If you own a business, whether large or small, and whether you deal with products or services, you most likely have a supply chain. In the most simple terms, all supply chains begin with the acquisition of the raw materials and end when the the final product or service is delivered to the customer. But a supply chain isn ‘t simple- it ‘s a complex system of organizations, people, information, resources, and activities that are all interconnected and are involved in moving the product or service to the end-user, or customer.
We tend to think about physical products when we contemplate the supply chain because services are intangible, but services also rely on supply chains. The service supply chain isn ‘t so obvious, but think about the products a service business might use. Hair salons, for example, provide services, but they use a number of materials such as shampoo, scissors, hair dryers, gloves, and towels, to be able to deliver their services to the customer. Those supplies also need to stocked, organized, and assembled so they are ready for use. Service supply chains become a little more abstract when you consider that a service business is actually a manufacturing service with almost all the labor expended on manipulating information and developing relationships.
But whether a business is products-based or service-based, every part of the supply chain needs to be overseen, or managed. Supply chain management, also called SCM, isn ‘t just about the management of products and services — it’s also the management of information, time, and money. Here’s a look at the basic parts of supply chain management for any size business.
Tier II Supplier Management
Supply chain management often begins what ‘s known as Tier II supplier management. Your Tier II suppliers are the suppliers who supply components and other raw materials to your direct suppliers. Tier II management is often put on the back burner, but because Tier II suppliers impact your suppliers ‘ costs, delivery schedules and quality, they are also going to impact your own costs, delivery schedules and quality. While it ‘s not always critical to manage all Tier II supplier relationships, doing so can often drive savings and optimize production schedules.
Supplier Management includes negotiating the costs of goods, quality audits, new product development, and on-time delivery management, to name a few. A big part of supplier management has to do with negotiation, which determines the cost of the services and materials in each part of your supply chain. This does not mean you should make purchasing decisions based solely on cost- that would ensure you will get many low-quality materials and services. High quality materials and services purchased at the best possible negotiated price will help make for functional supply chain.
Logistics is the management of the movement of your goods, and while it’s not the same as your supply chain, it’s a part of your supply chain. Shipping and warehousing costs can be one of the largest expenses in your supply chain, so it’s important that your logistics providers are managed to control those costs. Logistics providers include shipping companies, freight forwarders, parcel delivery companies, customs brokers and third party logistics providers (also known as 3PLs).
Excluding service-based businesses, inventory is one of the largest expenses in a supply chain. Inventory management is a balancing act: you need to have enough inventory to give your customers what they want, when they want it — but then there’s always a risk of having too much inventory (because you thought you would sell more than you did or because something changed in the marketplace) on hand that you may never sell.
Unlike what many believe, purchasing does not equate to supply chain management; it’s a subset of supply chain management. Supply chain management oversees and optimizes the purchasing processes of acquiring materials from suppliers. The role of purchasing professionals can include inventory management, internal logistics, warehousing, and other supply chain functions.
Here at Next Level, we understand the impact of operational costs on any size business, and we are committed to helping our customers increase efficiency and profitability through lower material expenditures and cost efficient design solutions. Call 800-230-8846 to speak with a Next Level warehouse professional today!