The Importance of Supply Chain Management

We rarely think much about the logistics of how our groceries, appliances, cars, and other items get to us. However, since the beginning of the COVID-19 pandemic, supply chain management challenges have been laid bare in ways that have shocked society. People in the United States are accustomed to being able to buy what they want when they want it, provided they can afford it. Few people were prepared for shortages of toilet paper, hand sanitizer, and other necessities in the early days of COVID-19. Not since the energy crisis of 1973–when gasoline shortages left motorists standing in long lines for rationed gas–have Americans experienced such prolonged and significant supply chain breakdowns.¹

Even after the pandemic-related labor and supply shortages passed, global supply chains have continued to face challenges that illustrate the importance of effective supply chain management principles. From international conflicts to port congestion and rising inflation, the journey from raw materials to stocked shelves is fraught with obstacles.² Supply chain managers must deal with all these issues and more behind the scenes to balance customer satisfaction and inventory optimization. Read more here about how supply chain management professionals overcome challenges to keep commerce moving.

Supply chain management (SCM) is a collaborative effort that involves the oversight of materials, information, and finances as they flow from supplier to manufacturer, to wholesaler, to retailer, and ultimately to the consumer. The process includes activities in every aspect of business, such as sourcing raw materials, production, inventory management, transportation logistics, and customer service. Done well, SCM creates a seamless and cost-effective chain that enables products to move efficiently from conception to consumption.³

Supply chain managers seek to streamline every step in the process to increase efficiency and lower costs. However, SCM isn’t solely about obtaining the lowest prices. Procurement practices also have to include ethical, legal, and sustainability concerns, adding complexity to the process.⁴ Effective SCM benefits businesses, consumers, and society in the following ways.

Supply chain managers choose the most cost-effective and efficient suppliers when negotiating contracts. Companies can procure high-quality materials at lower costs by employing techniques like strategic sourcing–analyzing global markets and suppliers' capabilities.⁵ Furthermore, by negotiating volume discounts, favorable payment terms, and other financial benefits with preferred suppliers, companies can also increase profit margins.⁵

SCM also increases profitability by syncing production schedules with demand planning, allowing companies to avoid overproduction and holding down costs associated with excess inventory. Producers can employ lean manufacturing principles, like Just-In-Time (JIT) inventory systems, to ensure that materials arrive exactly when needed, reducing storage costs and waste.⁶

Finally, supply chain managers employ data analytics to optimize transportation logistics and find the most efficient shipping routes and methods. Using methods such as freight consolidation, route optimization, and mode selection, companies can achieve significant fuel savings and faster delivery times.⁷

SCM allows companies to monitor and control each stage of the supply chain, from sourcing raw materials to delivering finished products. Strict quality control measures allow businesses to catch and rectify defects early in the process. Advanced SCM systems can even integrate quality metrics and key performance indicators (KPIs) to consistently measure and improve the quality of products.⁸

Compliance with local, national, and international regulations is often a complex challenge that SCM can simplify. Through centralized documentation and tracking features, SCM systems make it easier to monitor compliance across multiple jurisdictions. For industries like pharmaceuticals, healthcare, and food and beverages, where regulatory compliance is both complex and critical, SCM systems can track and document the certifications, testing, and quality checks necessary to meet all regulations.⁹

In addition, according to global management consulting firm McKinsey & Co., 78% of U.S. consumers say that a sustainable lifestyle is important to them, and 60% are willing to pay more for sustainable products.¹⁰ As a result, companies are integrating sustainability goals into their SCM strategies by opting for suppliers that adhere to environmentally friendly practices such as using renewable resources and minimizing waste. Sustainability in SCM can also involve optimizing transportation for lower emissions and implementing circular economy principles like recycling or repurposing products at the end of their lifecycle.¹¹

Supply chain performance is directly tied to two of the most significant drivers of customer satisfaction–price and availability.¹⁰ High-performing operations allow businesses to meet and exceed customer expectations. When customers find what they want without hassle, their overall shopping experience improves, increasing their satisfaction and loyalty to the brand. High-quality products not only please customers but also reduce the incidence of returns, which benefits customers and businesses.¹²

With over 80% of US customers shopping online, direct-to-consumer shipping plays an important role in the customer experience.¹³ Advanced SCM systems can offer real-time tracking for orders, providing customers with timely updates about their purchases. This transparency adds a layer of trust and satisfaction, as customers feel more in control of their shopping experience.

Supply chain management helps businesses adapt to cross-border challenges and build resilience in the following ways:¹⁴

• Risk mitigation: SCM systems can identify potential risks across the supply chain, such as supplier bottlenecks, geopolitical instability, or natural disasters. By recognizing these threats early, companies can develop contingency plans to minimize disruptions
• Diversification: Through effective SCM, businesses can diversify their supplier base and logistics partners. Diversification reduces dependency on a single supplier or node, which limits the risk of severe disruptions if one supplier or channel encounters problems
• Supplier collaboration: SCM fosters strong supplier relationships through shared objectives and open communication. A collaborative approach makes it easier to coordinate responses to disruptions, whether material shortages or transportation delays
• Resource allocation: Effective SCM helps optimize the allocation of resources. If needed, producers can swiftly reorient resources to address disruptions, making the business more adaptable in challenging times

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