As a small business owner, you may not even think about your supply chain when it’s running smoothly.
But, as soon as there’s a disruption, you’ll become keenly aware of the importance of each of the individual components of your supply chain.
Every business that sells physical products is reliant on its supply chain. So, understanding how to optimize it can help you enhance efficiency, reduce costs, and improve overall performance.
Continue reading below to learn more about supply chain management, its impact on business operations, and strategies for optimization.
What is supply chain management (SCM)?
Supply chain management (SCM) is the coordinated process of optimizing how a business produces and distributes goods and services.
It’s a complex and comprehensive field handled by a supply chain manager, who oversees the initial sourcing, procurement, creation, logistics, and timely distribution of finished goods.
Effective supply chain management helps businesses produce quality goods and services in an efficient and cost-effective manner.
Supply chain management responsibilities
A supply chain manager must oversee the entire production process, starting with sourcing raw materials to ensuring the finished product reaches customers on time.
Here are some of the primary duties of a supply chain manager:
- Finding suitable sources of raw materials
- Managing relationships with suppliers and negotiating favorable contracts
- Overseeing the manufacturing process
- Monitoring inventory levels to avoid stockouts or surpluses
- Coordinating the transportation of finished goods to distribution centers and end customers
- Creating demand forecasts and adjusting manufacturing accordingly
Importance of supply chain management
A business’s supply chain is vital to its success. It’s what ensures the organization can turn raw materials into quality goods and services and deliver them to customers on time.
Supply chain disruptions are common and to be expected. A natural disaster might impact a supplier’s ability to deliver raw materials on time, a machine failure might create a manufacturing bottleneck, or a sudden shift in consumer demand might make a particular product obsolete and lead to a surplus.
If any of these were to occur, it could create ripple effects throughout the supply chain, challenging businesses’ ability to produce and deliver quality products to customers on time.
Of course, certain factors are more predictable than others. However, effective SCM can help a business create a resilient supply chain that helps companies mitigate the risks of delays or disruptions.
Thus, supply chain management is a crucial function that keeps the business running smoothly, delivering maximum value to customers while reducing waste and inefficiencies. It has a direct impact on the company’s profitability, financial performance, and customer satisfaction.
5 stages of supply chain management
The specific duties of a supply chain manager will vary from company to company (and maybe even with specific product lines).
However, supply chain management can generally be broken down into five main stages.
1. Planning
Effective SCM begins with the planning and strategizing of supply chain activities in alignment with the company’s overall objectives.
Business leaders should understand how the supply chain fits into the business’s strategy and define the metrics that will be used to measure its effectiveness.
This stage involves forecasting consumer demand so that supply chain managers can plan manufacturing and inventory management levels accordingly.
For example, depending on the expected demand, the company will need to calculate the specific amount of raw materials they’ll need, staffing requirements at each stage of production, and other details.
2. Sourcing
Supply chain managers must evaluate their options for suppliers and vendors that provide raw materials and input components for manufacturing.
They’ll need to negotiate contracts with favorable pricing and delivery terms to support the company’s objectives and ensure the reliable delivery of necessary manufacturing inputs.
On an ongoing basis, supply chain managers will foster relationships with suppliers and vendors through on-time payments, open communication, and continued collaboration.
3. Production
The supervision of goods manufacturing is the next stage of supply chain management. This is when raw materials and inputs are converted into finished goods.
At this stage, managers might oversee the design and development of products, assembly, packaging, and quality control. They need to ensure the entire process is running as efficiently and cost-effectively as possible without compromising the quality of goods.
4. Distribution
Once the goods are finished, they must be transported and stored in warehouses or distribution centers until they are ultimately sold and delivered to end customers.
Smaller businesses may keep inventory stock in their brick-and-mortar location or use a third-party fulfillment warehouse to handle distribution.
Either way, the goal is to establish a distribution process that delivers goods to customers cheaply and on time.
5. Returns
Supply chain management doesn’t end once the goods have been delivered to the customer. Some customers will need to make a return. Maybe they weren’t satisfied with the product’s quality, it’s not what they expected, or they no longer want or need the item.
Regardless of the reason, effective SCM must include a process for handling customer returns, including reverse logistics and re-selling or disposing of the returned item. This way, the company can continue to support customer satisfaction.
According to data from Statista, 16.5% of e-commerce sales in 2022 ended up being returned. So, customer returns are an important aspect of SCM that businesses should be prepared to handle.
How to optimize supply chain management
For small and medium-sized companies that don’t have large-enterprise resources at their disposal, it can be challenging to optimize the supply chain so it maximizes customer satisfaction and profitability.
Here are some expert tips and best practices for SMBs to implement for effective SCM:
Invest in supplier relationships
You are highly reliant on your suppliers. So, choose them wisely, and don’t forget to invest in your relationships with them even after the contract is signed.
If you reward them through clear and proactive communication, on-time payments, and other forms of recognition, they could return the favor by giving you preferred deliveries or discounts.
Look into outsourcing
Small businesses may not have the in-house resources to handle all aspects of the supply chain with efficiency and expertise.
It can be beneficial to outsource certain components of the supply chain, such as logistics and fulfillment, giving your team more time to focus on what you do best.
Leverage technology
In the modern business environment, companies of all sizes can use advanced technology and software systems to better manage their supply chain.
As we will discuss in more detail below, specialized software systems help centralize critical supply chain data into one platform, providing greater visibility into operations and enabling more informed decision making.
