When COVID-19 began to spread in 2020, many factories and businesses shut down, impacting the global supply chain. According to Axios, 75% of U.S. companies saw their supply chains disrupted early in the pandemic.
The pandemic also caused one-fourth of companies to experience a 50% drop in sales, according to the World Bank. Approximately 1.4 million manufacturing jobs in the U.S. were lost early in the pandemic, according to the National Association of Manufacturers.
Geopolitical issues such as the U.S.-China trade war added to the disruptive forces affecting the global supply chain.
What is supply chain management, and why is it important? Supply chain management is the overseeing of the flow of goods and services from raw materials to final products. It includes all the processes involved in getting products to customers, such as shipping.
As the global economy recovers, demand and supply continue to be at odds with each other. Take, for example, the more than 80 container ships that were waiting to be offloaded outside California ports in mid-November 2021 as the holiday shopping season began, according to a Bloomberg report. This logjam provides a visible example of the importance of effective supply chain management.
Supply chain management keeps the mechanisms of supply and demand operating smoothly so that people have access to goods and services. From sustenance and shelter to the way we work and entertain ourselves, a well-oiled supply chain is critical for maintaining economic stability and a functioning society.
Supply chain management is the handling of the entire process of turning raw materials into a final product. Without the supply chain, we would not have access to food and health products, or the items that allow us to work, travel and entertain ourselves. Supply chain management involves a network of suppliers connected via a centralized management process. Each supplier acts as a link that moves a product along a chain of production, from raw material suppliers to manufacturers to retailers.
In the past, the supply chain management beginning-to-end model was mostly rigid — every link in the chain was touched in consecutive order to get a product from raw materials to the consumer. But lessons from the recent disruptions highlight the importance of flexibility in the supply chain management process.
What supply chain management is today is largely a result of market evolutions, digital transformations, and changing consumer preferences. Here are a few examples:
Supply chain management sets the foundation for economic growth by enabling the exchange of goods between businesses and consumers. The important role of supply chain management and its impact on economic growth is possible because of the entities involved in the supply chain, which include the following:
In considering what supply chain management is and why it is important, it is useful to highlight other business functions that impact or are affected by the supply chain.
Modern supply chains help improve living standards by enabling consumers to buy essential products at lower costs. This is because an effective supply chain streamlines the process of getting products to market, and ultimately to consumers.
Some key reasons why supply chain management is important to include:
When considering why supply chain management is important, it’s worth noting the potential repercussions of an ineffective supply chain. For example, a lack of raw materials can result in a manufacturer not having the resources to create a product that is in high demand. A scarcity of that product can result in abrupt price hikes, impacting consumers.
The pandemic played a major role in disrupting the current supply chain in several ways. For example, many factories in low-cost manufacturing hubs in Southeast Asian countries such as Vietnam, Indonesia, and Malaysia shut down or slowed production, hitting global companies hard financially.
A disruption at any point in the supply chain can create problems for everyone. Here’s an example of a chain of events due to the disruptions caused by the pandemic:
In some cases, product prices rose abruptly. Food prices were affected as well. Prices for meat, poultry, fish, and eggs went up 10.5% for the year ending in September 2021, according to data from the U.S. Bureau of Labor Statistics (BLS).
As global markets recover, demand is increasing while manufacturing is still limited, creating a mismatch in the equilibrium between supply and demand. In economic theory, this is known as the scarcity principle.
Geopolitical forces can tighten the supply of global commodities, creating artificial disruptions in the supply chain. Recently, sanctions and the crackdown on supplying microchips to Chinese companies have disrupted the global semiconductor industry. In a world heavily reliant on technology, the global shortage means limited access to components that run our devices, computers, and electronics. Carmakers have also reported declines in sales due to problems in the global supply chain, including microchip shortages.
Another aspect of geopolitics that affects supply chain management is taxation and documentation at ports. Every country has different rules, regulations, and laws that can often change. This means that exporters and importers must be in tune with the changes to ensure their products make it to their intended destinations. Missing important documentation can mean that a shipment of products may sit at a port indefinitely, creating financial losses for businesses.
Supply chain management has many moving parts, requiring systems and tools that help streamline processes, improve efficiency and strengthen accuracy. The role of information systems in supply chain management is to help businesses manage supply chains through scheduling, sourcing, supplier management, and data analytics.
These systems help organizations oversee the key elements of the supply chain, from resource development to logistics. They can help organizations keep track of different participants in the supply chain, including suppliers, warehouses, transport companies, retailers, manufacturers, and customers.
