Methods and Solutions for Supply Chain Management
Supply chain management involves all activities that occur during the production process, from sourcing of raw materials to final product production, including the flow of services and goods. Great supply chain management avoids disastrous business consequences, ranging from lawsuits to recalls.
The goal of supply chain management is to create and maintain supply chains that are as economical and efficient as possible. Supply chain solutions including supply chain management software and tools decrease the costs a business occurs while improving their shipping speeds.
Proper supply chain solutions may differ dependent on business needs, wants, and objectives. Over time, especially with expansions and changes in business operations, companies may need to adjust their supply chain management methods and solutions.
3 common types of supply chain management methods and solutions are-
1. Materials Logistics Management Method
The materials logistics management method, commonly abbreviated as MLM, utilizes third party partners for a range of supply chain management functions. Supply chain management functions covered by materials logistic management include planning, sourcing, production, and shipping.
Although it is not necessary to contract with a third party logistics provider, many businesses benefit from doing so. Third party logistics providers are a supply chain management solution with the ability to decrease costs and expedite delivery speeds due to their extensive networks.
Most third party logistic providers will have developed long term relationships with a large variety of vendors and transportation providers. Not only can third party logistic providers negotiate on a business's behalf, but they have supply chain management expertise and experience that many businesses cannot otherwise access.
Consider the case studies that revealed that 37% of customers report they do not eat at Chipotle as often as before due to the E.Coli outbreak years prior. The value that an outstanding third party logistics provider has cannot be underestimated when it comes to safety and security, especially when one mistake can result in years of brand reputation damage and decreased profitability.
2. Transactional Cost Analysis Method
In order to generate as much profit as possible, many businesses use the transactional cost analysis method. The transactional cost analysis method uses both market data and forecasting data as supply chain solutions in order to maximize sales and profitability.
First, businesses use market data to procure raw materials when they are at their lowest price point, stocking up on their inventories when prices are down. Then, businesses utilize both sales and demand forecasting information in order to sell the finished product at the highest price possible to their customers.
The transactional cost analysis method is especially beneficial when used over a longer period of time. Businesses can identify pricing patterns and better match forecasts with their inventory purchases.
An example of the transactional cost analysis method at work would be an eCommerce candle company that is preparing for the upcoming holiday season. Using the transactional cost analysis method, the business purchases wax, glass containers, and wicks in bulk well before their vendor ups the price to balance their own last minute customer demand.
Supplementing the transactional cost analysis method with their own sales forecasting and customer demand forecasts, the eCommerce business has found a great supply chain solution for their specific needs and objectives.
Not only does the candle company save money buying their materials in bulk, but they avoid a supply chain management disaster of not having access to the materials needed for them to produce enough products to satisfy customer demand.
3. Material Requirements Planning Method
Inventory and warehouse management are crucial components of any effective supply chain management process. Lean inventory practices are supply chain solutions in themselves and can be supplemented with demand forecasts, production planning, and supply chain management software.
An overstocked inventory indicates that space is not being optimized and puts businesses at the risk of having a surplus of products that they will need to sell at a discounted rate or dispose of. On the other hand, an understocked inventory results in missed sales opportunities and lower rates of customer satisfaction when a product is unexpectedly unavailable for purchase.
The material requirements planning method determines the minimal amount of inventory required to satisfy sales forecasting and customer demand estimates. Businesses that are interested in lean inventory supply chain solutions can benefit significantly from utilizing the material requirements planning method.
The material requirements planning method is divided into two main groups, independent demand and dependent demand. While independent demand signifies the demand for finished products, dependent demand denotes the demand for the materials that are used to create a finished product.
- Supply chain management consists of all operations from sourcing of raw materials to final product production.
- Supply chain solutions help with common supply chain management issues, ranging from excess inventory to untimely shipping speeds.
- Three common supply chain management methods are the material required planning, transactional cost analysis, and materials logistics management method.