Comprehending the Essence of the Supply Chain

In many instances, people tend to conflate the Supply Chain with logistics. While logistics itself is commonly perceived as a broad concept involving the management of goods’ flow, the Supply Chain encompasses all stages of procurement, including logistics. In essence, the logistics chain is an integral component of the Supply Chain.

supply chain

Defining the Supply Chain

So, what precisely is the definition of the Supply Chain? Put simply, the Supply Chain represents the supply network that enables a company to deliver a product to a customer. However, before the customer receives the product, numerous steps related to procurement are undertaken. This complexity magnifies when importing goods from abroad, involving a multitude of stakeholders in transporting goods from the supplier to the distributor, and subsequently to the customer.

Comprehending the Essence of the Supply Chain

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Whether operating in a short or long supply chain, it encompasses the management of three fundamental streams:

  • Physical flows, which encompass the actual movement of goods.
  • Information flows, encompassing the company’s big data.
  • Financial and administrative flows, incorporating financial transactions and related documents.

The Supply Chain endeavors to manage these diverse streams to achieve a delicate balance between procurement costs, transportation expenses, and delivery lead times. To gain a deeper understanding of how these streams function, let’s delve into each one.

Navigating the Physical Flows

Physical flows pertain to the movement of goods. These flows can occur at various levels. For instance, in the case of selling a manufactured product, the flow of goods includes:

  • The transportation from the producer to the supplier’s storage warehouse.
  • The transfer from the supplier’s storage warehouse to that of the distributor (e.g., a store or an e-commerce site).
  • The delivery from the distributor to the customer.

Depending on the product’s nature and the final product transformation process, the Supply Chain can be longer or shorter, leading to multiple physical flows.

It’s worth noting that the more complex these physical flows are, the more imperative it becomes to effectively manage the Supply Chain. To achieve this, companies can employ computer tools such as a Transport Management System (TMS) for transportation management or a Customer Relationship Management (CRM) system to anticipate customer demands.

Managing the Information Streams

Effective data management is crucial for optimizing the procurement chain. This data is typically consolidated within a company’s big data repository, encompassing various types of information, including:

  • Customer personal data.
  • Customer reviews posted on various websites and social media platforms.
  • Internal company data.

By collecting and analyzing this data, a company can determine affordable selling prices for its customers while considering its profit margin.

Furthermore, when selecting a supplier, mode of delivery, and delivery lead time, the company can make informed choices, taking into account the selling price it practices. The goal here is to negotiate transport costs that allow the inclusion of these transportation fees in the product’s selling price.

Additionally, the big data accumulated by a company provides the necessary information to make reliable forecasts regarding the stock of products to be maintained. For this purpose, companies can employ various computer tools to anticipate demands, process orders, and manage procurement. These software applications, such as Enterprise Resource Planning (ERP) systems, leverage a company’s big data to prevent supply shortages or, conversely, costly overstocking.

Financial and Administrative Flows

Financial and administrative flows encompass the documentation inherent to orders, payments, and more.

Hence, it is essential for a company to process these financial and administrative flows in a timely manner. Even the slightest delay can lead to disruptions in the Supply Chain, resulting in dissatisfied customers and order processing errors.

Conversely, efficient management of financial and administrative flows facilitates effective management of a company’s cash flow.

Analyzing the Supply Chain

Effective management of the Supply Chain is crucial for a company’s economic development. Without an analysis of the data collected within this Supply Chain, the company may lose control over its procurement management.

So, what does Supply Chain analysis entail? It involves studying and considering data related to procurement. Without examining the data collected in physical, information, or financial and administrative streams, the Supply Chain is at risk of seizing up at some point.

To prevent this, the use of computer tools such as CRM, ERP, TMS, etc., is undoubtedly essential, even though many SMEs still manage their stocks using simple Excel spreadsheets. Employing sophisticated software not only saves considerable time in reordering tasks but also significantly reduces calculation errors.