The primary role of information systems in supply chain management is to ensure businesses have access to the information they need to make the right business decisions. For example, operational visibility allows companies to assess fluctuations and anomalies in their business. By leveraging data in their internal systems (and public data), businesses can act intelligently on identifying and solving supply chain issues before they become big problems.
Information systems can also improve decision-making throughout the supply chain process by helping decision-makers to:
The role of finance in supply chain management is vital. Finance and accounting functions bring stability and flexibility to supply chain management by helping suppliers and buyers in the following ways:
The role of finance in supply chain management is evolving to help organizations explore supply chain opportunities. This includes using advanced technology that shares financial and transaction data. This visibility into financial data across all entities in a supply chain can help in the creation of sophisticated financing programs focused on optimizing the balance sheet requirements and liquidity of all entities involved in the supply chain.
Finance also collaborates with other functions in an organization, including legal, marketing, information technology and operations, to enhance operational value and minimize risk.
Every step of the global supply chain is interconnected, and everyone involved — from producer to supplier to consumer — plays a pivotal role.
Supply chain management is vital to society, providing the mechanism for getting products into the hands of consumers, from essential staples such as food and medicine to luxury items.
In business, supply chain management allows manufacturers to make as many products as needed to meet market demand. It helps retailers reduce excess inventory and lower the cost of storing products. The success of sales and marketing relies on effective supply chain models that help ensure that the right quality product is available at the right place and at the right time.
For individuals interested in working in supply chain management, an advanced degree in business, such as an online MBA, can help them launch their careers. The Online Master of Business Administration from the University of Maryland’s Robert H. Smith School of Business prepares students to identify, evaluate and mitigate risk; improve efficiencies; and utilize cutting-edge supply chain technology applications.
Learn how the University of Maryland’s Online MBA program and its Supply Chain Management specialization, with courses including Global Trade Logistics and Innovative Solutions to Supply Chain Challenges, can help you pursue your career goals and become a leader in the field.
Why Get an MBA? It’s Still the Best Investment You Will Ever Make
Why Consider an MBA in Supply Chain Management
What You Can Learn About the Global Economic Environment Through an MBA
Axios, “Coronavirus Has Disrupted Supply Chains for Nearly 75% of U.S. Companies”
Bloomberg, “Ships Keep Coming, Pushing U.S. Port Logjam and Waits to Records”
Council of Supply Chain Management Professionals, The Importance of Supply Chain Management
Forbes, “10 Ways Machine Learning Is Revolutionizing Supply Chain Management”
IBM, “What Is Supply Chain Management?”
Investopedia, “Scarcity Principle”
Investopedia, “Supply Chain”
Investopedia, “Supply Chain Management (SCM)”
National Association of Manufacturers, “How Coronavirus Is Affecting Manufacturers”
Reuters, “Global Economy Factories Hit by Pandemic-Related Supply Disruptions”
SourceToday, “What’s Causing the Supply Chain Shortages?”
SupplyChain, “What’s Causing the Global Supply Crunch?”
SupplyChainBrain, “The Increasing Role of Supply-Chain Finance”
The White House, “Why the Pandemic Has Disrupted Supply Chains”
The World Bank, “Tracking an Unprecedented Year for Businesses, Everywhere”
U.S. Bureau of Labor Statistics, Consumer Price Index
Summary.
Building a strong supply chain is essential for business success. But when it comes to improving their supply chains, few companies take the right approach. Many businesses work to make their chains faster or more cost-effective, assuming that those steps are the keys to competitive advantage. To the contrary: Supply chains that focus on speed and costs tend to deteriorate over time.
The author has spent 15 years studying more than 60 companies to gain insight into this and other supply chain dilemmas. His conclusion: Only companies that build supply chains that are agile, adaptable, and aligned get ahead of their rivals. All three components are essential; without any one of them, supply chains break down.
Great companies create supply chains that respond to abrupt changes in markets. Agility is critical because in most industries, both demand and supply fluctuate rapidly and widely. Supply chains typically cope by playing speed against costs, but agile ones respond both quickly and cost-efficiently.
Great companies also adapt their supply networks when markets or strategies change. The best supply chains allow managers to identify structural shifts early by recording the latest data, filtering out noise, and tracking key patterns.
Finally, great companies align the interests of the partners in their supply chains with their own. That’s important because every firm is concerned solely with its own interests. If its goals are out of alignment with those of other partners in the supply chain, performance will suffer.
When companies hear about the triple-A supply chain, they assume that building one will require increased technology and investment. But most firms already have the infrastructure in place to create one. A fresh attitude alone can go a long way toward making it happen.
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