Why Supply Chain Is So Important For Companies Profitability?

Is your business costs are more than your profits? Are your processes sucking more than your profits? Are you losing money on procurement prices, delays and suppliers’ relationships?
If this is the case with you then it is time to look at the supply chain of your business?
Supply chain is a crucial part of the business.
To understand the supply chain you have to think in retrospective manner of the product delivery.
Take any product you buy from the market.  Have you ever given a single thought how did your favorite products such as clothes, perfume, computers, mobile phones reaches you. I bet you have not because this isn’t a buyer’s concern. Nevertheless, it is of utter importance to the companies which make and sell these products to you.
Basically, the supply chain is the path a products travels from procuring raw material to the product consumption. It consists of several stages and every stage is very crucial for company’s profitability as it can make or break their business.
For example, in the automobile industry the car makers try to reduce the cost at every stage so that they can save money and wastage of time.  This is an example of lean supply chain model which primarily focuses on production of single goods or service.
Another one is agile supply chain which concentrates on the flexibility rather than the cost.  Usually in the case of Mini Manufacturing, customer preference is of utmost importance. Shorter supply chain is preferred to produce goods at faster pace. Product is manufactured once the customer demand is known.
At every step proper planning and relationship management with suppliers is done to ensure that there is no bottleneck.  This ensures smooth running of the process which results in good supply chain. So that customers get quality product on time. Hence, the company’s profitability is maintained.
Poor supply chain can hinder progress by delaying or stopping organization to deliver products or services. That is why supply chain has strategic importance in the business.

 image courtesy : the open university
 Strategic Procurement Matrix
In the supply chain management, the key challenge is to find & differentiate which relationships are strategically important.
Strategic procurement matrix is a model developed by Krajic (1983). It is a two by two matrix to classify purchased products (goods or services) according to the strategic importance.
One dimension of the matrix illustrates the cost of input to the organization. While other dimension shows risk (low or high) associated with the costs.
Boxes in the matrix also have their own significance.

  • Bottlenecks – to ensure that the supplies are uninterrupted.
  • Critical – to manage the relationships with suppliers and thus seeking their co-operation.
  • Routine – to find most efficient ways to source the material
  • Leverage – to find the best available deal

 Supply chain is the overall view of business process. The every step of it adds significant value to the product or service. By managing the process efficiently one can control the cost and hence enhance profit margins.
So before starting your business draw the supply chain and give a serious thought on each component of it to control costs.

Sign Up for nextbigwhat newsletter

The smartest newsletter, partly written by AI.

Download Pluggd.in, the short news app for busy professionals