Businesses that develop a cost-effective supply chain strategy can benefit from greater operational efficiency while staying competitive in their sector. Supply chain management helps you improve business performance, bring costs down, and efficiently spend your capital investments. It also puts the company in a better position to meet the demands of customers.
Keep reading to discover the 10 most useful benefits of supply chain management, learn which areas of the business have the most to gain from it, plus discover some actionable tips for optimising your supply chain management processes.
In this guide:
10 key benefits of supply chain management
We’ve worked with supply chain professionals and industry experts to bring you the 10 biggest benefits of supply chain management in today’s rapidly developing business landscape.
Priyanka Swamy, CEO and Founder of Perfect Locks – a market-leading brand in the hair extension industry – neatly summed up the importance of supply chain management with this statement: “Due to the ever-evolving nature of the industry, we face a unique challenge – keeping up with changing trends and customer demands. It’s not just about tools; it’s about agility and staying ahead of the market.”
Let’s dive into our top 10 advantages of effective supply chain management.
1. Improve your operational efficiency
When you optimise the management of your supply chain, it becomes easier to make the right decisions about how you run your business. You’ll have access to real-time insights and helpful data that highlight where your wasteful activities and inefficient processes are most commonly occurring.
To enjoy this benefit, implement effective supply chain management strategies to smooth out bottlenecks on the shop or factory floor. This can reduce waste, ultimately bringing costs down and improving your overall operational efficiency.
2. Gain better financial visibility and insights
One of the biggest benefits of supply chain management is that it gives you greater visibility and control over your business.
Imagine you’re stumbling about in a dark room, trying to find something, but you can’t see where it’s hiding. Supply chain management is like opening all the curtains and flicking on a light switch – only the room is your supply chain and the items you’re looking for are critical information about your products.
Good supply chain management improves the flow of information along the supply chain so you can mitigate risks, know exactly when goods are coming in and out of the business, and react quickly to unexpected disruptions.
3. Make smarter purchasing decisions
Another advantage of supply chain management is that it facilitates better sourcing and purchasing of raw materials, components, and finished goods.
By keeping a tab on your inventory requirements – when goods need to be replenished, written off, or relocated – you can better plan how and when you purchase new stock. Supply chain management offers a way of comparing similar suppliers to determine who has the best deals, the shortest lead times, and the best communication.
“As a solution, we’ve been intensively exploring strategies to enhance communication and collaboration with our suppliers,” Campbell told us. “This involves promoting a transparent dialogue about market trends to ensure they have real-time visibility into our sales data.”
According to Campbell, having a backup is also key in optimising your purchasing management.
“We also establish contingency plans by identifying alternative suppliers that can scale up production on short notice. Doing so mitigates the impact of supplier capacity constraints and allows us to promptly meet our customers’ demands.”
4. Reduce total manufacturing costs
Efficient supply chains are necessary to ensure manufacturers stay stocked up on raw materials and are adequately equipped to avoid bottlenecks during the production process.
Good supply chain management will help you avoid the risks associated with the bullwhip effect – a phenomenon that occurs when small shifts in demand at the consumer end of the supply chain result in massive swings in production.
Ultimately, one of the main benefits of supply chain management for companies in the manufacturing supply chain is the reduction of production costs due to improved efficiency and fewer stockouts.
5. Reduce inventory carrying costs and storage requirements
It can be challenging to nail the balance of holding enough stock to meet customer demand but not too much that it drains profits or efficiency from your business. Effective supply chain management can help you find that balance.
“The supply chain disruptions of the pandemic era showed many companies that inventory is a real challenge,” explained Michael Power, CMO of DTF Transfers, when we spoke to him. “Too much and you’re losing money on storage. Too little and customers switch to competitors.”
6. Improve customer satisfaction and brand credibility
When you optimise your supply chain management strategy, your order accuracy and fulfilment times will improve – resulting in fewer returns to manage and more satisfied customers.
Lead times can be a leading factor in how your brand is perceived, and whether a customer chooses to buy from you or one of your competitors. In fact, 40% of American shoppers aren’t willing to wait longer than two days for orders that promise “fast delivery”.
Improved customer satisfaction through effective supply chain management can also help increase sales. Customers who have a good experience with your brand may become advocates, recommending your products to their friends or family members.
7. Better supplier collaborations
Supply chain management holds many benefits that improve your relationships with suppliers. More visibility across delivery status and production times helps supply chain managers trust their vendors and make more informed choices related to sales strategies.
When we spoke with Alexa Stimpfel, Owner and Founder of The Shoe Fairy, she told us that clear supplier communications are an important benefit of good supply chain management. “Efficient communication and collaboration with suppliers are crucial for timely restocking and preventing disruptions in the supply chain.”
Additionally, improving supplier collaborations can help you shorten lead times and earn better discounts on bulk orders.
8. Reduce overhead and operational costs
We’ve touched on how effective supply chain management can help to bring down inventory holding costs and total manufacturing costs. The bonus benefit of these cost savings is that – by requiring fewer resources for storing and producing goods – your operational costs will also come down.
Less inventory kept on-site means you can operate out of a more economically sized facility and spend less time moving between different areas of your warehouse, retail outfit, or factory floor.
By increasing the efficiency with which you manage goods in your supply chain, you’ll be able to sell more products while benefitting from the savings associated with economies of scale.
