A Simple Guide to Supply Chain Management
To help you implement your own supply chain management plan, we explain what a supply chain is and take you through the steps you should follow to create something that fits your business operations.
This article is for informational purposes only and does not constitute legal, personal, or tax advice. The information contained herein is subject to change and may vary from time to time. For specific advice applicable to your business, please contact a professional.
Every business, both large and small, needs to find a way to get their goods and services to the customer, from the moment of conception through to final delivery.
Implementing proper Supply Chain Management (SCM) minimises the scope for disruptions to business operations and hence can help your business run much more efficiently. Modern businesses, even small ones, are often very complex. If one area is disrupted through lack or material (or staff), the effect can ripple throughout the whole business. Ultimately, it can lead to customers moving to the competition. You might be able to win them back later but then again, you might not.
Here, we guide you through the fundamentals of SCM and the steps to follow to build it into your business.
What is Supply Chain Management (SCM)?
The supply chain is the system used to deliver all the resources a business needs to create its products and/or services. Supply chain management therefore relates to everything businesses do to understand, control and optimise the supply chain to their advantage.
Why is supply chain management important?
There are sound, logical business reasons for controlling the supply chain management process:
For a product-based business, effective SCM can help maintain and improve the quality of the manufacturing process. You can also make savings in procurement by controlling exactly where those supplies come from yourself.
It can improve business efficiencies and make you more agile if the market changes. Covid-19 caused huge global supply chain issues. The companies that fared best were those which could react quickly and use alternative suppliers.
Control over shipping and fulfilment can reduce costs and delays to customers.
Understanding your supply chain can avoid oversupply or costly shortages. It helps with managing your inventory.
Better supplier relations – it’s not just cost that matters – in a volatile market, you want suppliers who are flexible too.
It can give you a competitive advantage and lead to improved customer service.
Being in control of procurement can create a sustainable supply chain –- you have a greater understanding of your resources and know where to source alternatives.
Can mitigate supply chain risk by reducing the chance of costly recalls and litigation.
How to create a supply chain management plan for your business
SCM works on the principle of centralising everything, from sourcing of raw materials and manufacturing through to shipment and distribution, in a bid to maximise efficiency and drive down costs.
A management plan is a document which details how you standardise the entire procurement process from end to end.
Depending on your company size, you may have a supply chain manager who oversees the planning and logistics of your supply chain. If not, you can still manage it yourself.
Planning involves making sure your business philosophy aligns with the supply chain. Sustainability might be a central tenet of your ethos and your SCM should reflect that, for example, by making sure you know the exact provenance of the materials and the processes those suppliers follow.
2. Defining your management structure
Will SCM be a part of someone’s overall role or will you have at least one dedicated supply chain leader? How many staff members will you need? If you need more than one staff member, how will you organise them? How will you ensure cover during inevitable staff absences (including unplanned ones such as illness)?
3. Organising your supply of raw materials
Consider where you source your raw materials from, who your suppliers are and any alternatives you can use in the event of disruption. Which ones have worked well in the past and could become a standardised part of your SCM? Which ones should you get rid of?
It’s best to use cloud-based SCM software to keep track of your different suppliers and purchase orders. Smaller businesses may be able to use spreadsheets but these do not usually scale up easily.
4. Assessing your inventory
Knowing how much inventory you have and forecasting how much you will need is an intrinsic part of SCM. If you have too much, you could be left with valuable cash tied up in stock. If you have too little, you could struggle with disappointed or angry customers. Square Point of Sale offers tools which let you keep track of your inventory management.
5. Reviewing your manufacturing operations
If you make a product, review the separate manufacturing steps used to create it. Where are the inefficiencies? Are there any stages you can remove to streamline it? What will you do in the event of one step going wrong? Where is your quality control in the process?
6. Appraising your delivery and logistics
How do you get your product or service from manufacturer to shop to consumer? Who are your distributors? What shipping services do you use? If one of these elements in your supply chain fails, for example, a courier can’t deliver because of a workers’ strike, do you have contingency plans in place to take up the slack?
7. Optimising your customer returns
What process do you have in place for the return of goods or the cancellation of a service? Is it easy for a customer to do? Is there technology you can use to make the returns process simpler, automated or integrated with your website?
From the biggest company to the solopreneur, getting to grips with your supply chain can make a difference to your productivity, your efficiency and ultimately your bottom line.
Useful resources to help you understand SCM
Learn how to manage supply chain disruptions when they occur
Dropshipping is a way of selling products without keeping stock on hand. Learn how to find a dropshipping supplier for your business in Australia
Discover how you can use Square for retail to manage your purchase orders
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