The management system incorporated to optimize each segment of the supply chain, right from the initial step to the final one, is known as supply chain management or SCM.
An efficient SCM is among the primary requirements of every successful company to streamline the manufacturing process and achieve substantial revenue growth.
SCM is an integral part of the supply chain, a series of steps that a company follows to deliver a product or provide service to a customer. These steps include receiving raw materials from the supplier, transforming them into finished products, and finally delivering them to the end-user.
A supply chain also involves the producers of the raw materials, retailers, warehouses, transportation costs, distribution outlets, and vendors. Hence, it includes all the functions that work on meeting the customer’s request after receiving the order.
If you are starting an online business, supply chain management is crucial in improving several aspects of your business. Learning about the importance of SCM is vital before you set up your own trading business.
Importance of supply chain management –
1. Determines an organization’s operating cost
The operating cost of a business relies a lot on the supply chain management system. The purchase and production costs of a certain product vary on the efficiency of the company’s SCM.
- Reduce the purchase cost
Effective SCM will ensure zero-stockpiling of finished goods, reducing the cost associated with storage facilities substantially. That will reduce the overall cost associated with the manufacturing and shipping of the product, reducing the purchase cost significantly.
- Decrease production cost
In the case of an issue in the supply chain that has put the whole manufacturing process at a standstill, a proper SCM will help in identifying the root cause of the problem easily.
Thus, it will save a significant amount of time and money that would have been wasted in rectifying the said issue.
2. Affects the financial position of a business
Every businessman should know about supply chain management and how it helps in organizing the overall production process and manufacturing, thus affecting the economic condition of a company.
It also enhances other financial factors –
- Increase profits overtime
A well-implemented supply chain helps in regulating costs in each step of product management, thus saving a significant amount of money over a period. For example, a slight reduction in packaging costs will free more funds to utilize in other areas of the production facility, thus dramatically improving the profit margin of the organization.
- Improve cash flow
Efficient supply chain management can increase the speed at which the whole manufacturing process functions. This results in businesses delivering finished goods to the seller at a faster rate, thus improving the cash flow.
- Avoid expensive infrastructure
Businesses generally process raw materials into finished products inexpensive warehouses and storage facilities. With the help of SCM, the time taken to complete the whole manufacturing process can be reduced.
Hence, the provision of storehouses also decreases, thus reducing the overall working capital requirement
3. Increase customer satisfaction
With the help of efficient supply chain management, a company can meet deadlines easily and enhance customer satisfaction.
In the recent era, developing an efficient supply chain management system has become easier with the rise of modern technology.
Enterprises can incorporate supply chain finance to improve their existing infrastructure and opt for a business loan in the future to purchase better raw materials and production equipment.
Both business loans and supply chain finance are offered by financing companies to help their customers. NBFCs like Bajaj Finserv are one of them.