What is supply chain management? Explaining the benefits and challenges of implementation

In the manufacturing industry , proper supply chain management is always required to optimize the supply chain . Supply chain management is a process that involves many stakeholders, so change is not easy. However, there are also significant benefits to be gained through optimization. In this article, we will provide an overview of supply chain management, its challenges, and the benefits of implementing it.

Table of contents

What is supply chain management?

Supply chain is a term that refers to the entire distribution process from procurement of materials to sales to consumers. To put it simply, “supply” means “supply” and “chain” means “chain.” It is called a supply chain because the flow of supply and demand from “procurement” to “production” to “distribution” to “sales” appears to be connected like a chain until a product reaches the consumer.

Supply chain management is management that aims to optimize the overall logistics by managing the flow from procurement to sales. Various intermediaries intervene in the logistics process in the manufacturing industry, making it difficult to obtain accurate information. As a result, problems arise, such as excess inventory leading to cash pressure, and conversely, insufficient inventory resulting in opportunity loss. Supply chain management can help solve these problems.

History of supply chain management

Although the term supply chain management was coined in the 1980s, the concept has only recently become popular. One of the reasons why this management method has gained attention is the “globalization of companies”. With the creation of worldwide networks, companies have become more global.

As a result, the competitive arena has expanded from Japan to the world, and in order to survive the increasingly intense competition, it has become necessary to improve the efficiency of all operations. Supply chain management was adopted as a method to streamline business processes.

Japan is facing a serious labor shortage due to the declining birthrate and aging population, and this trend is said to be particularly pronounced in the manufacturing industry. Therefore, it became necessary to introduce supply chain management to optimize inventory management and human resources.

The spread of e-commerce sites is also a factor that is attracting attention to supply chain management. An EC site is a site that sells products on the web, and business models that centrally manage sales and delivery, such as Amazon and Rakuten Market, are increasing in business performance, and the importance of supply chain management is being recognized. It became like this.

Real-time information collection is a challenge

The challenge of supply chain management is that it is necessary to create a system environment that can collect information in real time. Supply chain management aims to optimize business processes by centrally managing information. To achieve this, it is essential to collect information in real time. Obtaining the right information in real time makes inventory management and human resource optimization possible. In order to make the most of supply chain management, it is essential to develop and implement a sophisticated information collection system.

Benefits and effects of introducing supply chain management

By introducing supply chain management, the entire business process is optimized, and there are three main benefits: “centralized management of information,” “optimizing inventory,” and “shortening lead time.” Here, we will explain the benefits that can be gained by implementing a supply chain management system.

Centralized information management

By introducing supply chain management, you can centrally manage information from procurement to sales. By visualizing the flow of logistics as data, you can get a bird’s-eye view of the entire business process. As a result, goals to be achieved and issues to be addressed will become clearer, and improvements in business processes can be expected.

In order to maximize the productivity of business activities, we must improve the entire business process, not just partial processes. By introducing a supply chain management system, you can centrally manage each business process in real time. By building a solid management system, you will be able to make quick business decisions. In this way, by centrally managing information on the entire flow from “procurement” to “production” to “logistics” to “sales”, it is effective to achieve overall optimization rather than partial optimization.

Optimization of inventory

When introducing a supply chain management system, inventory management is the task that is expected to yield the highest results. Too much inventory overwhelms the warehouse. If it is food, it will be discarded and disposal will be costly. On the other hand, a lack of inventory can lead to lost sales opportunities, such as not having products when they should be sold. In other words, having too much or too little inventory can cause a company to lose profits.

To prevent such situations from occurring, it is necessary to visualize the process from purchasing to sales and investigate and analyze the obtained data.

However, implementing these efforts is not easy. Therefore, by introducing supply chain management and visualizing the flow of products as data, you can optimize your inventory. This is not the only benefit brought about by optimizing inventory. Removing excess inventory frees up warehouse space. You can also expect to reduce the number of personnel required for inventory management.

Shorter lead time

Lead time is a term that refers to the time from start to completion. As mentioned above, having too much or too little inventory can lead to loss of profits, so it is necessary to create a system to maintain an appropriate inventory level. Lead time is an important factor in maintaining this appropriate inventory level. Lead time, in its broadest sense, refers to the period from product development to delivery to the end user, but here we will take as an example the procurement lead time from order placement to delivery.

Ordering materials is essential to making a product, and it always takes a certain amount of time for delivery. If you can centrally manage the process from procurement to production, you can shorten procurement lead times in the process of business process improvement. If we can shorten procurement lead times by optimizing production, inventory, and delivery schedules after procurement, we can improve the speed at which our products are supplied to the market. As a result, opportunity losses due to inventory shortages will be avoided, leading to benefits for both companies and customers.

Introduction cost is an issue

As mentioned on the “Real-time information collection is a challenge” page, there are also problems with supply chain management. The point is that implementing a supply chain management system is expensive. To manage the procurement-to-sales process, large-scale IT infrastructure must be built. Additionally, the required systems differ depending on the business scale and business model, so each company needs to build a dedicated system. You will also need to consider cooperation and compatibility with the systems you currently have in place.

It’s not just headquarters that incur implementation costs. Supply chains in the manufacturing industry usually involve an extremely large number of companies, and in order to achieve unified management of information, all related companies are required to implement a similar system. We also need human resources such as engineers to operate and maintain the systems we have built. In this way, implementing this system involves major changes for companies.

However, as explained in the previous sections, supply chain management is a very useful future investment. Please compare this with the costs that can be expected to be reduced by implementing it.

summary

The modern business environment is changing at a tremendous speed. In order to survive the increasingly intense competition, companies need to respond flexibly to the times. By reviewing the traditional management system and centrally managing the flow from manufacturing to sales, you will be able to see areas for improvement. Why not consider introducing a supply chain management system using this article as a reference?