11: Supply Chain Management

Supply chain management refers to the centralized management of the flow of goods and services including each and every process of transforming raw materials into final and finished goods.

The process involves a well-organized approach to the company’s supply chain activities to ensure customer satisfaction and gain a competitive advantage in the market. Supply chain management tries to centralize and connect the product's production, shipment, and distribution processes. Through efficient supply chain management (SCM), companies can alleviate any excess costs while delivering the products faster to the customers.

Supply chain management comprises five major components:

• Planning
• Sourcing
• Manufacturing
• Delivering
• Returning

Importance of Supply Chain Management

Supply chain management helps companies achieve various business objectives. For instance, manufacturers can improve their product quality and reduce the occurrence of product recalls by controlling their manufacturing processes. Similarly, achieving customer satisfaction also becomes easy with an efficient supply chain management system in place. Through efficient shipping practices, brands can reduce expensive shortages or inventory oversupply. In short, supply chain management helps companies cut down time, costs, and waste in their entire production process. Here are some of the benefits of supply chain management.

• Better collaboration with suppliers
• Better quality control
• Shipping optimization
• Reduced inventory and overhead costs
• Improved risk mitigation

Industry best practices

Let’s look at some of the best practices for supply chain management that help companies become more profitable, sustainable, and successful.

Switch towards sustainable supply chains

Consumers are voting with their dollars against unsustainable brands. The legacy companies that will thrive are those that accept this shift and are willing to pivot. Harvard Business Review

It's crucial to implement sustainable supply chain management since customers are becoming aware of the various environmental concerns businesses are responsible for. Whether water consumption or carbon footprint, manufacturers must be mindful of their actions and switch to sustainable supply chains. For instance, switching to digital supply chains helps companies reduce their carbon footprint. Various industries source their raw materials from different parts of the world and are concerned only about cutting costs and saving time. However, a slight change in this approach may lead to a better brand reputation and help stand out from competitors.

Talent acquisition and retention

Supply chains have evolved and handle the entire operations of the manufacturing process like sourcing, production planning, delivery, service and return. It's crucial to have the right talent for the job to handle all these processes. Working with a specialist recruitment company helps companies hire talent that can handle the specific requirements of modern supply chains. These recruitment companies collaborate with universities, colleges, and other professional bodies, creating a steady flow of interns, students, and entry-level workers suitable for the specific processes within the supply chain. Talent retention is as crucial as talent acquisition, and companies must follow the best practices to ensure employee retention. Some of the best practices for employee retention include regular training for new and existing employees and guidance toward better career development.

Cost Management

The total cost of ownership (TCO) and cost management incorporate the entire costs of the various operations within the supply chain management. It involves the cost of sourcing, planning, production, and distribution. A better understanding of the impacts of inventory carrying costs, logistics, returns, and payment cycles (payable and receivable) enables clarity and any possible savings on the operating costs. TCO also helps companies make better decisions about all the supply chain nodes that are a part of the supply chain strategies.

Performance Management

Performance analysis of the various operations of a supply chain is crucial as it helps the companies analyze their strengths and weaknesses from a data-driven perspective. Companies must aim towards implementing flexible, resilient, and agile supply chains in response to the evolving market and local requirements. Identifying the key performance indicators (KPIs) for all the standard operations and strategies of the supply chain is crucial. Based on the type of supply chain operations, the KPIs include.

• Inventory-to-sales ratio
• Supply chain cycle time
• Logistics costs
• Order rate

Monitoring the ratio of error-free orders, the total cost of ownership (TCO), the total cycle time from order placement to delivery, availability of inventory, and speed of replenishment becomes easy using these KPIs.

Case Study

H&M Supply Chain Management: Becoming the second-largest fast fashion brand

H&M (Hennes & Mauritz) is a Swedish fashion brand founded in 1947 by Erling Persson. What began as a brand selling clothes for women has evolved into the world’s second-largest fast fashion retailer, with more than 5000 stores spread across 74 countries. The fashion giant provides employment to around 126,000 people globally. Fashion-delicate individuals aged between 18 and 30 comprise the target market for this Swedish fashion brand. The efficient and sustainable supply chain management of H&M has played a crucial role in its success.

• Sustainable Supply Chain
  Sustainability is crucial for fashion companies as customers are focussing more on environmental concerns lately. One way to promote sustainability for fashion companies is by switching to sustainable supply chains. H&M does this by selecting most of its suppliers from countries with low degrees of human well-being. In contrast, the company then sets a higher level of inventory in countries with high degrees of human well-being. The company prioritizes economic and human well-being while creating a shopping channel in the country. The fashion giant has also worked on implementing a sustainable program known as “conscious action” promoting the use of eco-materials and sustainable manufacturing processes with fewer emissions and energy use. The project is a classic example of green retailing and through this customer awareness and education can be achieved.

• Dual Integrated Supply chain
  Right from the design to production, H&M highly depends on outsourcing. The efficiency of the brand in collaborating with various suppliers across the globe is one of its commendable characteristics. Another highlight of H&M’s supply chain management is its dual-integrated supply chain. The fashion giant has two sources of suppliers manufacturing the same products for their brand. H&M does not own any factory, it relies on more than 800 companies from 30 different countries for its manufacturing processes. Around 60% of their products are manufactured in Asian countries like Bangladesh, China, Vietnam, India, and Cambodia. The remaining 40% comes from European suppliers.