The couch in your living room. The cookies in your pantry. The book on your shelf.
You may not realize it, but all of those items have one thing in common: the producers leveraged a supply chain management process in order to bring that specific item into your household.
So what is supply chain management? That’s the question that we’ll tackle here today. You’ll learn the definition of supply chain management as well as how most organizations are implementing its principles today to produce their goods.
What Is Supply Chain Management?
Every producer of consumer packaged goods (CPG) in the world has some form of a supply chain. They take something from their suppliers and then turn it into the good that they sell.
Take, for instance, the cookies in your pantry. There are numerous items that have to be supplied to the producer in order for them to be able to make a cookie. They need flour, sugar, chocolate chips, eggs, ovens to bake the cookies, paper to package them in, and a whole host of other elements before they can sell the cookies.
Every one of those things is provided by a supplier.
In some instances, the supplier(s) could be internal. For instance, the cookie manufacturer could have their own chicken ranch where they harvest eggs. But by and large, they are going to be leveraging supply from other producers of these elemental product pieces that they then turn into cookies.
Thus, supply chain management is the art of dealing with that whole process of finding suppliers, negotiating contracts with them, and ensuring that adequate products are delivered so that the goods can be manufactured.
Key Principles of Supply Chain Management
Now that you have an understanding of what supply chain management is, let’s talk through a few principles of this practice.
First and foremost, it’s important to keep economies of scale in mind. Economies of scale is a production theory that states that the more a company produces something, the more cost-effective the production process can be.
Thus, as a cookie manufacturer, it makes sense to hire a supplier that produces millions and millions of eggs per year than to internally produce the few thousands of eggs that the cookies might need.
The next principle to keep in mind is optimizing logistics. Logistics refers to how goods from suppliers get transferred to the manufacturing site where the final product gets produced. Hang-ups with inefficient logistics can hold up manufacturing and kill profit margins.
Lastly, there should be a singular database where all information about the supply chain in question can be stored. This enables quick access to all necessary data on a particular product’s supply process.
Read more on CPG supply chain tips.
Supply Chain Made Simple
There you have it. Equipped with this guide to supply chain, you should have a much better understanding of the answer to the question, “what is supply chain management?”
For more business advice, be sure to take some time to check out the rest of the articles on the website!