March 25, 2021

What is Supply Chain Management?

With the Coronavirus pandemic now going on for more than one year, supply chains, their structure and in particular their fragility have been on the title pages of newspapers around the globe constantly. Curfews, lockdowns and other government-imposed measures have stretched supply chains considerably and have revealed bottlenecks in value chains. These bottlenecks translate into shortages occurring in almost every sector, ranging from basic grocery items to electronics and medical supplies.

Although the pandemic is a once-in-a-lifetime event (or so we hope), it has uncovered the impact of globalization  and the complexity of supply chains on the consumer. Even before the pandemic disrupted value chains, their complexity led to substantial risks. Fragmentation and outsourcing had reached an all-time high before the start of the pandemic, and business executives had to adjust their supply chains due to tensions called forth by trade wars, natural disasters and geo-economic events. To give a short example: Volkwagen had to cut back production at its main plant in Wolfsburg because a supplier for seat parts was not able to keep up with the production schedule due to employee infections. An average car manufacturer has around 250 tier-one suppliers (suppliers that work directly with the manufacturer), but when looking at the full value chain, that number increases to 18 000 suppliers. Technology companies average at more than 7 000 suppliers across all tiers.

There is a great YouTube video by Economics Explained about supply chain complexity which is well worth your time.

Quantifying and mitigating supply chain risks is a crucial business strategy. To ensure these risks are minimized, there are 6 stages that require consideration and analysis: Planning, Sourcing, Production, Demand/Inventory, Warehouse & Transportation, as well as Return of Goods.

6 stages to assess for risks in your supply chain:
  1. Planning: This involves the make-vs-buy decision, where you should ponder whether you will manufacture yourself, buy domestically or internationally, or how the service you offer should be developed and maintained.
  2. Sourcing: Next up, you should start evaluating and building relationships with suppliers that will provide said goods and services.
  3. Demand/Inventory: This involves operational management, managing inventory and setting up manufacturing schedules to meet consumer demand.
  4. Production: You should establish controls so that your production satisfies quality demands and happens according to market demand.
  5. Warehouse & Transportation: This speaks for itself. Make sure you store your product efficiently. Oftentimes, storing and transporting goods has an overlap that you can leverage, for instance with Just-in-Time solutions. 
  6. Return of Goods: You should put in place an effective returns processing for customers and consider about customer satisfaction.

However, these considerations just mark the starting point. The next vital step in assessing your supply chain risk consists of mapping your supply chain thoroughly.

A small minority of companies that invested in mapping their supply chain before the pandemic started now enjoy advantages. This should serve as an example that visibility of supply chains is crucial in order to manage your supply chain in an effective manner.

Supply Chain Mapping is a critical expense to protect your bottom line.

Many companies and business executives talk about the need to conduct supply network mapping as a risk-mitigation strategy, but they have not done so because of the (perceived) large amount of labor and time required. Harvard Business Review provides an example: “Executives of a Japanese semiconductor manufacturer told us that it took a team of 100 people more than a year to map the company’s supply networks deep into the sub-tiers following the earthquake and tsunami in 2011. This explains why most companies are like a major South Korean consumer goods company, which recently told us it had known that it should have mapped its supply networks but has not done so because of the difficulties involved.”

As seen in the above example, the uncovered supply network is invaluable. The cost and time devoted to supply chain mapping in a proactive manner is quickly regained in the event of a disaster. To begin, your company can start by focusing on its products’ key components. For every component, ideally all tiers down to the raw materials supplier should be mapped, including information about subsidiary sites of the supplier that could perform the same activity in case of a disruption and how long it would take to switch suppliers for crucial product parts.

The information that is gathered that way is of immense importance and can even be used to improve sales and implement supply chain transparency for consumers. Platforms like seedtrace offer all the tools you need to effectively and directly communicate your product’s journey to your consumers, fostering trust and brand loyalty. 

Sources: McKinsey & Company, CIPS, Harvard Business Review, IBM

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