Improved supply chain management has the following benefits:
Reduced stock holding.
The implementation of effective supply chain a company can reduce the number of stocks it is keeping and at the same time improving the customer service. Reducing stocks on hand will avoid incurring holding costs which is the cost the company pays for storing stocks. It includes warehousing and labour to keep the stocks. Good communication between the company and its suppliers, knowing the minimum stocks needed before reorder, proper estimation of demand, and understanding the mode of transportation will help to determine the correct volume of stocks the company needs in a given period will help it to eliminate excess inventory. Managing the information and communicating and sharing it effectively to suppliers and customers will result to accuracy of the level of stocks needed at a certain period. The inventory level must be enough to meet the demands of the customers and with the minimum costs to be incurred. The supply and the demand for a product must be balanced. Reducing the stocks avoid tying the company’s capital on unnecessary stocks.
Elimination of waste.
Waste in form of spoilages, defects, theft and obsolescence can be minimized and possibly eliminated through having the right inventory level to keep on a particular period. Overstocking or overproduction will result to wastes and losses for the company. Customers are only after receiving the right quantity and good quality at the right time. Activities such as unnecessary movement of goods within the warehouse, and warehousing which does not add value to customers should be eliminated. Implementation of an effective supply chain will make this possible. Proper coordination with suppliers and understanding logistics are the keys to deliver customer service and demand at the right place, quantity and time.
Improved customer service.
Effective supply chain will increase efficiency within a company. Efficient company can deliver best services to customers. It important to recognise what the customers really want and that is what the company will deliver. Only those value adding activities are practices within the company. Value adding activities are those processes within the company that will add satisfaction to customers. Products should be delivered to customers on time and in accordance to their specifications. The customers demand should not just be met but should also be exceeded.
Reduced Labour Costs.
Effective supply chain will reduce labour costs. Because the processes in the company is well planned and defined, duties and personnel are not redundant. Unnecessary functions are eliminated thus resulting to reduced labour costs. One example is that when a company is maintaining only the right volume of inventory, it will not be needing more people to do the stocking, operating forklift, people who will secure the warehouse and supervisor.
Improved Manufacturing Planning.
The raw materials required, the timing of deliveries and other activities and resources related to planning a manufacturing of product must all be considered in order to produce a product with the least costs but with good quality that at the end would satisfy customers. In planning the resources, the company should be ready for contingencies and should address the question “what-if”. Through careful planning, manufacturing a product can be carried on without any reservation because all the possibilities were considered.
Just In Time.
Just in time is an inventory strategy wherein goods are only received only when needed in production process [1]. Through this strategy, wastes and carrying costs are minimized because a company is just holding right amount of stocks that will make it able to meet the demands of the customers. This strategy will be effective if the company has strong relationship with suppliers. These suppliers are willing to deliver more frequently and on time to meet customers demand.
Methods to overcome barriers in an organisation when implementing a supply chain improvement strategy
Inappropriate distribution networks.
Distribution network as defined is interrelated arrangement of people, storage facilities and transportation systems that moves goods and services from producers to consumers [2]. The distribution network should be reliable and fast customers want to get their products when they want it. Inappropriate distribution networks will hinder the proper and fast movement of products from manufacture to customer that is why there should be proper planning on who and what should be included in the distribution network.
Ineffective distribution strategies.
Distribution strategy is the plan how a manufacturing company will transfer products to intermediaries such as wholesalers to retailers until it reach the end user [3]. The strategy must we well thought and should use distribution networks that are reliable so that the products will reach customers at the right time.
Trade-offs in logistical activity.
Trade-offs in logistics may happen for example when deciding to have fewer depots, lowering stocks requirements or using less protective transport packaging in exchange for some advantages such as reducing costs or no need to have large storage facilities. The impact of these trade-off should be considered because this might cause loss in sales due to wrong order picking and other instances related to trade-offs.
Reduction of transportation costs.
Transportation is one of the costly expenses in supply chain. It is important to have the best quality transport that will bring goods to places at the right time and price. In order to reduce the cost of transportation, a company may reduce the number of carriers, consolidate deliveries and by single sourcing [4]. In reducing the number of carriers, large volume of works will be given to selected carriers and they will be able to give lower rates. Deliveries may also be consolidated if the trip is based on weight, distance and other variables so that fewer trips will be made. Single sourcing of carrier, the company is getting quotations from several carriers detailing what is required. The company may select the best quotation that can meet the requirements and evaluate if the carrier can perform on the whole duration of the contract. If the carrier has these qualities, the company can get a lot of saving on having single carrier.
5. Increased inventory holding costs
Holding costs are cost associated to stocks that are not yet sold [5]. It includes labour costs, space or rental, costs of damaged goods and other expenses related on keeping the stocks. The company must determine the level of volume of stocks that it needs to keep in order to avoid these costs. Holding cost is also an opportunity cost because having lot of stocks would mean tying the cash on the stocks instead of using the cash on other parts of operation of the company.
Inability to integrate processes through the supply chain to share information
Supply chain involves information sharing. Supply chain links companies to other companies. If information are shared between companies, it will be available on a real time basis and the companies will be able see the demand and with the ultimate goal of meeting the demands of customers. When companies have reliable and accurate shared information, their processes will be synchronized. All the processes are done to meet what is required. Uncertainties are reduces which results to holding low level stocks that is just right to meet the customer demand.
Poor inventory management.
Inventory management can be successfully implemented if a company can make a purchasing plan that will ensure that what they hold is just what is needed. It is not too much or too less. Just in time inventory is a good strategy to keep inventory at a certain level wherein the company plans to receive goods only when it is needed thus reducing significantly holding costs. A company can successfully implement through a purchasing plan which schedules delivery of material through the forecasts and projections made on sales.
Cash flow problems
Reducing costs and avoiding cash flow problems are benefits of effective supply chain. Holding large volume of unnecessary stocks at a given period will cause cash flow problem in a company. Keeping these stocks is equivalent to costs and cash outlays. The company will pay large amount to suppliers but the stocks are not yet sold, tying the cash to the stocks. This will affect the liquidity of the company and can cause problem in a company.
References:
http://www.shelfplus.com/material-handling-hotline/ten-ways-to-reduce-inventory/
http://viktorwong-logistics.blogspot.co.nz/2012/06/characteristics-of-supply-chain.html
http://erp.cincom.com/2012/10/the-wicked-wastes-of-warehousing-2/
http://en.wikipedia.org/wiki/Manufacturing_resource_planning
http://logistics.about.com/od/forsmallbusinesses/a/Reducing-Transportation-Costs.htm
http://www.investopedia.com/terms/i/inventory-management.asp
http://www.investopedia.com/terms/h/holding-costs.asp
http://www.investopedia.com/terms/d/distribution-network.asp
http://www.adam-europe.eu/prj/7095/prj/CourieL_WP2_Chapter2_final.pdf
[1] Investopedia. Just in Time. July 2014. Retrieved from http://www.investopedia.com/terms/j/jit.asp
[2] Investopedia. Distribution Network. July 2014. Retrieved from http://www.investopedia.com/terms/d/distribution-network.asp
[3] Business Dictionary. Distribution Strategy. July 2014. Retrieved from http://www.businessdictionary.com/definition/distribution-strategy.html
[4] Murray, M. Reducing Transportation Costs. July 2014. Retrieved from http://logistics.about.com/od/forsmallbusinesses/a/Reducing-Transportation-Costs.htm
[5] Investopedia. Holding Costs. July 2014. Retrieved from http://www.investopedia.com/terms/h/holding-costs.asp
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