32 Distributing products and supply chain management
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- How can supply-chain management increase efficiency and customer satisfaction?
What’s Supply Chain Management?
At some point in your life someone has asked you this very important question: ‘What’s for dinner?’ There must be a million possible answers to that question. Pizza? Tacos? Lamb chops? No matter what your answer is, none of these foods will just appear out of nowhere. They have to first move from their original raw state into the packaged products you buy in the store. In other words, they have to go along a supply chain.
In fact, everything you’ve ever purchased has been available to you because it was a part of a supply chain. A supply chain is the network of businesses and people that work together to move raw materials into finished goods and eventually to the end-user. The supply chain is directly or indirectly responsible for fulfilling your needs.
Supply chain management (SCM) is the active integration and coordination of all supply chain activities to provide you, the customer, with the best value. Providing you with the best value means providing you with a quality product for a reasonable price. Companies are able to provide customer value by coordinating the efforts of every activity involved in their supply chains internally as well as externally among supply chain members.
How a Supply Chain Works
Believe it or not, the supply chain starts with you. Let’s imagine, for instance, that you love shoes. Your desire to acquire shoes sets off a chain reaction. You either go to the store or shop online to get the shoes you want. The retailer obtains the shoes from the distributor. The distributor gets the shoes from the manufacturer. The manufacturer gets the raw material from someone else. So all these people, businesses, and processes are linked together. They are part of a supply chain that begins with you.
There is a constant flow of information, money, and products throughout the supply chain. This information, money, and products can be likened to the lubricant used to protect gears. Without the lubricant as protection, gears cease to function properly. The same is true for a supply chain; without information, money, or products acting as lubrication for its gears, a supply chain ceases to function properly.
When you purchase the shoes, you exchange information, money, and products with the retailer. The retailer, in turn, does the same thing with the distributor, and so it goes. Money flows upstream, from the customer to supply chain members. Products flow downstream, from supply chain members to the end-user. Information, however, moves both upstream and downstream.
Why Is SCM Important?
SCM is important because it increases competitiveness and customer satisfaction. In this day and age, SCM plays an integral part of a firm’s success. Efficiently running supply chains allow firms to quickly deliver products to the end-user for a low cost. Firms are able to sell more products and thus increase their competitiveness. Firms are able to better compete against other firms.
Consumers have higher expectations than they have had in the past. They want better products, faster service, and lower prices. When firms have efficiently run supply chains, customers benefit from product availability and lower cost. Consumers are happy because they’re able to get the products they want for the prices they want.
A supply chain is a network of businesses and people that are directly or indirectly responsible for fulfilling your needs. Supply chain management, or SCM, is the active integration and coordination of all supply chain activities with the objective of providing you with the best value.
The customer is the beginning of the supply chain. A supply chain has three flows:
- Money flows upstream from the customer to the supply chain members
- Information flows both ways
- Products flow downstream from supply chain members to the end user
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.
SCM is important because it increases a firm’s competitiveness by providing fast service to customers and lower prices. This, in turn, leads to increased customer satisfaction.
Distribution (place) is an important part of the marketing mix. Retailers don’t sell products they can’t deliver, and salespeople don’t (or shouldn’t) promise deliveries they can’t make. Late deliveries and broken promises may mean the loss of a customer. Accurate order filling and billing, timely delivery, and arrival in good condition are important to the success of the product.
The goal of supply-chain management is to create a satisfied customer by coordinating all of the activities of the supply-chain members into a seamless process. Therefore, an important element of supply-chain management is that it is completely customer driven. In the mass-production era, manufacturers produced standardized products that were “pushed” through the supply channel to the consumer. In contrast, in today’s marketplace, products are being driven by customers, who expect to receive product configurations and services matched to their unique needs. For example, Dell builds computers according to its customers’ precise specifications, such as the amount of memory, type of monitor, and amount of hard-drive space. The process begins with Dell purchasing partly built laptops from contract manufacturers. The final assembly is done in Dell factories in Ireland, Malaysia, or China, where microprocessors, software, and other key components are added. Those finished products are then shipped to Dell-operated distribution centers in the United States, where they are packaged with other items and shipped to the customer.
Through the channel partnership of suppliers, manufacturers, wholesalers, and retailers along the entire supply chain who work together toward the common goal of creating customer value, supply-chain management allows companies to respond with the unique product configuration demanded by the customer. Today, supply-chain management plays a dual role: first, as a communicator of customer demand that extends from the point of sale all the way back to the supplier, and second, as a physical flow process that engineers the timely and cost-effective movement of goods through the entire supply pipeline.
Accordingly, supply-chain managers are responsible for making channel strategy decisions, coordinating the sourcing and procurement of raw materials, scheduling production, processing orders, managing inventory, transporting and storing supplies and finished goods, and coordinating customer-service activities. Supply-chain managers are also responsible for the management of information that flows through the supply chain. Coordinating the relationships between the company and its external partners, such as vendors, carriers, and third-party companies, is also a critical function of supply-chain management. Because supply-chain managers play such a major role in both cost control and customer satisfaction, they are more valuable than ever.
For products that are services, the distribution channel is based primarily on location of the services, such as where the company has its headquarters; the layout of the area in which the service is provided (for example, the interior of a dry cleaners’ store); alternative locations for the presentation of services, such as an architect visiting a client’s site location; and elements of atmosphere, such as dark wooden bookcases for bound legal volumes in an attorney’s office, which provide credibility. Services companies also utilize the traditional entities of distribution for any actual goods they sell or supplies they must purchase.
- What is the goal of supply-chain management?
- What does it mean for a supply chain to be customer driven?
- How does distribution (place) differ for services products?
Summary of Learning Outcomes
- How can supply-chain management increase efficiency and customer satisfaction?
The goal of supply-chain management is to coordinate all of the activities of the supply-chain members into a seamless process, thereby increasing customer satisfaction. Supply-chain managers have responsibility for main channel strategy decisions, coordinating the sourcing and procurement of raw materials, scheduling production, processing orders, managing inventory, transporting and storing supplies and finished goods, and coordinating customer-service activities.
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