The supply chain is the spine of any business involving the distribution of goods, right from the manufacturer to the consumer. Supply chain management is crucial for the profit of a business, with every single link playing a role in the bottom line of the business. In order to understand the need for an efficient supply chain management system, it is important to have a clear understanding of how organizational costs are brought down by supply chain management.
- The first way by which supply chain management works is by ensuring demands are met in the most efficient way, which ensure complete customer satisfaction. Customer satisfaction impacts business sales and profits, bringing down the overall organizational cost.
- Supply chain management also helps to improve communication between different networks in the supply chain, hence decreasing inventory cost by lowering inventory costs. It also helps to bring down lead times in manufacture, supply, distribution, and delivery of goods. All this contributes in a reduction in the organizational cost of the business.
- With most modern supply chain management systems being completely automated, there is also a reduction in the cost of personnel involved in carrying out the functioning of the supply chain. Cutting down on these costs also brings down the overall organizational cost. Another way in which the complete automation of this process helps in improving profits for the organization is by minimizing the likelihood of errors.
- A well-managed supply chain helps in making accurate forecasts of demand based on previous sales. This ensures that orders are placed only for products that are actually needed, which helps to minimize wastage, and hence decrease organizational cost.
- Businesses can also decrease redundancies at various stages of the business via supply chain management. This can be done through a careful analysis of the functions being carried out at different stages of the supply chain, and identifying those processes that are either being repeated, or that can be eliminated without any significant impact on the business.
- You can boost the buying power of your business through a well-managed supply chain. This is because the supply chain management system gives you a clear outlook of the trends in your business, hence enabling you to buy bulk products without the fear of wastage. In this way, you get a better price for the products than you otherwise would, and hence bring down your organizational costs.
