Supply Management – What is the benefit?
The fundamentals of supply management are applicable to all organizations. Through proper alignment and synchronization, businesses of any size can be assured of receiving the best value in their supply management practices. By implementing simple strategies, companies can achieve significant cost savings that improve profitability.
Supply management seems complex to most people who may not realize supply chain management is a part of our business and personal lives every day. Supply management is the process of managing fourteen functional areas to increase value for the customer and improve profitability. The Institute of Supply Management states the fourteen areas include the following: purchasing, sourcing, logistics, quality management, inventory control, material management, transportation, disposal (recycling), warehousing (storage), distribution, receiving, packaging, product/service development, and manufacturing supervision. We use different strategies to ensure we are getting the best value for our money. To achieve the best value, we need to begin with a look at how we serve the customer through an end-to-end supply chain analysis.
Supply management applies to small businesses, even those with 1-3 people, because each business contains several, if not most of the functional areas discussed above. An example of a purchasing strategy for small businesses is the development of a buying group that consolidates purchases to achieve bulk discounts. If a small business wants to purchase copier paper, then he or she should contact other small businesses that also need copier paper. Based on the bulk order of the group, a vendor will provide best value pricing that would not otherwise be achieved with a single order. Best value may include cheapest price, but could also include free delivery to all members of the buying group. I am confident that a business owner would rather have employees working with customers than riding in a truck to pick up paper. In addition to copier paper, small businesses can work together to achieve bulk discounts not only in finished goods, but also in services, such as janitorial or fleet maintenance services.
Group purchasing is one example of the types of cost savings strategies and techniques that can be easily implemented. The first step to implementing an effective supply management program is analyzing the supply chain. According to the Institute of Supply Management, a 2.5% savings in procurement costs equals the same amount of profits as increasing sales by 10%, so when sales are flat, business should consider efficiency within the supply chain as a way to maintain profitability.