Impact of supply chain management on operational performance
Conventionally, when we consider the process of manufacturing goods we start from the availability of raw materials. Raw materials are processed to manufacture products, sometimes involving assembly of parts. Then the goods are packed and sent to dealers or wholesalers, then retailers and finally to customers. This entire process from the origin point to end point is a chain. At every point, something s supplied, and something is received by a party. This is called supply chain. Disruption in the chain at any point can cause disruption in the manufacturing of goods. "Companies are urged to remember that no supply chain exists in isolation. Many supply chains are integrated, and a disruption at one point could have knock-effects for other businesses," (Evan Blooms). This flow has to be maintained and regulated, which is called supply chain management. Supply chain management is a strategic and systematic coordination of all stages of production from one end to another.
Supply chain starts from demands for goods. The market today has extended its boundaries. Digital marketing has resulted in a global market. Products manufactured in one country are sold and consumers all over the world. The goods must reach the customers across the globe when and where they are in demand in the desired quantity and quality. Hence, SCM is also called the art of providing the right thing at the right place to the right person at the right cost. Successful implementation of this chain is SCM and it is the backbone of the business process. It is vital for the survival of business because the final aim of an organization is to cater to the needs of customers or clients and generate money.
The material, information, and capital are the three flows in a supply chain. Materials in the form of products and parts, information like delivery schedules and capacities, and finances in the form of invoices are upstream flow. Materials in the form of returns, repairs and after sales services, finances including payments and information about orders are downstream flow.
Sometimes, the demand is anticipated, and goods are manufactured in advance. It is called BTS or building to stock. Sometimes, goods are manufactured after an order is placed. This is called BTO or building to order. Optimally managing both the BTO and BTS push and pull is a key determinant of SCM. Order management, packaging, warehousing, clearance of goods, payments, supplier base, demand planning are the various aspects of supply chain management.
"Supply chain management is field critical to business success and contains many intellectual challenges and employment opportunities." (Holmes E. Miller). Supply chain management plays a crucial role in the operational performance. Its direct impact is evident in the following aspects.
- It saves a considerable amount of time. Proper management of logistics from one end to another and coordination between the various activities in production helps to avoid unnecessary wastage of time. Thus, goods can reach the customers in time which in turn leads to customer satisfaction.
- It promotes and controls the communication process between various parties involved in the supply chain.
- It defines a proper manufacturing strategy.
- It helps to decide the best materials to be used, the sources and resources of quality raw material at reasonable costs.
- It brings about integration within an organization.
- It increases and maintains cash flow. Thus, it can initiate the cycle of business. The cash received can be used for the further purchase of raw material and operational requirements. Hence, the manufacturing process continues. Business remains in motion ad circulation only on account of proper supply chain management.
- It creates trust between partners.
- It reduces uncertainty along the chain.
- It eliminates rush hours or unplanned activities.
- It ensures good and timely customer service.
The supply chain can be affected by certain factors. There may be problems with the machinery. Cross-border problems can cause delays. Customs, tax or political factors may influence the chain. The supply chain is a huge network and complicated and complex process. Unaffected staff absences, holidays, festivals, deaths, accidents are some other problems that cannot be anticipated. Incorrect demand anticipations can also affect SCM. Sometimes, there is late delivery from suppliers may be due to problems in logistics. All this shows that supply chain management is very involved.
Ineffective supply chain management can result in loss of customers, fewer profits, damage of goods especially if they are perishable, loss of trust and reduced operational functions.
Hence, it is no exaggeration to state that supply chain management is pivotal in a business process. All executive functions revolve around various nodal points of a supply chain. It is critical for the very existence of an organization.