Importance of Supply Chain Management - scm, a set of critically important functions

When we talk about the importance of Supply chain management we try to bring into sharp focus the loss due to the absence of an effective supply chain strategy and / or the benefit due to a well oiled supply chain for any firm. Basically, it is a question of how good is the integration of supply chain that matters for any firm.

Of critical importance in today's business scenario is managing competition through partners.

An independent firm on its own may not have all the resources to match its competitors. But by having an upstream and a downstream arrangement of getting the input , processing it into output and then pushing it to the downstream for distribution with effective chain partners it can face any business challenges.

Importance of having a robust Supply Chain Management can be understood by an example:

ABC manufactures the cycle chains for a cycle manufacturing company XYZ. Another company PQR manufactures bits used in the cycle chain manufactured by ABC.

In coming days ,as per the market forecast, XYZ shall be needing 50,000 units of cycle chain ,an information that is not available with ABC.
Accordingly, PQR also does not know how many bits to produce in order to meet ABC's requirement. The result would be either both ABC and PQR hold high safety stock inventory or lose business respectively with XYZ and ABC.

Now, if in this example showing only three supply chain partners , absence of a critical information among the partners, that is of production forecast at XYZ firm results into either a higher inventory level or loss of future business what would happen if the supply chain consisted of a large number of partners, a scenario normally existing for medium to large sized companies ,the world over ?

In an era of gaining competitive advantage through reduced inventories all over ,a company is going to have terrible disadvantage of having to carry unnecessary inventory for the fear of losing future business.


The importance of Supply Chain Management thus is in :

* Reduced inventories along the chain
* Better information sharing among the partners
* Planning being done in consultation rather than in isolation

The benefits too would be reflected in terms of :

  • Lower costs

  • Better customer service

  • Efficient manufacturing

  • Better trust among the partners leading to win-win

Process integration and other efforts result in improved quality as higher profit margins shall get reflected in creation of better facilities for manufacturing, product design research, enhanced customer service.





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