Moreover, new technologies are increasingly being employed by companies aiming to control their physical procurement at every stage. Among these technologies, connected devices find numerous applications in the Supply Chain. As the Internet of Things (IoT) becomes more integrated into our daily lives, industries and companies are also using connected devices to automate many tasks. In the Supply Chain, it is possible to connect containers or transport crates to track the movement of goods in real-time.

The benefits of IoT in a procurement chain include:

  • Real-time visibility of goods transport to optimize delivery lead times.
  • A means to monitor compliance with the route and mode of transport of the goods.

Consequently, thanks to new technologies, an increasing number of tools are made available to companies for obtaining a more detailed and updated analysis of their Supply Chain.

Four Strategies for Supply Chain Optimization

After conducting a Supply Chain analysis, it is not uncommon for companies to identify areas in need of improvement. Hence, the question arises: how can the Supply Chain be optimized?

An unoptimized Supply Chain can result in extended delivery lead times, excessive freight costs, delivery interruptions, and more.

To avoid this, four practices enable Supply Chain optimization and can be implemented across all companies. These four practices are:

  1. Implementing Supply Chain Management (SCM) and Cross-Docking
  2. Restructuring Warehouses
  3. Utilizing Suitable Software Solutions
  4. Reinventing Procurement Management

Supply Chain Management and Cross-Docking

Cross-docking is closely aligned with effective Supply Chain Management, as it involves streamlining and optimizing various aspects of inventory handling and operations. The goal is to ensure that the company faces minimal risk of stockouts while aiming for just-in-time stock management. To achieve this, having a Supply Chain manager within the company is a valuable asset.

Cross-docking, on the other hand, revolves around the concept of reducing stocks to the bare minimum required. It necessitates mastering procurement actions with greater responsiveness to customer orders. Cross-docking is usually coupled with Supply Chain Management.

Restructuring Warehouses

Warehouse structuring enhances efficiency in unloading goods and preparing customer orders. Depending on the activities performed by a company, optimizing its Supply Chain requires creating distinct spaces within the warehouse:

  • A space for receiving, inspecting, and sorting received goods.
  • A storage area for goods.
  • A space for preparing customer orders.
  • An area for storing orders ready for shipment.

This configuration can naturally vary depending on each company’s activities.

Utilizing Suitable Software Solutions

Without delving into specifics, the use of computer tools that provide real-time visibility into stock levels, current orders, and forecasted future orders is essential for Supply Chain optimization. These tools can include software for logistics planning (e.g., ERP) or organizing freight transport (e.g., TMS).

Reinventing Procurement Management

Optimizing the Supply Chain does not necessarily mean selecting suppliers with the lowest transportation

costs. Additionally, the fastest modes of transportation, such as air transport, are not always advantageous for a company, far from it.

Therefore, it is important for each company to analyze its customer’s needs to strike a balance between delivery lead time and transportation costs. Several computer tools allow companies to compare quotation requests submitted to suppliers, providing a comprehensive overview of the purchasing and transportation terms offered by suppliers.

Why Logistics Is Crucial for Companies

Logistics encompasses all activities related to the management of product transportation and storage. Consequently, logistics is an integral part of the Supply Chain.

So, what is the significance of logistics within a company? A company with an optimized logistics chain can:

  • Reduce product transportation costs.
  • Minimize product storage duration to avoid unnecessary warehouse space utilization.
  • Optimize order shipments, resulting in reduced delivery lead times for customers.

Effective logistics within a company should ideally facilitate smooth and continuous movement of goods. The objectives are to avoid overstocking and consolidate order deliveries from customers to reduce transportation costs.

Therefore, without well-organized logistics, the entire Supply Chain of a company may suffer from delivery issues and higher transportation costs. This critical link in the procurement chain warrants special attention.

To achieve this, various tools for managing a company’s logistics are preferred, such as inventory management software, a computerized warehouse management system (WMS), an ERP for order management, and more.

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