Supply Chain and Logistics Management

Supply chain management (SCM) and logistics are closely related but distinct.

SCM involves handling all activities related to the flow of goods and services. This includes everything from getting raw materials, converting them into products and delivering them as products to customers. An organization collaborates with suppliers to ensure the product journey from raw materials to end users is seamless.¹

On the other hand, logistics is a fundamental component of SCM. It deals with the physical movement and storage of goods within the supply chain. The goal is to ensure products are delivered to the right customer at the right time and in the right condition.²

Effective supply chain and logistics management reduces costs. It also improves production efficiency.

Read on to discover the key components, strategies and optimization techniques that make supply chains efficient.

Supply chain management activities are complex, but they can be broken down into five basic components:

Planning involves forecasting demand, determining the required material to make a product and creating a production schedule. Essentially, it’s figuring out what needs to be done and when. Big enterprises often use enterprise resource planning (ERP) software to streamline this phase of supply chain management.³

Sourcing entails collaborating with suppliers who provide raw materials throughout the manufacturing process.

Different industries have varied sourcing requirements, but generally, business leaders should aim to partner with suppliers who meet the following conditions:

• Offer fair prices
• Provide parts that meet specifications or quality standards for the production of a particular item
• Have a proven record of delivering resources on time, especially if the raw materials are perishable
• Are flexible and reliable in emergencies such as during a sudden increase in demand

Considering the above requirements can help supply chain management professionals build effective supplier relationships critical for long-term business success. Additionally, optimizing inbound logistics–the transportation processes involved in the flow of resources from suppliers into an organization–is vital.³

This is the core of supply chain management, where an organization uses its systems, workforce and machinery to transform raw materials into finished products. This may involve manufacturing, assembly, testing and packaging.³

Distribution is getting the finished products to the customer (outbound logistics). This involves warehousing, transportation and order fulfillment. Effective distribution channels ensure products reach consumers on time without any physical damage.

Additionally, organizations should strive to diversify their delivery methods. Doing so ensures that alternative channels can be used when one distribution method becomes unavailable due to unforeseen events such as natural disasters.³

Return management deals with customers' return of products, either due to defects, damage or simply a change of mind. This involves establishing return policies, managing reverse logistics processes and implementing strategies to increase customer satisfaction.³

A supply chain strategy aims to optimize the flow of goods from raw material suppliers to the end consumer. The strategies below can help businesses minimize costs, stay competitive and streamline their global supply chain management:

• Lean Supply Chain Strategy: This approach maximizes efficiency and minimizes waste. Its five principles (value, value stream, flow, pull and perfection) help companies create high-quality commodities, only produce what’s needed to avoid overproduction and eliminate bottlenecks so that supply chain processes occur smoothly and products reach customers swiftly.⁴
• Agile Supply Chain Strategy: This strategy emphasizes making supply chains flexible or highly responsive to changing market dynamics. It allows companies to react quickly to unexpected events, such as sudden shifts in customer demand. Faster response to changes helps companies adjust production based on what’s happening now.⁴
• Hybrid Supply Chain Strategy: This approach combines lean and agile strategies. It aims to make a supply chain both flexible and efficient.⁵

Below are the top supply chain and logistics optimization techniques:

Inventory management involves procuring, storing, using and selling an organization’s inventory (raw materials and finished products). There are multiple techniques for handling these processes affordably and efficiently.

One of them is Just-in-Time (JIT) inventory management. It involves ordering raw materials only when they are needed for production or sale. This level of inventory control keeps the amount of inventory on hand to a minimum, reducing storage and insurance costs. It also eliminates the expenses of storing and discarding excess inventory.⁶

Another technique is economic order quantity (EOQ), which helps companies establish their optimal inventory levels. EOQ enables organizations to identify how much raw materials or finished products to hold to maximize inventory while keeping storage costs down. It also reveals how often a business should reorder inventory to avoid running out of stock.^{6, 7}

Demand forecasting involves predicting how much of a product customers will want. When done accurately, it helps organizations understand demand patterns and then use the insight to adjust their production, inventory and distribution strategies accordingly.⁸

With the increasing pressure to make demand planning and forecasting more accurate, multiple companies rely on predictive analytics solutions powered by artificial intelligence (AI). AI-driven supply chain analytics solutions can reliably identify patterns in customer data and reveal insights to anticipate the future more precisely. According to McKinsey, AI-powered forecasting in supply chain management can reduce prediction errors by up to 50%.⁹

Optimizing outbound logistics keeps organizations on top of product movement in the supply chain and enhances customer service. Companies can achieve this by implementing a transportation management system, such as Freightflow.

The software creates transparency by allowing organizations to track inventory throughout the supply chain. As a result, they know exactly where their shipments are at all times and can share the details with customers. That way, enterprises can quickly provide consumers with updated delivery dates if there’s a delay or any other issue in the supply chain.

The technology is also useful for a business that delivers products through multiple modes of transportation. With it, it’s easy to track commodities transported by air, road, and sea—all on a single platform.¹⁰

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