehouse manager is to ensure that materials are available for the production
process when needed.

Managers should keep a close eye on production, regularly reviewing productivity statements and
speaking with staff. For starters, you need to be sure that individuals involved in this process are
working fast and putting together high quality finished goods.

You should also ask staff about the raw materials. These individuals are the first people to notice if there
is a decrease in quality. If there is a concern about the quality of these items, you can bring it to the
attention of those responsible for procurement, asking them to start sourcing an alternate supplier.

Storage
Most warehouse managers are familiar with storage and dispatch. While these are two distinct
processes, they are often mentioned together because they usually happen at the same location. Most
warehouses, even those run by third party logistics services, are responsible for both of these important
steps in the supply chain.

Storage involves more than just the physical storage of items. Warehouse staff must receive and
examine each shipment, ensuring there is no damage or other reason it cannot be sold. These items are
then sent to part of the floor for long-term or short-term storage. When pickers receive an order for that
item, they retrieve it from the floor and prepare it for dispatch.

Dispatch
Once the picker has selected all the items for a given order, the next step is to prepare it for dispatch.
This often involves repacking the items and printing additional labels. Most warehouses provide some
additional packaging on large orders, to reduce the risk of breakages when the items are in transit.

Warehouse managers have the most control over these two areas. While many organisations outsource
the other processes, warehouses by definition are used to store and send out items. As a result, this is
usually the first area managers focus on when trying to optimise the supply chain process.

Working on ways to make receiving, picking, and dispatching faster, more efficient, and less labour-
intensive are great ways to improve productivity and increase your company’s profit margin. Once you
exhaust ways to make this particular process as efficient as possible, you can move on to making
recommendations regarding the other stages, such as finding alternate suppliers or transportation
services.

Transportation
The transportation process is the penultimate stage in the supply chain. Transportation services are
responsible for getting the orders from the warehouse to the customer, who is typically the end user or
the retailer.

Businesses have historically seen transportation as more of a necessary evil than a process key to the
supply chain. While supply chain practices still acknowledged its importance, managers did not typically
focus on this particular area when it came to optimising and streamlining the whole chain. Since
transportation accounts for about 30% of a company’s logistics budget, ignoring this area has been a
huge oversight.

Thankfully, technological advances are making it increasingly easy for managers to keep an eye on these
costs. Installing certain pieces of software can help you monitor transportation costs with ease. You can
then identify delivery issues, such as delays in certain areas or with specific carriers.

Consumer Use/Returns
The final process in the supply chain is the customer or end user. Delivering a high quality item to your
consumer in a timely way is the whole point of the supply chain. The whole process is typically
completed when the consumer signs off or otherwise accepts the order as it is delivered.

Some customers are unhappy with their purchases, either because of damage, a discrepancy between
the ordered item and the one they received, an ill-fitting item, or because they have otherwise changed
their mind. A customer’s decision to return or discuss the product with you reopens the supply chain to
some degree. Make sure you are familiar with your company’s return or exchange policy, as it is
imperative you provide unhappy customers with accurate information. Warehouse managers should
have a separate returns department set aside to handle issues like this if and when they arise.

Your staff should deal with returns or exchanges in a timely manner, to avoid further upsetting or
disappointing your consumer. While these transactions can be time consuming to deal with, it is
important that you treat customers who return items with respect. Word of mouth can be a powerful
marketing tool, but it can also work against you. Make sure you and your staff members do everything
you can to leave your customers happy.