The Business Value of Supply Chain Management


The supply chain used by a company is one of the most valuable assets to its business and its vendors. However, supply chains’ designs and their management involve a hefty price.

In today’s competitive scenario, most organizations have failed to completely realize the business value offered by effective supply chain management. Consequently, supply chains of most businesses continue to remain an essential area of unharnessed potential or untapped value. When it comes to enhancing the business value of SCM, most executives typically focus only on reducing costs involved in SCM and on perking up the related processes.

However, to capture maximum value from upgrading initiatives of SCM, business leaders must not forget some of the basic of

in the supply chain, such as:

  • Distribution centers that are under-utilized should be done away with to reduce costs
  • Inventory that is in excess is always waste and should be avoided.
  • Transportation should be planned in a way to ensure that customers are offered the best possible prices.

In short, to get the more significant business value of SCM, it is necessary to design supply chains in a way to keep the services and costs involved within a specific range that is ‘acceptable.’

Secondly, all the development and upgrading initiatives should be in accordance with a pre-determined business objective. Thirdly, business models should be developed in a way that they include all the processes, constraints, and core assumptions existing within the supply chains. Finally, it is vital to develop momentum and develop a ‘cycle’ of continuous improvement.

Performance Measurements in The Supply Chain

Performance measurements in the supply chain can be broadly categorized into the following types:

  • Quantitative Measures: Performance at delivery, flexibility, response time, utilization of resources, and lead time for order-to-delivery, etc.
  • Qualitative Measurements: Product quality and customer satisfaction.

While all these measurements are similar, the performance goals decided by every segment may perhaps be somewhat different. Out of the above categories of performance measures, quantitative measures used to assess the performance of any supply chain are of much greater importance than the qualitative ones. They are further classified into two categories: Financial and Non-financial measures of performance.

Financial Measurements of Performance of Supply Chains

The supply chain of any business has several operational and fixed costs linked to it. These costs arise mainly due to facilities, transportation, operations, inventories, labor, materials, and technology. Effectiveness of the supply chain management depends on maximizing the total revenue while reducing the costs to as low as possible.

Supply chain’s financial performance is assessed by evaluating items, such as cost of the raw material, costs of inventory holding, revenue generated from sold goods, activity-based costs of manufacturing, assembling and material handling, costs of returned and expired goods, credits for returned goods or late deliveries, and penalties associated with late or returned orders.

Once all these major performance indices of financial performance are calculated, they must be evaluated in totality using primary modules, such as intercompany transactions, inventory costing, activity-based, and transportation costing.

Non-Financial Measures of Performance of Supply Chains

The most important performance measurements in this category include the level of customer service, cycle-time, utilization of resources, flexibility, quality, ability to perform, and levels of inventory.

So, supply chain management’s business value can be enhanced only if the company is willing to adjust its conventional routines, way of working, and attitudes according to the requirements of its value chain. In case the company fails to do so, its supply chain may fail miserably, causing it to lose a significant part of its fortune in the entire process.

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