From purchasing raw materials to delivering goods to the door of the end customer, many actors are involved in the manufacture of a product. And each one has its own characteristics. In order to guarantee customer satisfaction, each company must control the different steps of its supply chain. This is why SCM matters. But what does this concept entail exactly? How does this represent a real added value for the company?
What is a Supply Chain?
The concept of Supply Chain refers to a complex environment that extends beyond the walls of the factory. While it guarantees the production efficiency and quality, its actors are responsible for coordinating the three types of flows that make up the production chain.
Physical flows
Physical flows, commonly known as logistics, correspond to the movement of raw materials, goods and finished products, as well as their storage. If the traditional supply chain model was based on the management of these flows, it is because they represent one of the main items of expenditure.
It’s a well-oiled machine. In order to ensure business continuity, operators must meet the fluctuating needs of the production chain and ensure the supply of consumables, while avoiding excess stocks.
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Financial flows
The supply chain aims to ensure the availability of resources at the right time, in the right place and at the right price. With regard to the latter point, operators must control all currency movements within the company, but also between partners, suppliers and subcontractors.
Several functions are affected by these flows. Examples include Purchasing, which is responsible for sourcing operations and negotiating supply contracts with industrial suppliers. The Sales teams, for their part, are in direct contact with customers and ensure, among other things, that payments are received correctly.
In addition, controlling procurement costs through supply contracts allows the organization to better estimate sales prices – and by extension to define an appropriate strategy.
Information flows
In an increasingly digitized environment, information management is becoming one of the most critical parts of the supply chain. Faced with the multiplicity of available data, today’s real challenge for companies is to analyze them in order to anticipate the organization’s needs.
While the information collected is mainly related to logistics activities (inventory levels, equipment condition, etc.), they are generated throughout the entire product life cycle:
- Supplier relationships – Before entering into a partnership with new suppliers, it is essential to conduct an audit of their performance, but also that of their suppliers. Prices, delivery terms and conditions, quality and customer satisfaction are all factors that will influence the efficiency of your supply chain.
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- Customer support – Delivery (whether internalized or not) and customer care have a significant influence on the continuous improvement of the supply chain. As customer satisfaction is at the heart of the supply chain, a growing number of its players consider the analysis of feedback as a competitive advantage. From this perspective, customer reviews are a fundamental flow of information in the company’s overall performance. Customer support is therefore the voice of customers within an organization in terms of delivery, packaging, return or refund conditions, price…
It is therefore up to each function to accurately collect and analyze this information in order to improve supplier performance, production quality, performance and, ultimately, the customer experience. In this respect, precision is the cornerstone of the supply chain.
Why should you invest in SCM?
From Procurement to R&D to industrial maintenance, all links of the supply chain are connected to each other and play a defined role within the value chain. At the same time, each of these functions is facing an increasing number of obstacles: demand volatility, inventory management, CSR issues, etc. SCM offers business leaders the means to protect their organizations against the specific hazards of their environment.
The importance of Supply Chain Management
SCM (Supply Chain Management) is about defining a set of best practices that enable organizations to identify the actors in their supply chain, improve their relationships and better manage flows. At the company level, this reduces costs, potential losses and production times. Ultimately, SCM’s objective is to offer the end customer the best possible experience.
To this end, SCM is based on four fundamental principles.
The pillars of SCM
- Organizing. The development of an SCM strategy requires a thorough knowledge of the organization’s structure and activities. It is therefore essential to define a common reference framework in which operators can find their place.
- Sourcing. In an increasingly competitive environment, industrial suppliers are becoming real partners. By streamlining the management of supplier relationships, contracts, deliveries and payments, companies show greater reactivity and reliability.
- Making. To ensure the proper conduct of operations and company performance, supply chain managers measure and analyze in real time the quantity and quality of production, in order to ensure that it meets market expectations.
- Delivering. Coordinate customer orders, organize deliveries, manage vehicle fleets, manage customer invoices and receive payments: logistics teams act as a gateway between the factory and the end consumer.
These four elements constitute the foundation of SCM, which every leader must master. With recent developments in the supply chain, the following concepts could also be added:
- Analyze. Industry 4.0 is focused on data analysis, and more specifically on predictive analysis. Whether it is a matter of assessing inventory levels, monitoring the state of a piece of equipment or optimizing sourcing operations, supply chain operators now have many tools at their disposal to rationalize their activities. Mobility Work Hub is aimed at industrial suppliers who want to collect field data on the use of their equipment and consumables quickly and easily.
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- Secure. In order to combine dynamism and sustainability, it is essential to create a stable and secure environment. It is up to the management teams to define a set of guidelines and good practices in terms of human resources, IT, finance, quality control, etc.
How to optimize SCM in my organization?
How does the structuring and rationalization of your supply chain processes support your company’s growth? This is what we learn from the Starbucks case.
The Starbucks’ study case
Several years ago, the American coffee subsidiary had to face major logistical challenges: order delays, overstocking, etc. Its business model was not adapted to such success, leaving its operators unable to meet demand. To pertain the exponential growth of its activities, it had to rethink completely the way it managed its supply chain.
The Group therefore decided to carry out a radical transformation in three stages:
- Reorganize and simplify: activities were centralized, divided and assigned to teams with clearly defined roles.
- Reduce costs and improve service: each function was responsible for identifying possible areas of improvement in order to assess the overall performance of the supply chain. However, this has only been made possible by the establishment of a common framework for the organization.
- Anticipating the future: in order to ensure the sustainability of the company’s activities, the managers have chosen to invest in the recruitment of specialized talent, as well as in the training of existing teams.
What should we learn from this?
This brief overview of the metamorphosis of Starbucks provides us with lessons that each organization should strive to apply.
Eliminate complexity. Make sure you have a clear vision of your organization. Make sure, for example, that you better organize the follow-up of your relationships with your partners, but also of the activities of your teams.
Prioritize costs. Define and prioritize the costs of each function in your supply chain before trying to reduce them. A better understanding of your cost structure allows you to make better decisions for the performance and sustainability of your organization.
Establish a frame of reference. Feel free to clearly define the role and scope of each team. Define and monitor Key Performance Indicators (KPIs) to align the activities of each function with those of your company and partners.
Focus on innovation. Take time to build the future. Combine indicator tracking, team cooperation, predictive analysis and customer feedback to anticipate demand trends and maintain your competitive advantage.
Recent developments in the supply chain have turned it into a complex, interconnected and customer-centric structure. Good supply chain management is measured by the satisfaction of your end customers: products are of high quality, delivered on time and at a lower cost. Each step of the supply chain, through a ripple effect, will directly influence the overall performance of your company and the satisfaction of your end users. It is therefore essential to leave nothing to chance and to adapt the management of your supply chain to the specific needs of your company.
