What is Supply Chain Management? - Definition
Supply chain management deals with the management and optimisation of the entire logistics process, which includes all process steps from the supply of materials to the delivery of the manufactured product to the end customer. (BWL-Lexikon, n.d.)
Supply Chain Management - Meaning & explanation of the term
Following the brief definition of supply chain management (SCM), we will now move on to a more detailed explanation of the term. It refers to the integrated planning, management and control of all activities along a company's value chain. The aim of supply chain management is to optimise the flow of raw materials, information and financial resources from suppliers through production to the end customer, thereby creating value for all stakeholders. Coordinating and integrating the various players and processes is a particular challenge here, because: Both require not only close cooperation between a company's departments and with external partners, but also a good organisational concept. Some starting points that can be mentioned here are, for example, the reduction of throughput times at the loading ramp (EIKONA Time Slot Management) in your yard, automatic recipient notification in order to reduce the rate of failed delivery attempts (EIKONA Notification) or the automatic clearing of your freight orders (EIKONA Freight Clearing).
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Examples & best practices in Supply Chain Management
After explaining the term supply chain management, we will now look at best practices in supply chain management by looking at the two examples of Nike and Samsung.
Firstly, we will look at the clothing manufacturer Nike.
By producing clothing just-in-time, Nike not only manages to reduce storage costs, but also to react quickly to fluctuations in demand. In addition, customer satisfaction is credited by giving them the opportunity to order personalised products according to the build-to-order model.
The company uses machine learning and market research information to predict demand for its products. In addition, Nike produces close to the end markets, ensuring short delivery times and even lower logistics costs. Sustainability aspects are also taken into account by launching recycling initiatives (example: Reuse-a-Shoe) or making manufacturing processes more environmentally friendly. Finally, with regard to risk and crisis management, Nike has diversified its supply chain in order to be able to cushion delivery delays in the event of natural disasters or geopolitical tensions, for example.
The electronics manufacturer Samsung is characterised above all by the fact that its logistics chain is highly vertical. This means that Samsung manufactures a large percentage of the components used in its own products itself throughout the entire supply chain. As a result, the company is very independent in its decision-making compared to its competitors and also benefits from cost advantages. The company has also set itself the goal of reducing the CO2 emissions of suppliers in its supply chain and has therefore introduced the ‘Eco Partner Certification System’.
In addition, Samsung's factories are among the most modern in the world - like Nike, Samsung uses machine learning and utilises the large amounts of data it has at its disposal. The use of robots in production and their cooperation with humans achieves an extremely high degree of automation in the production process, which is very important for supply chain management. Similar to Nike, Samsung also relies on a diversified supply chain by working with many suppliers worldwide. It also has an emergency concept - at this point we recommend our EIKONA Business Continuity) software if you are interested - which enables the company to react quickly to crises in the supply chain.
The result is obvious. Thanks to their sophisticated supply chain management, both companies benefit from a competitive advantage over their rivals, which consolidates their strong position in the clothing and electronics sectors.
What can we learn from best practices? - The advantages of Supply Chain Management
Having explained the term supply chain management, we will now look at best practices in supply chain management by looking at the two examples of Nike and Samsung. As we have seen, both companies benefit immensely from their well thought-out supply chain management. The following points stand out in particular:
Costs & efficiency: Both companies use a variety of tactics to achieve the strategic goals of reducing costs and exploring efficiency potential. Just-in-time production offers the advantage of being able to react better to fluctuations in demand and ensures lower storage costs. By verticalising the value chain, Samsung has been able to significantly reduce its production costs as it controls a large part of the supply chain. In addition, Nike has relocated its production sites close to the end markets, thereby reducing transport distance and transport costs. Through the use of networked robots and AI in production, Samsung has achieved an extremely high degree of automation in its factories, which has enabled it to explore further cost potential.
Key-Takeaways:
- Just-in-time production reduces storage costs and enables a better response to fluctuations in demand
- The location of the production facilities has a significant influence on transport costs (and delivery times)
- Vertical organisation of the supply chain saves costs and strengthens entrepreneurial independenc
- By automating logistics and production processes, further costs can be saved in the medium and long term as part of supply chain management and output can be increased through efficiency gains
Customer satisfaction: The personalised manufacture of products according to the build-to-order principle ensures more satisfied customers at Nike - the fact that delivery times are low due to the relocation of production facilities close to the end markets is also conducive to customer satisfaction. The fact that Samsung has a contingency concept that it applies in the event of a crisis ensures reliable delivery times even if the supply chain is disrupted by natural disasters. Customers on the other side of the globe, who would otherwise have been subjected to weeks or months of delays, are supplied reliably and with little or no delay even in the event of a crisis.
Key-Takeaways:
- The customisation of products and the application of the build-to-order principle are conducive to customer satisfaction
- Moving your production facilities and logistics centres close to the end markets shortens transport times, which also makes your customers happier
- An emergency response system that protects the integrity of your supply chain in a crisis is extremely helpful in saving customers from long delays
Sustainability & saving resources: Both companies have taken measures to save resources and take sustainability into account in the supply chain. Through the ‘Reuse-a-Shoe’ recycling initiative, Nike has been able to recycle several million shoes since 1993, which contributes to the sustainability of its supply chain. Samsung, with its ‘Eco-Partner Certification System’
Key-Takeaways:
- The customisation of products and the application of the build-to-order principle are conducive to customer satisfaction
- Moving your production facilities and logistics centres close to the end markets shortens transport times, which also makes your customers happier
- An emergency response system that protects the integrity of your supply chain in a crisis is extremely helpful in saving customers from long delays
The processes of Supply Chain Management at a glance
According to the BWL Lexicon (n.d.), the following processes exist within supply chain management:
- Supplier
- Procurement
- Production
- Distribution
- Retailer
- Customer
There is a two-way flow of information between each process, including between the retailer and customer. For instance, information about product availability is communicated to the customer, and pricing details are provided. (BWL Lexicon, n.d.) Throughout all process steps, goods flow toward the end customer, while financial resources flow in the opposite direction. (BWL Lexicon, n.d.)
Summary
In the context of supply chain management, it is ensured that the various processes in the supply chain—from the supply of materials to product delivery—run efficiently and that the end customer is satisfied (BWL Lexicon, n.d.). Various activities along the supply chain are coordinated between different actors, such as freight forwarders, manufacturers, or logistics service providers. The central goal of supply chain management is to create value for all stakeholders by optimizing the flow of raw materials, information, and financial resources within the supply chain. By examining best practices, we have found in this article that a well-developed supply chain management system can, among other things, reduce business costs and increase supply chain efficiency, while offering many other benefits.
Sources:
Supply Chain Management. (n.d.). BWL-Lexikon. https://www.bwl-lexikon.de/wiki/supply-chain-management/