Types of supply chain models
The strategy a supply chain manager will use to coordinate the flow of goods and services to customers will depend on the specific model in use.
Here is a brief overview of the various types of supply chain models businesses can choose from:
Continuous flow
A continuous flow supply chain model is used by companies that produce large quantities of homogeneous products, with little variation in customer demand.
This is one of the more traditional supply chain models, making it a good option for mature markets with relatively stable demand levels.
Fast
Fast chain is a newer type of supply chain model, best for companies that offer products with a short life cycle.
It helps companies take advantage of fleeting trends while minimizing waste, matching production levels to the brief estimated lifespan of the trend.
Efficient
An efficient supply chain model is designed for maximum efficiency, as you might be able to gather from the name. It’s best for mass production rather than one-off or specialty items.
It relies on precise demand forecasts from management, which helps the company plan for the exact levels of raw materials, labor, and machinery that will be needed to support production. While it can deliver great efficiency levels when things go as planned, any deviations from the demand forecasts can create serious disruptions.
Agile
An agile supply chain model is best for companies that offer highly-specialized goods. This model typically involves some level of specialized expertise during product delivery.
In contrast to the efficient model, the agile model is compatible with small batch production of goods that the company can charge a premium for, given the level of expertise required in its distribution.
Flexible
The flexible model is best for companies that experience seasonality. It allows them to ramp up production when there’s peak demand, and scale back when demand levels normalize.
A flexible supply chain model can be a bit complex to maintain. But, it helps companies be more agile and better able to match production to current demand for maximum efficiency.
Custom
As the name might suggest, a custom supply chain model is tailored to the individual company, its market, and customers.
The custom model is best for companies that deliver customized products or services, as each ordered good is created according to customer requirements and specifications.
Supply chain management software
As we discussed above, using technology and data analytics in SCM can provide greater visibility into emerging risks, trends, and opportunities while enabling more informed decision-making.
Here are some of the software solutions that SMBs can use to streamline SCM workflows:
Order management systems (OMS)
For some SMBs, an order management system (OMS) will be their go-to tool for supply chain management.
It can help them track and manage orders, sales, inventory, and fulfillment with automated workflows. Thus, teams can spend less time handling these tasks manually, leading to quicker and more efficient order fulfillment.
Larger teams with high order volumes and more complex supply chains may need a more sophisticated system. However, an OMS is particularly well-suited for the needs of SMBs.
Warehouse management systems (WMS)
Warehouse management systems (WMS), sometimes called fulfillment software, helps companies manage warehouse operations.
It provides real-time visibility into inventory levels, updating as soon as new goods arrive, until they are shipped to customers.
WMS platforms can be customized to each business’s workflows and requirements, and include extensive capabilities such as receiving and item tracking, order processing, shipping, resource allocation, reporting, and more.
Transportation management systems (TMS)
SMBs may also choose to use a transportation management system (TMS) to oversee the logistics of goods by land, sea, or air.
TMS solutions can help companies assess and compare shipping costs using different carriers and modes of transportation.
Ultimately, TMS platforms can facilitate transactions and agreements between the company and a shipping carrier. Companies can use a TMS to track shipments to ensure they reach the final destination.
Supplier relationship management (SRM) software
The specific capabilities of supplier relationship management (SRM) software can vary between vendors.
However, they typically include features to help companies onboard suppliers and vendors, facilitate interactions, track performance, and handle billing matters.
Overall, an SRM can help to simplify supplier management tasks by consolidating them into one platform. Plus, some solutions even include a marketplace where businesses can browse and select verified suppliers or vendors that fit their requirements.
Enterprise resource planning (ERP) systems
Enterprise resource planning (ERP) solutions are comprehensive systems that can include a range of features to facilitate effective supply chain management.
ERPs act as a centralized system for managing critical supply chain functions like inventory management, procurement, order management, and logistics.
These streamlined platforms are popular among businesses of all sizes. They can provide better visibility into the entire supply chain — not just one component — enabling better decision-making and resource allocation.
Support your supply chain with on-time supplier payments
Optimizing your supply chain requires you to select the right suppliers, make accurate demand forecasts, and choose the right production and distribution for your business’s needs.
However, a crucial part of SCM that you cannot overlook is investing in your supplier relationships.
Specifically, paying your suppliers on time shows that you’re committed to the relationship and are a reliable business partner. In turn, suppliers will be more likely to prioritize your shipments and needs over other customers, helping to strengthen your supply chain.
While it can be tricky to stay on top of supplier payments as you scale your business, BILL’s automated AP solution helps to streamline this process. You can have suppliers send you digital invoices via email, and the payment will automatically be routed for the appropriate approvals before being processed. With BILL, supplier payments are made accurately and on-time, giving you peace of mind that no invoices will slip through the cracks.
Try BILL today to see how our platform can help streamline supplier payments.
Frequently Asked Questions (FAQs)
What do supply chain managers do?
Supply chain managers have a variety of responsibilities to ensure the timely and efficient manufacturing and distribution of goods and services to customers. Some of their primary duties include:
- Selecting suppliers
- Sourcing raw materials
- Forecasting demand
- Managing and storing inventory
- Fulfilling orders
- Coordinating shipping and last-mile deliveries
How much do supply chain management jobs pay?
Data from ZipRecruiter shows that the average supply chain manager salary in the United States is $100,315, though this can vary significantly between states.
