A supply chain includes the businesses through your distribution channel that contribute to getting goods to consumers. For a retailer, manufacturers and wholesalers are common supply chain members. Supply chains themselves don't necessarily have strengths and weaknesses, but SCM as a business system does.
Coordinating your supply chain activities with suppliers and buyers allows you to optimize efficiency relative to a transactional perspective on chain activities. With SCM, you collaborate with your suppliers and buyers on getting goods to market in the most valuable way. As a retailer, you and your suppliers benefit when consumers demand goods. Therefore, coordinating transportation, logistics and distribution activities with top suppliers allows you to focus on quality and cost controls that lead to optimized customer value. A more transactional approach causes its chain member to focus activities on generating optimum revenue from a direct buyer.
Supply chain management is a form of enterprise resource planning. ERP systems are centralized in an organization, which allows you to put your best SCM professionals in charge of managing supply chain relationships. A major difference between a managed supply chain and an unstructured one is emphasis on trusted relationships. Rather than constantly sourcing the lowest cost, you build a smaller network of core suppliers that you trust. This trust enables you to communicate more effectively, agree on fair pricing structures and coordinate activities together.
Inventory Management and Reliance Risks
Among the primary drawbacks of a managed supply chain are inventory management and reliance risks. Since SCM requires collaboration between your business and its suppliers, you become inherently dependent on suppliers for inventory management. Replenishment delays from a supplier can leave a retailer with empty shelves and upset customers. This problem isn't as great if you have multiple suppliers in each product category that you can call. A smaller network of supplier relationships also hinders your company's bargaining power in dealing with proposed price hikes.
A systematic approach to SCM causes your company to invest in people, technology and processes. Dedicated professionals in supply chain management, transportation and logistics often are needed for a successful SCM system. In addition, supply chain management is built on a strong computer network with SCM software programs. Technology enables you to integrate data with suppliers, which is especially important in vendor managed inventory programs. While these activities aim at efficiency and profit advantages, the initial and ongoing investment is steep for typical businesses.
Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.