The Importance of Supply Chain Management

Supply chain management is important because it can help achieve several business objectives. For instance, controlling manufacturing processes can improve product quality, reducing the risk of recalls and lawsuits while helping to build a strong consumer brand. At the same time, controls over shipping procedures can improve customer service by avoiding costly shortages or periods of inventory oversupply. Overall, supply chain management provides several opportunities for companies to improve their profit margins and is especially important for companies with large and international operations.
It is well known that supply chain management is an integral part of most businesses and is essential to company success and customer satisfaction.

Boost Customer Service

  • Customers expect the correct product assortment and quantity to be delivered.
  • Customers expect products to be available at the right location. (i.e., customer satisfaction diminishes if an auto repair shop does not have the necessary parts in stock and can’t fix your car for an extra day or two).

Reduce Operating Costs

  • Decreases Purchasing Cost – Retailers depend on supply chains to quickly deliver expensive products to avoid holding costly inventories in stores any longer than necessary. For example, electronics stores require fast delivery of 60” flat-panel plasma HDTV’s to avoid high inventory costs.
  • Decreases Production Cost – Manufacturers depend on supply chains to reliably deliver materials to assembly plants to avoid material shortages that would shutdown production.

Improve Financial Position

  • Increases Profit Leverage – Firms value supply chain managers because they help control and reduce supply chain costs. This can result in dramatic increases in firm profits. For instance, U.S. consumers eat 2.7 billion packages of cereal annually, so decreasing U.S. cereal supply chain costs just one cent per cereal box would result in $13 million dollars saved industry-wide as 13 billion boxes of cereal flowed through the improved supply chain over a five year period.