Definition

Before you can understand the benefits and best practices of supply chain management, you need to understand what it is. A supply chain is the network of partners that a business uses to move its product from one stage of development to another.

For instance, Sparkle Designs purchases jewels from Green Mine, Inc. It then creates custom jewelry designs, which are sold at several jewelers throughout the United States. Everyone that participates in this process is part of the supply chain. This would include such businesses as a distributor, a supplier, or a retail store. It would also include the customer, since the customer’s demand for a product is the catalyst for a business to supply it.

Supply chain management is a systematic approach to integrating and managing all functions related to producing a product. This approach includes:

• Sourcing and procuring products
• Product design
• Production planning
• Material handling
• Inventory management
• Customer service
• Order processing
• Warehousing
• Transportation

Benefits

Now that you have a good understanding of what supply chain management is, imagine that you are the supply chain manager at Sparkle Designs. What type of benefits do you think you’d gain from supply chain management? What type of benefits do you want to gain? Both of those questions are important, because there are many benefits to be gained from supply chain management. However, you’re unlikely to gain all of them.

Supply chain management uses an analytical approach to improving the supply chain. Its benefits may include the reduction of waste, shipping delays, or overhead. Past data, such as sales reports or other financial reports, are used to understand past trends and create future forecasts for inventory. Forecasting inventory based on past trends helps you to reduce overhead, since you have a better idea of how much inventory you will need and when.

Past data may also provide information to determine an optimal way of shipping, which could help you reduce shipping costs and/or reduce shipping delays. As in life, in business, there are always tradeoffs. So as the supply chain manager, you need to decide which benefits are more important to your business. Finding the best shipping company for Sparkle Designs may mean that you have to decide between lower shipping costs or fewer shipping delays, because you may not be able to find both benefits in one shipper. Is it more important for Sparkle Designs to have a lower shipping cost or a faster delivery? It should be noted that the answer to this question may change over time, or depend on your customers’ needs.

Using past data to determine future actions also helps firms to mitigate risk related to purchasing materials and delivering products. Since you’ll have a better understanding of past successes and failures, you’re better able to make decisions. This will allow you to improve operations and gain a competitive advantage.

Best Practices

Each supply chain is unique to its company. Therefore, the opportunities to use it to gain an advantage over your competitors are endless. One way that firms use their supply chains to gain an advantage is by establishing supply chain best practices. Best practices are a set of procedures that your firm has identified as being the most effective for them. It’s vitally important to create best practices that enhance your firm’s performance.

When choosing best practices, you want to look at your strengths and weaknesses. Then develop best practices that enhance the strengths that you have and negate the weaknesses. For instance, Sparkle Designs is a small business with only four employees: the owner, the designer, the salesperson, and you, the supply chain guru. Since you’re a small firm, you may not have the capital to purchase the latest software to manage your inventory. However, you can make technology a best practice by using it to drive sales. After all, the customer is part of the supply chain, and without sales, there is no need for inventory or a supply chain.

You may also establish partnerships with other small businesses, thereby reducing shipping costs and delays by working together. If being green is an important consideration, you can develop supply chain relationships with other green businesses and advertise this best practice to consumers. This in turn could help you drive sales, reduce waste, and improve your overall performance. The most important thing to remember about supply chain management is that it’s a team activity. Best practices should not only improve your performance, but also enhance the performance of your entire supply chain.

Lesson Summary

Lets review the key points of this lesson. A supply chain is the network of partners that a business uses to move its product from one stage of development to another. Supply chain management is a systematic approach to integrating and managing all functions related to producing a product. The benefits of supply chain management include the reduction of waste, shipping delays, and overhead, in addition to mitigating risk and gaining a competitive advantage.

Best practices are procedures that are identified and followed, because they are the most effective for your company. Establishing best practices should help you to enhance you strengths and negate your weaknesses.