9. Increase revenue and profitability
For most businesses in the supply chain, the chase for more sales and wider profit margins never ends. Supply chain management is an essential process for finding success in this worthy pursuit.
When you understand your costs – and where they can be reduced – it will be easier to capitalise on missed opportunities. For example, a heads-up from one of your suppliers about a delayed shipment can help you inform customers in advance to prevent disappointment (and abandonment of your brand).
Every time you resolve a bottleneck or find a cheaper way to perform a repeatable task, those efficiencies feed directly into your business’s bottom line.
10. Improve liquidity and cash flow
The final benefit of supply chain management comes from improvements made to your demand forecasting efforts. When you’re able to cross-analyse multichannel sales data with current market conditions, your demand forecasts will be much more accurate.
Accurate forecasting of demand helps you better plan your inventory requirements for future sales. In this way, you’ll be able to avoid overstocking and operate with less capital tied up in unsold inventory sitting around the warehouse.
“One of our biggest accomplishments has been setting up real-time inventory tracking systems, which enable us to track inventory levels accurately,” Priyanka Swamy of Perfect Locks told us. “This approach reduces the chances of running out of stock or experiencing an overstock situation.”
Who benefits from effective supply chain management?
The benefits of supply chain management can be felt at the employee level. A fully optimised supply chain makes everyone’s jobs a little easier and enables them to take the actions that will benefit the wider company the most.
Here are some examples of how different roles can benefit from effective supply chain management:
- Stakeholders: Those with an investment in your company’s success will be looking for any opportunity to make the company more profitable. By optimising your supply chain management processes, you’ll be able to present your stakeholders with examples of how you’re working towards improving the total value of the company – potentially encouraging further investment from them.
- Business owners: If you’re the owner of a company, your success is tied to the success of the firm. A strong supply chain management strategy enables faster, more sustainable growth for the business that results in improved revenue and profits.
- Managers: Supply chain managers, warehouse managers, inventory managers, and production managers can all empower their teams to achieve greater quality and speed in the daily operations of your business when effective supply chain management is implemented.
- Warehouse workers: The staff that are receiving, picking, packing, and shipping orders can perform these tasks with less effort and fewer errors when supply chain optimisations have been introduced. The increased ability to be effective at their roles can help your employees feel empowered by their work, making them more likely to stick with your company.
- Customers: At the end of the day, there’s no business without the customer. Supply chain management targets faster shipping times, fewer picking errors, and higher quality products – improving the experience consumers have with your brand.
As well as these benefits for individuals, effective supply chain management also empowers the businesses that make up your supply chain.
Manufacturers will be able to produce more goods, faster, for less. Retailers and ecommerce merchants can keep shelves stocked and meet the demand of consumers. Distributors will be able to deliver goods faster and therefore offer a better service to their customers. Everybody wins.
How to get more benefits: Optimising your supply chain management
There are several ways you can quickly improve the quality of your supply chain management processes. This will enhance your ability to experience some of the benefits listed above.
As Alexa from The Shoe Fairy neatly puts it: “Ultimately, a combination of technology adoption, data-driven decision-making, and streamlined communication with suppliers contributes to successful inventory management for retailers.”
Here are some parting tips for optimising your supply chain management strategy.
1. Implement the right technology and systems
The most effective method for getting more benefits from your supply chain management efforts is to have the right tools for the job. In this case, that means software and hardware that can improve the efficiency of your processes.
Inventory management systems and barcode scanning software are essential for accurately tracking stock and attaining optimal levels of inventory. Warehousing equipment such as a pallet truck or forklift can make it easier to transport goods where they need to go. And providing staff with better tools for performing their roles can help with employee satisfaction rates.
Check out this short explainer video to discover how inventory management software can be used to optimise key aspects of the supply chain management process.
- Optimise your inventory today: Try Unleashed inventory management software free for 14 days.
2. Improve your demand forecasting
Minimising waste and avoiding missed sales both come down to how accurately you’re able to predict future demand for your products.
Accurate demand forecasting can also help bring down the cost of your inventory and ensure you always have sufficient cash flow available to pay bills and wages on time.
Here are some quick tips for improving demand forecasting:
- Use warehouse inventory management software to capture historical data about the relationship between your sales and inventory.
- Be sure to account for all the variables that affect demand, including seasonality of goods and global supply chain trends.
- Strike a good balance between statistical modelling and collaboration with suppliers to create a holistic demand forecast that considers both inputs.
Keep in mind that forecasts are just a way of estimating future sales; things can change at any moment. Keep your projections flexible and recalculate when necessary.
3. Prioritise managing supplier relationships
“It’s not just about tools; it’s about agility and staying ahead of the market,” Priyanka Swarmy of Perfect Locks told us. “We’re always in touch with our suppliers to ensure a smooth supply chain, reduce lead times, and improve overall efficiency.”
We couldn’t have put it better ourselves.
Just as a smile and some basic manners can get you better service at a restaurant, improved supplier relationships can help you score better deals from your vendors and ensure you stay updated about unexpected disruptions before it’s too late to prepare for them.
Get on good terms with your vendors and keep those communication lines open – who knows when a rumour passed along the supply chain grapevine could save you a few thousand on wasted costs?