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The Importance of SCM in a Company’s Business Processes

data scientists

Established companies usually have a special division for supply chain management. Certainly, this division is getting smaller in size the importance of SCM or supply chain management in a business.

Some of you may be asking, what exactly is supply chain management? What is the benefit or purpose? So, let’s see this explanation below!

Definition of supply chain management

Supply chain management is the management of the flow of goods or services that includes all processes, including changes in raw materials to finished products. This process is also an attempt to try out supply offerings in order to improve the client experience so that the business has competitiveness in the market. In other words, supply chain management is part of the supplier’s efforts to develop and implement highly efficient and economical supplies.

Supply chain management goals

 Then, what are the benefits of supply chain management for businesses? One of the main is to minimize costs, reduce waste, and production cycle time. The supply chain immediately when the retailer sends a request to the manufacturer. Then, try to ship the stock as quickly as possible.

However, that doesn’t sound efficient and may be the cause of the problem at many points. Therefore, one of the goals of supply chain management is also to improve supply chain flow so that it will be efficient for all interested parties.

With effective supply chain management, there are several values ​​that can be increased in the supply chain cycle, including:

Identify potential problems

When a customer orders a larger number of products than the product stock available in the factory warehouse, it is likely that the customer will complain and be dissatisfied with the supplier’s service. However, if the supplier analyzes the data in the supply chain beforehand, the shortage of the product can make the other party happy, thereby causing disappointment in the customer.

Optimizing for price fluctuations

Some products are seasonal so they have a limited shelf life. At the end of the season, the product will generally be discarded or sold at a very large discount. Accordingly, businesses that provide seasonal products generally adjust their prices in such a way as to meet market demand. Well, by analyzing the supply chain cycle, you can optimize profit margins.

Increase in inventory allocation

If you have a good supply chain data cycle, especially if you are already using a digital system, you can allocate resources dynamically. The allocation can be based on estimated sales, actual demand, and the availability of raw materials.

Types of Supply Chain Management

Supply chain management yang dikelola dengan baik dapat memangkas biaya operasional.

From the explanation above, it can be seen that the purpose of implementing supply chain management is to maximize the value generated by the company as a whole. As for achieving this, there are several types of supply chain management that a company may implement, including:

1. Upstream supply chain

Upstream supply chain is positioning manufacturing companies as liaisons or distributors to consumers or resellers who market products. So, the company’s product procurement process is the main activity in this upstream section.

2. Internal supply chain

Second, the internal supply chain is the process of inputting raw materials to the warehouse which is converted into basic materials. Then, the basic materials are distributed by the company.

This is done continuously by the company to be able to produce quality production output. In internal supply chain management, the main activities consist of production management, manufacturing, and product inventory control carried out by the company.

3. Downstream supply chain

Meanwhile, in the downstream supply chain, supply chain management carries out activities that consist of all marketing activities for the company’s products, including product delivery to customers or consumers. In other words, the main activities in this third type of supply chain are in the form of regulating distribution directions, warehousing, transportation, and final product delivery service activities.

Supply Chain Management in Conventional Companies

Given the shift in business operations to digital platforms, the supply chain is also changing. Therefore, we need to distinguish examples of supply chain management for offline or conventional companies and e-commerce. There are at least six stages in the supply chain of conventional companies, which are as follows.

1. Procurement of raw materials

Generally, the supply chain of an item starts from raw materials. In this process, of course, there is a sorting of raw materials in order to meet the expected quality standards. Usually, before the procurement of raw materials, there is a plan related to production targets. Well, the amount of raw materials provided refers to the production target that has been determined at the beginning.

2. Delivery of raw materials to factory

The provision of raw materials in the first stage is usually carried out by a logistics partner. Then the raw materials are sent to the supplier. Suppliers will process raw materials then sell them wholesale to companies in need. One supplier does not only provide raw materials for one company.

 3. Production process in factory

After the raw materials arrive at the factory, the next process is the production stage. Raw materials will be further processed into final products or finished goods.

4. Distribution of goods

The final product that is ready will enter the distribution stage. Distributors generally ship goods from the factory to the retailer or retailer.

5. Retail traders

When the product reaches the retailer, it will be displayed or marketed in such a way that it will be purchased by the final consumer.

