As the world is progressing toward digitization, the field of Supply Chain is becoming more and more popular. And it is quite normal to develop misconceptions about supply chain as it is a rapidly expanding discipline and you’ll barely notice it unless something goes wrong. It is one of the key factors that help your business to stand ahead of your competitors. As it is a very important aspect of your business, it is very crucial to clarify all the misconceptions about it. In this article, we have listed the top 6 misconceptions about supply chain management.
Top 6 Misconceptions About Supply Chain Management
1. Supply Chain Always Results in Cost Reduction
Cost reduction is important, agreed!! But Supply Chain Management is not always about being cost-effective. Sometimes, it makes more sense to increase your spending to enhance your revenue in the long run. For instance, spending extra pennies to improve customer experience could help you increase the retention rate which ultimately leads to increased sales.
Also, it is wrong to assume that cost reduction is always beneficial. Let’s say you decide to reduce your transportation budget. This will lead to an increase in inventory cost and many times increased inventory cost surpasses the cost saved from transportation. Hence your attempt to reduce costs could backfire. Therefore, it is important to understand that the major goal of supply chain management is the holistic development of a business and cost reduction complements that goal.
2. Supply Chain Management = Logistics Management
This one is my favorite. I want to clarify that Yes!! Supply Chain includes Logistics Management, but it is not limited to it. Logistics Management is more about managing the flow of goods and services from their source to the destination where it meets the requirements of the end customer. So here the major focus is on movement and storage. Supply Chain is a broader concept that starts from understanding customer requirements, procurement of raw materials, demand forecasting, production planning, inventory management, sales and operations planning and logistics management.
Initially, businesses only focussed on Logistics Management and with the passing time and advancement of technology, in order to optimize all the operations taking place in an organization, the concept of Supply Chain evolved.
3. It is Always Best to Keep Minimum Inventory
This is one of the most interesting misconceptions about supply chain. We all know the success story of Toyota and how they have strategically implemented the concept Just in Time Inventory system. But do you think it is feasible for all types of industries? As the name suggests Just in Time Inventory Management System depends greatly on excellent coordination between an organization and the supplier. If something goes wrong in that coordination, you don’t even have buffer inventory to compensate and as a result, the production gets delayed which ultimately causes a huge loss.
Although a higher inventory level could tie up your business capital, it is not always bad as it could signify your growth. For instance, if the demand forecast predicts an increase in sales and if you are confident about it, you could take the risk of holding high inventory. You should know that stockouts are even worse than having a higher inventory level. When you do not fulfill customer demand, you are forcing them to choose an alternative and there is a high chance that you’ll lose customers to your competitors forever.
4. Supply Chain Management is for Bigger Companies
Supply Chain Management is not the field that becomes relevant when you grow, but it’s the field that helps you grow. In fact, problems occurring in a supply chain could have a greater impact on smaller businesses as they don’t have enough funds or support to back them as bigger companies have. Therefore, to overcome challenges like raw material shortage, increased cost of operations and shipment delays, small businesses need to develop a strong and sustainable way of managing their Supply Chain.
5. It’s the Trend that COVID-19 Brought with it
It’s true that the awareness about Supply Chain Management and its importance increased among the general masses after the advent of the pandemic. But let’s analyze why! It was because there was a sharp rise in the cases of COVID-19 all around the world and everyone was eagerly waiting for the vaccination dose to be made easily available.
Vaccine is a temperature-sensitive product and if not stored and transported properly, it could lose its effectiveness. Hence it was a challenge for supply chain leaders to manage the flow of vaccines from one part of the world to another and it is then people got to know the importance of a resilient supply chain. Supply Chain Management has always been important but we only realize its value when some inconvenience is caused.
6. You have a Unique Supply Chain
Many times decision-makers of an organization assume that the problems they face in the supply chain are limited to them. It’s very natural to think that if you have a different way of working, the problems should also be different. But it’s not the case and let’s understand this by comparing two dissimilar industries, i.e., the automotive and food industries. In both industries, safety and quality are always a concern.
Excess stock is not good for both industries because in the automotive industry huge warehouse would be required to accommodate excess stock and in the food industry excess stock means excess wastage because of the low shelf life of products. For both industries, it is really important to be reliable. The food supply chain is under increased pressure to deliver fresh perishables on schedule, safely, and in the appropriate quantities as a consequence of consumer purchasing patterns. This is where one can learn from the automotive industry as it is so precise and disciplined that it can achieve 99.9 percent supply chain reliability.
Supply Chain Management is much more than what people are aware of and misconceptions about the supply chain will only limit its potential. If you’re interested to know more about supply chain problems and its solution, you can refer to the given articles:
StaTwig’s Cognitive Network: A Better way to Enhance Supply Chain
Interoperability: New and Acclaimed Future of Supply Chain Management
StaTwig Receiving UNICEF Innovation Fund for it’s Supply Chain Solution
