This article is intended for general informational purposes only and does not constitute legal or financial advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.
Effective supply chain management (SCM) is about streamlining the flow of goods and services across your whole supply chain, helping you to reduce costs and improve efficiency.
In this article, we’ll explore some of the key benefits of SCM and insights on how to realize these insights.
Important benefits of supply chain management
Investing either time, money or both to make your supply chain more efficient will pay dividends.
Specifically, businesses may benefit in the following ways:
- Better collaboration with suppliers
- Better quality control
- Shipping optimization
- Reduced inventory and overhead costs
- Improved risk mitigation
- Stronger cash flow
- A more agile business
8. Better visibility and data analytics
1. Better collaboration with suppliers
Suppliers that understand the business’s cost constraints and objectives can be particularly important for businesses with tight margins. Businesses should aim to find the best ratio of cost of raw materials to sales. For example, if a retailer can expect to sell a finished product at a 40-50% markup, they may be subject to a profits squeeze if raw material prices rise too much. To better navigate economic uncertainty and increasing prices, businesses should target a raw material cost representing 25% of their total sales.
But cost is not the only consideration. Flexibility matters too. In volatile market conditions, long-standing suppliers may be more willing to accommodate temporary cash flow difficulties. While it’s tempting to shop around for cheaper alternatives, long term relationships can be invaluable.
To help give you flexibility with your supplier payments, certain business credit cards may give flexibility with clearing up your balance.
2. Better quality control
When you and your suppliers are working to the same standards, quality control problems may be detected earlier. If you’re able to establish a good working relationship with your suppliers, you can share quality standards to avoid any delays.
3. Shipping optimization
Logistics costs have risen significantly, impacting small businesses across Canada. Reducing the number of separate distribution channels and making use of logistics specialists could reduce your distribution costs relative to your competitors, helping you to maintain stronger cash flow and profits.
4. Reduced inventory and overhead costs
An efficient supply chain can reduce the need to maintain inventory, therefore cutting overhead costs associated with storage and security. However, a very lean inventory increases pressure on distribution networks and reduces resilience to supply chain shocks. So, it’s important to identify your optimal inventory level.
5. Improved risk mitigation
In general, the further along a supply chain issue is detected, the more expensive it is to fix. That’s why efficient supply chain management, which offers visibility of the supply chain from end to end, is so important.
And it isn't only financial risk that may be mitigated: greater visibility across all your suppliers may reduce the reputational risk of unwittingly engaging either a company that falls foul of your Environmental and Social Governance ( ESG ) standards, or one that unwillingly participates in harmful labor practices.
6. Stronger cash flow
Running an efficient supply chain that is based on good supplier relationships, maintains strict quality and stock control, and keeps a watchful eye on costs and prices can greatly benefit a business’s liquidity by improving cash flow.
7. A more agile business
A strong relationship with your supplier can unlock new opportunities. For example, as you scale your business, a strong supplier can help you pivot to produce new products and services. As always, however, it pays to be prepared, as supplier capacity may impede business opportunities. It’s worth investing more up-front to ensure that the suppliers you have in place can scale up as your business grows.
8. Better visibility and data analytics
Business managers can keep in constant touch with suppliers using mobile phone apps, conferencing platforms and shared dashboards. Software tools can also help to manage stock levels efficiently, track distribution channels and monitor business performance. Having real-time data metrics at your fingertips will enable you to put in place contingency plans to enable your business to ride out storms and take advantage of opportunities as they arise.