5 Essential Components of Supply Chain Management

5 Essential Components of Supply Chain Management

The supply chain is the backbone of virtually every industry. When supply chains encounter delays and disruptions, it ripples throughout the sector, affecting every related company and their clients. Given this enormous responsibility, effective supply chain management is a must for any organization.

What a supply chain looks like will vary from industry to industry and even company to company. Despite differences in specifics, though, you can break all supply chain management into five essential components: 

  • Planning
  • Sourcing
  • Transportation
  • Manufacturing
  • Returns

If you want a successful supply chain, you’ll have to address each of these elements. Here’s a closer look at each of them.

1. Planning

While all five of these components are crucial, planning might be the most important. This phase refers to creating and organizing your overall supply chain strategy, which the other four execute. Before making any decisions in the other areas, you need to consider your resources and budget, analyze options and craft a plan.

One of your most helpful tools in this phase is data analytics. Surveys show that 81% of supply chain professionals believe analytics will be instrumental in reducing costs. When you collect and analyze supply chain data, you can find ways to improve you may not have thought of otherwise.

2. Sourcing

After you have an overall strategy in place, you should address the specifics of material sourcing. Many suppliers offer the same raw materials, but they differ widely in cost, quality and transparency. You’ll want to balance all of these. A supplier might provide the highest quality materials, but their prices would make your end product too expensive, or they may not deliver on time.

Distributed sourcing is a growing trend after the COVID-19 pandemic revealed the pitfalls of single sources. Supply chains that only sourced from China faced massive disruptions and delays when factories there shut down due to COVID. Having multiple suppliers can prevent these unfortunate situations.

3. Transportation

Transportation is one of the most crucial parts of any supply chain. Moving materials from suppliers to manufacturers, then moving products from manufacturers to customers can be more complicated than it sounds. There are a lot of choices to consider here, from logistics partners to tracking technology.

No matter how you transport materials and products, fleet management software is a must. A stunning 91% of the top 100 carriers use these tools, which can create custom, optimized routes and provide real-time tracking updates. The more transparent your transportation is, the easier it will be to optimize it.

4. Manufacturing

Manufacturing is where you turn raw materials into finished products. It’s also an area that typically has a lot of room for improvement. Traditional manufacturing methods can be close to 90% wasteful, using far more energy, materials and time than they need. 

Everything from different production techniques to reorganized workflows can lead to improvements here. Some changes as straightforward as reducing how far workers have to walk to grab materials can have considerable impacts. New and improved technologies and methods emerge all the time, so adopting a policy of continuous improvement is a good idea.

5. Returns

No matter how reliable the rest of your supply chain is, you can’t avoid all mistakes. Errors happen, and it’s okay if they do, as long as you can handle them properly. It should be easy for customers to return unwanted or defective products to promote customer loyalty. 

Studies show that 72% of online shoppers say return policies directly impact their decision to buy something. As a result, having a convenient, generous policy can generate more sales. Mitigation strategies like refunds, quick product recalls and issuing thoughtful apologies are also recommended. 

Optimize Your Supply Chain

Supply chains are complicated. With so many influencing factors, there’s a lot to consider in supply chain optimization, but that can be a good thing, too. It means companies have a lot of opportunities to improve.

Any supply chain management strategy should consider these five components. Careful thought in each of these categories can create fast, flexible and cost-effective supply chains. Both businesses and consumers will benefit.

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