6. End consumers or customers

This sixth stage is seen as the end point of a supply chain. However, when the final consumer buys products from retail traders, the supply chain cycle continues. The reason is, demand or demand from final consumers pushes the company back to the initial stage, namely choosing raw materials. So, the supply chain cycle keeps turning.

In this regard, it is very important to maintain a smooth process at each stage of the supply chain so that the flow of supply of goods or services is not hampered.

Supply chain management in e-commerce companies

Like conventional companies, e-commerce companies also need to manage supply chains to deliver product to end consumers. However, because the nature of the business is slightly different, the supply chain management process in an e-commerce company is not the same as a conventional company. Below is an example of supply chain management for an e-commerce company.

1. Transactions in e-commerce

In contrast to the process that occurs in conventional companies, the final consumer transaction actually occurs at the beginning of the supply chain. First, consumers transact or check out first on e-commerce sites. As is well known, products sold in e-commerce can be viewed, selected, and purchased directly by consumers.

2. Payment settlement and ordering process

Before the product is successfully ordered, the consumer needs to complete the payment first. At this stage, other supply chain channels are actually open because payments are generally made via e-wallet or bank transfer.

3. Product pick-up from warehouse

Once the order is successfully made, then the process of taking the product to the inventory warehouse occurs. Of course, the warehouse also needs to ensure that the ordered goods are available and ready to be sent to consumers.

4. Delivery process

Most of the product delivery processes ordered in e-commerce are carried out by third parties, namely logistics companies. At this point, the difference is clearly visible from conventional companies that send products from warehouses to retail traders. This time, the product is sent directly to the end consumer.

 5. End consumers or customers

The end point is similar to that of a conventional company, namely the end consumer. If satisfied with the product received, the customer will usually place an order again so that the supply chain cycle continues.

Benefits of Implementing Supply Chain Management for a Company

Supply Chain Management plays an important role in a business run by a company. Prior to supply chain management, companies suffered a lot of losses due to product delivery estimates that sometimes did not match market demand.

Now, by implementing supply chain management, companies can reduce losses and actually earn above-average profits. In addition, the company can also connect all parties involved in the process of converting raw materials into finished goods. For this reason, the production process and distribution of goods/services produced by a company can run more effectively and efficiently. Here are the benefits of implementing Supply Chain Management for a company:

1. Satisfying Customers

By implementing Supply Chain Management, a company can satisfy its customers. The company can guarantee customer satisfaction by producing goods/services in accordance with the demands of customers as business partners.

Supply chain management or supply chain management plays an important role in helping companies to ensure customer satisfaction. Through this mechanism, companies can find out what goods they want and when is the right time to deliver the goods.

2. Increase Company’s Income

The more loyal consumers use the goods/services of a company for a long period of time, the greater the opportunity for the company to increase its income. The goods produced by the company will not be wasted after being produced because the goods are in demand and are also used by consumers. Thus, the company’s revenue will increase.

3. Lowering Costs

In the past, companies had to spend a lot of money for the process of procuring goods, producing, and distributing goods/services, now everything feels different. With Supply Chain Management, a company can reduce the costs they have to spend for all these processes. The integration of product flow from the company to consumers can reduce costs on the production line and also distribution.

4. Maximum Utilization of Company Assets

In implementing supply chain management, technology has an important role. With the technology contained in the supply chain management, companies are required to improve the performance of their employees. For this reason, companies usually work with software providers that will support employees in running the supply chain mechanism.

Employees as one of the biggest assets in the company will of course try to improve their skills and knowledge in order to implement supply chain management to the fullest.

5. Increase Profit

The company can sell its goods/services optimally, maintain the level of customer satisfaction, and can also streamline the production process and also distribution will be able to increase its income. If this can be maintained, the company will be able to earn above-average profits.

6. Become a Market Mediation

Supply chain management can serve as market mediation. Therefore, a well-implemented supply chain mechanism can ensure that all goods supplied are in accordance with the aspirations of customers or end consumers.

Through the implementation of supply chain management, companies can carry out their marketing functions. They can identify what products are of interest to consumers so that they can identify all product attributes expected by consumers.

7. Companies Get Bigger

On the other hand, the company can achieve the main goals that have been targeted. By implementing it will get big profits so that gradually the company will become stronger and bigger.

Those are some of the benefits of implementing Supply Chain Management for a company. By implementing this mechanism, a company can achieve the targeted goals.

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