Understanding the Importance of Supply Chain Management

Understanding the Importance of Supply Chain Management

August 1, 2023
Understanding the Importance of Supply Chain Management

Supply chain management refers to a company’s procurement processes so it can make its products or services. A bakery, for example, needs to source eggs at a fair price. If there is a spike in egg prices or the eggs arrive damaged, the company is either less profitable or unable to produce its goods.

Despite the importance of supply chain management, only 6% of companies have full visibility into their supply chain. Without clear planning, companies can lose money or stop production entirely for a short period. Information is power, and having a dedicated supply chain management process can make your company more resilient when problems arise.

Use this guide if you need to develop greater insight into your supply chain. Learn how each aspect can affect your production and make your company more efficient and profitable.  

Timely Transportation and Reception of Goods

One key aspect of supply chain management is the reception of goods that can be used to create products.

One of the best examples of this is the lumber shortage, which continues to drive up the price of building houses. Harvesting lumber is labor-intensive and companies couldn’t find workers. Meanwhile, port closures prevented companies from receiving the wood they ordered, so they couldn’t build homes.  As a result, during the pandemic, lumber prices rose from $200 to more than $1,000 for 1000 board feet. Harvesting lumber is labor-intensive and companies couldn’t find workers.

In most cases, tracking supplies and goods isn’t as crisis-driven as ordering lumber has become. However, knowing when supplies arrive can improve your operations and help you in the event of an unexpected delay, like a port strike.

Accurate Inventory

Inventory tracking can also keep your supply chain moving. Your team can’t approve a project or move forward with plans without knowing that you have enough supplies on hand. Inventory tracking is also essential for machine and fleet management. Teams need to know that they will have access to certain trucks or tools at certain times.

Without a clear picture of your inventory, projects will get delayed and customers will become frustrated because the work is taking longer than expected.

Detailed Projections About Supply and Demand

Supply chain management isn’t just focused on current operations. An effective system will also consider future needs so companies can start planning for increased demand. For example, when you start a construction project, you aren’t just focused on the foundation. You need to plan for the walls, electric elements, plumbing, appliances, and decorative elements like carpeting. Planning for these needs and costs can help teams stay on budget.

Fortunately, modern tools are making construction material assembly and estimation easier. Teams can pull from past projects to get a baseline estimate and make adjustments based on client needs and current trends.

Simplifying construction projects with cost calculation tools can contribute to supply chain management. Here are just a few options to consider for your organization:

You can see how these tools can help you track your own consumption for accurate billing while also reducing waste and planning for your future needs. You can also adjust how your materials are used and what materials are used based on current cost trends. For example, when bricks get too expensive you can recommend customers switch to concrete.

Strong Relationships With Business Partners

Good supply chain management can help you build strong relationships with the people you work with. Better business operations mean you can stick to your deadlines and fulfill your contract requirements. When your clients know they can trust you, they are more likely to rehire you for additional work or recommend your services to others.

You can’t avoid every crisis; however, your business partners are more likely to be understanding when an issue arises if delays are abnormal for your team. If your business is constantly experiencing problems, you might lose business to more efficient companies.

Ethical Business Partnerships

When a company’s supply chain breaks down, it needs to get resources from anywhere it can find replacement materials. This means you might have to work with companies that aren’t as reputable to get the materials you need.

In the same way that your customers trust you to do a good job, you need to trust that your vendors work ethically and run their businesses responsibly. Your clients also expect you to care about the sustainability and ethics of your vendors. One survey found 70% of consumers believe companies have a responsibility to make the world a better place.

Improved Reputation as an Organization

Investing in supply chain management can not only improve your business operations, it can also help your reputation management. One survey found 87% of executives say managing reputation risk is more important than handling other strategic risks within the industry. Bad reviews or poor word-of-mouth recommendations can drive potential customers away from your company. Even the best-managed company in the world can’t thrive without customers.

Improved Sustainability Efforts

Along with sourcing materials from more ethical companies that have fair labor practices, a strong supply chain can also help you evaluate your vendors to make sure they are following sustainability best practices to keep up with your green initiatives.

It’s in your best interest to develop business partnerships with sustainable suppliers. Nearly 80% of consumers say that a sustainable lifestyle is important to them. Products that make environmental, social, and governance-related claims are rapidly growing in popularity. You can use your sustainable supply chain and ethical vendors to win new business.  

Dynamic Scalability Opportunities

Establishing a flexible supply chain is only the first step toward a larger plan of scaling your business and increasing your revenue. When you work with suppliers you can trust, you can increase order sizes as soon as you land new clients. You can also request more orders or purchase diverse products based on client needs. You have more power to control and grow your business when you have quality suppliers.

Scaling in the construction industry isn’t always easy. Each project requires detailed planning and the management of parts of labor. This is why you need a strong supply foundation before you start preparing to grow.

Resilience Against Disruption

The COVID-19 pandemic highlighted how quickly the supply chain can be disrupted. Factories closed, which meant supplies couldn’t be produced. Ports closed, which meant existing supplies couldn’t pass through customs. Some companies had to pause operations while others went out of business because of these disruptions.

A careful review of your supply chain can help you identify potential issues, allowing you to improve the development and utilization of goods to overcome any crises. Your team can use different products or invent different solutions so there’s always at least one backup plan. By keeping diverse product offerings and multiple vendors from multiple places, you can increase your resiliency.

Workforce Stability

A good supply chain for your materials can also help you build up a strong labor force. To keep up with hiring demand, the construction industry will need to attract 546,000 additional workers in 2023. If your projects are constantly put on hold because of a bad supply chain, your contract workers will find other companies who are currently moving forward with jobs. When you finally have the materials you need, it might not be easy to find reliable, skilled labor.

Your supply chain affects every part of your business, from who you hire to how you market your company. By improving supply chain management and gaining clarity into your product sourcing, you can make your company more resilient across the board.

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