Relevance of Supply Chain Management
In 2021, the MV Ever Given, a container ship was passing through the Suez Canal, a narrow yet integral passage that is essentially the bloodline of global trade. Just to put this into perception, ships that pass through the canal carry $10 billion in goods on a daily basis. The ship faced certain complications and got stuck blocking the entire canal. This lasted for nearly a week, while the ship was stuck with an entire fleet of other cargo ships queueing up behind to pass through it, the impact of this was felt globally as prices of basic yet essential commodities rose.
Fuel prices in the USA also shot up as containers could not get through the canal. This entire crisis just showed how important supply chain management is.
What are we talking about?
Supply chain management is the management of the flow of goods and services, from raw materials to final products. Looking at the global supply chain today, water transport is of paramount importance as there are essentially no roadways or railways if you were to transport goods or raw materials from Asia to Europe.
Let us understand how the supply chain works, there are essentially five elements that form it.
1. Planning: It involves planning and managing all the resources that a firm anticipates it will need to meet the demands for its product/service. Apart from this, when the supply chain is established, the firm will also need to determine if it is efficient, sustainable in the long run, and if it delivers value to customers and meets the goals of the firm.
2. Sourcing: It involves choosing the right suppliers, transportation agencies, and other essential services that the firm needs to convert raw materials into finished products and then onto the markets. It includes some key processes such as ordering, receiving, managing inventory, and authorizing supplier payments.
3. Manufacturing: As the name suggests, it basically involves converting the raw materials to finished products and then testing the quality, packaging and schedule the delivery.
4. Delivery & Logistics: Once the finished product is ready, the firm needs to ensure that they reach the intended customer base.
5. Returns: There has to be a network to make sure that in the event of a product turning out as defective, the customer can easily be able to return the products.
Why is it so important?
Business is all about minimizing your costs and maximizing your profits, with a sound supply chain management system not only can you save on production costs, but you can also reduce the production time involved.
Take oil for instance, it is a commodity that needs to be replaced almost instantly as fuel is essential for any economy, developing or developed to function efficiently.
Imagine if OPEC decides to hold out and not export oil for just a day or two, the impact of that will be felt globally, fuel prices will shoot up through the roof.
There has also been another major shortage felt across the tech world in the last 2 years, the semiconductor shortage, the chips that power your phones, desktops, and even electric cars, there is a serious shortage in them.
This was due to the COVID pandemic, as factories in Taiwan and South Korea had shut down, the two major chip manufacturers, TSMC and Samsung had to shut their factories down or work at reduced capacity.
As a result of this, Samsung, Xiaomi, Apple, and even carmakers such as Tesla and TATA have had to reduce production due to the shortage of chips.
The latest iPhone 13 Series, even though customers want to buy it, they are unable to, why is that so? Because most of the reputed distributors of Apple across India are unable to restock effectively, as their supply has been impacted due to this.
As more and more managers are understanding this, it is no surprise that supply chain management was one of the most popular courses of 2021.
How can the supply chain be made more efficient?
The best way to ensure that there is a sound supply chain in place is to efficiently plan it out, a plan has to be dynamic. It needs to be changed and able to adapt to the global conditions as and when they occur.
The latest technologies can go a long way in aiding this. Artificial intelligence and IoT can maximize the efficiency and performance of any supply network.
Despite all the technology, human brains will always reign supreme. Make an effort to understand how the supply chain works on a global stage as well as on a regional stage. If you understand it, then you are more likely to be able to get around it. It never hurts to gain some more knowledge!