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17 November 2022 • Resources

Supply chain management: Presentation and different methods

Supply chain management: Presentation and different methods

For companies, supply chain management is an essential and central element of their logistics. To be profitable, companies must not overstock. They must find ways to sell their inventory and order accordingly or choose more appropriate supply methods.

On the other hand, to help meet customer demand, companies must not be out of stock either. In this context, everything is a question of balance and organization. This key aspect of logistics can get even more complicated for companies that sell products on a global scale.

So, how do you properly manage these crucial details of operations for your ecommerce business? Read on to learn more!

What is supply chain management?

Supply chain management is a strategic function for companies. This key step of ecommerce logistics corresponds to the procurement and purchase of goods and their storage for resale. Let's take a closer look and see what it is and what are the different methods that serve as solutions to manage it in the best way possible for your business.

Definition of supply chain management

Supply chain management is a process that aims to meet the company's needs for products or services. It involves finding and storing whatever is needed for the company's operations, whether it is finished goods, merchandise, raw materials or parts. The supplies are then processed and/or stored, before being resold.

Depending on the type of company and industry, supply chain management can take different forms and include various systems and processes. For example, for a craftsperson, it may involve purchasing materials that will then allow them to manufacture their products. For a start-up, it consists of buying parts to manufacture a technological product. For an ecommerce company, supply chain management involves the purchase of products and their storage, before they’re purchased by internet users.

What are the objectives of the supply chain function?

When we talk about supply chain management for companies, we’re talking about a long process, from the negotiation of raw material prices to their purchase, through their storage and disposal. The supply chain is therefore at the heart of a company's financial strategy. Moreover, all companies are concerned. Whatever the size of the structure or its sector of activity, supply chain management has a direct impact on its profitability.

A poorly managed supply chain can be extremely costly. For example, in a restaurant business, poor inventory planning and ordering too many perishable items can have dramatic consequences. If the clientele is not there and the stock is not sold out, it’s a dry financial loss. On the other hand, when a company does not correctly anticipate the demand of its customers and finds itself out of stock, it can lead to missing many sales. Again, this is a loss of money.

The goal of supply chain management is to improve the company's financial strategy and organization, while aiming for greater profitability.

How to manage supplies: strategic principles

There are many different methodologies for managing the procurement of supplies. And let's be clear: no one method is better than another. In fact, the solution adopted must simply depend on the company's operations and its needs.

Demand-driven: The demand-driven supply management method is based on factual information.

Several solutions coexist:

  • Calendar method: with this model, it’s a question of ordering a precise quantity of products at a date fixed in advance, to supplement the missing stock and to ensure the restocking, according to the sales carried out on the preceding period.
  • Just-in-time (JIT) method: it consists of limiting inventory costs by buying products only on demand. There is then no anticipation with this model, which makes it possible to limit waste and to optimize the cash flow. On the other hand, in this case, it’s essential to rely on agile and very reactive providers.
  • Kanban method: in this case, a minimum stock is defined. From this, purchases are made progressively, according to the volume of orders sold, so as to always maintain the same stock. This is a pull-flow operation that reduces production and storage costs, while offering excellent product traceability.
  • Order point method: this method also imposes the setting up of a minimum security stock. When this is reached, a new supply is automatically triggered. With this model, overstocking is impossible.

While the previous modes of management were essentially based on factual and on concrete orders, it’s also possible to anticipate the needs of the customers and stock management in ecommerce with solutions based on calculations and data analyses:

  • Empirical method: this is based on the requests made to suppliers during the previous year. It’s a question of observing the budget allocated to the orders and the quantities bought previously to be inspired, in order to satisfy the future needs of the company.
  • Forecasting method: very similar to the empirical method, the forecasting method is also based on the analysis of the previous year, while adding market studies and competitive analyses. The supply management then takes into account the purchases already made, while projecting the evolution of future orders.

What are the steps in supply chain management?

The supply chain is a long and complex process, whether it’s for traditional commerce, digital commerce, or ecommerce, involving many players. Typically, manufacturers and producers start by creating products from raw materials. They then transport and distribute them to other suppliers, who in turn sell them to merchants, whose role is to sell the products to end consumers. In simple terms, supply chain management is divided into 7 successive steps.

1. Business needs and purchase planning

First of all, it’s essential to estimate the needs of your company for each good or service. Identifying your material expectations must be the basis of your supply chain management. Moreover, this concerns not only your company's internal needs (useful for creating your products and ensuring your smooth operation), but also its external needs (intended for sale).

2. Find your suppliers

Surrounding yourself with good service providers is also an essential phase. In this sense, you need to find one or several good suppliers, respecting the standards in force as well as the qualitative criteria imposed by your company. In the same way, your partner must show reliability and reactivity. They must also offer you a competitive price. In the long run, your partnerships with your suppliers must be based on a win-win relationship, in which everyone benefits.

3. Compare plans to place an order

To make the right choice, don't hesitate to compare the different offers between them, revealing all the data and details concerning their manufacturing services, and be sure to take the time to read the fine print to determine the best option for your company and its operations. Moreover, this comparison will allow you to negotiate the prices of your goods. At the end of this step, you should have defined a price with your supplier. It’s also at this point that the production and delivery terms will be clearly established and the contract will be signed.

4. The industrial production of the stocks

Now that everything is in place, the production of your inventory can begin! Your company is now in a position to finalize its order. After the legal contract between you and your partner has been finalized, your supplier can start the industrial production of the stock.

5. Product delivery

Product delivery is also a key step in supply chain management. Don't just store the boxes in your warehouse—remember to check all your items. This involves checking the quality of the products received, as well as the quantity and prices charged. In some cases, a few adjustments may be necessary.

6. Customer service follow-up and assessment of the procedure

If everything is in order, the company pays for the goods. The company's accountants take care of the payment of the invoice and its verification. Moreover, it’s also at this moment that an initial assessment is made, concerning the placing of the purchase order, the establishment of the invoice, and the follow-up of the delivery instructions.

7. Accounting update

The supply management process ends with the recording of the operation in the accounting system. At this stage, accuracy is essential. Accurate accounting makes quarterly inspections easier. It’s also the way to help avoid inventory discrepancies.

Supply chain management is essential to ensure an online store’s profitability. In 2019, about 30% of companies' expenses were wasted due to an inappropriate purchasing system. In addition, anticipating your needs in the outsourcing of ecommerce logistics can also help to achieve economies of scale. This has a direct impact on the company's bottom line. Besides the implementation of effective communication, the development of a loyalty strategy, and well-planned ecommerce returns management, supply chain management has direct consequences on your revenue, whether your business sells products locally or on a global level.

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