8 Vital Components of Successful Supply Chain Management

By Indeed Editorial Team

Updated July 20, 2022 | Published February 15, 2021

Updated July 20, 2022

Published February 15, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Any business that sells products to a consumer, whether it’s an individual or another business, has to develop a process for manufacturing, storing and distributing its products. Supply chain management can manifest in different ways from one business to another, depending on the industry, and results in a more effective and cost-efficient process. If you’re a supply chain professional or you want to become one, learning more about the fundamental components within the supply chain can be beneficial.

In this article, we define supply chain and provide a list of supply chain components for you to learn more about.

What is a supply chain?

A supply chain is a system of steps that are set up between a company and the suppliers and vendors it does business with to make sure its buyers receive the goods and products they purchase. Businesses may develop a supply chain so they have a process in place that helps them be more cost-efficient, able to compete with similar businesses and establish a production process that is quicker and more thorough.

Related: 20 Supply Chain Management Interview Questions

8 supply chain components

An effective supply chain ensures that products, goods and materials deliver on time and within budget. Here are the components of supply chain management:

1. Planning

Planning involves thinking through all the facets and details of supply chain management so you're prepared for how the entire process commences. The planning stage is where you ask questions, including:

  • Will we manufacture the product ourselves or outsource that part of the process?

  • Will we make products to order or keep a stock of our goods?

  • Should we use a supplier for our products? If we do, should they be a domestic or an international supplier?

  • Will we configure our items to order or engineer them according to customers' specifications?

During planning, you develop supply chain strategies that match your overarching company objectives and strategies, build communication channels that support the supply chain, determine how productive the business needs to be to meet customer and supplier expectations and establish performance measurement guidelines and data gathering methods.

Related: 12 Supply Chain Certifications To Advance Your Career

2. Information

Securing a method to gather and organize information is an important part of supply chain management. This component may include completing market trend research and assessing the current supply and demand. Consider integrating data storage and analysis into your supply chain management approach to help with decision-making and avoid mistakes and delays.

3. Suppliers and vendors

The second component of supply chain management is the sourcing of goods and materials. This involves finding suppliers and vendors that you can work with to complete your supply chain process. Consider performing research on potential suppliers and vendors, negotiating your contracts with them and making sure they are able to support your company's business needs. It's also important to make sure that any other company you source from can meet your production demands and manage inventory accordingly.

Related: What Is Vendor Management?

4. Inventory build-up

Understanding demand can help you plan for inventory, and having too much inventory can be costly. Comparatively, if you don't have enough inventory to meet demand, you can upset customers or have to spend more money or a premium to increase production in the short term.

Build up your inventory based on your demand forecasting so you can have products available for purchase, staying a little ahead of demands to avoid any issues with production and maintenance.

5. Production

Another component of supply chain management is your production activities. This is when you schedule production and test your production plans to make sure they support your product demands and the company's goals. The production stage also includes the packing of products, complying with rules and regulations for your industry, data storage and developing production performance standards.

Related: Top 11 Production Skills To Develop

6. Storage

Just as inventory is important, so too is the storage of that inventory. Explore warehouses or smaller offices that can house your inventory based on your current or projected product demands. Consider the size of your storage space, if your products require air conditioning, if you share the space with other companies and any other factors that are important to keep in mind as you source a place for your inventory.

7. Distribution

This is one of the first major components where customers get more of a hands-on experience with your product. Distribution includes transporting goods, materials and products from one location to another, typically from the warehouse or manufacturing plant to a store or the customer's home. Set up the transportation process to meet your needs.

For example, determine if you need to acquire or hire an air-conditioned vehicle and how big the vehicle should be based on projected sales. You may also want to check the safety reports and delivery times for the companies you're considering working with.

Customer service is also part of the distribution process in which you handle customer inquiries, decide how to distribute your products, choose self-distribution or opt for a company to handle the majority of the process for you, activate a warranty period and process invoices and payments.

8. Product returns

This part of the supply chain stems from the customer or business to which you provide goods or products. It's important to prepare for a situation where your customer wants to return the product they've purchased from you.

Because returns are a normal part of business when you provide a good or product to another party, the more you're able to develop a process for returns, the more prepared you are for the inevitability. These are some factors to consider when creating a plan for product returns:

Reasons for return

Here are some reasons a customer may request a return:

  • The product is defective.

  • Their purchase didn't meet expectations.

  • They bought the product for cheaper elsewhere.

  • They no longer need the product.

Customer service

Most customers expect a fairly smooth process to return products they no longer want or need, and the same for any exchange process they choose to go through to get a replacement product. This includes the process of communicating with any customer service representatives about their request.

Because there are established expectations, it's important to meet or exceed those expectations wherever possible so you can retain your customers and provide the kind of service that results in increased sales, hopefully influencing your customers to share their experiences with others.

Returns planning

Consider how you process returns, including how you accept returns and what instructions you provide to customers, how you manage exchange requests and how you handle products you receive from customers. During the return stage, monitor how often you receive returns and why, manage your inventory of the products you've received from customer returns and provide refunds.

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