Industry Basics

19 June 2023 • 11 min read

Exploring Functions of Supply Chain Management and the Role of Inventory

Editorial Team

The functions of supply chain management consist of five main elements. How important is each factor? Let us find out together.

The functions of supply chain management are crucial for businesses aiming to optimize operations and improve overall performance. Implementing the right strategies with these functions can make a significant impact on the success of a company's supply chain that ensures the smooth and efficient flow of goods and services. In this post, you will get an overview of the functions of supply chain management.

Functions of Supply Chain Management

What are the functions of supply chain management? The following are the five main functions of supply chain management:

This illustrates an extensive diagram outlining the key elements to consider in effective planning

Planning

Good planning is key to completing a job well for any organization's operations, but this function is important in supply chain management. Based on market trends and sales forecasts, professionals must strategize everything from raw material acquisition to product delivery, including manufacturing schedules, space management, and transportation arrangements.

Accurate and efficient planning is essential for successful supply chain management. For example: In B2B supply chains, key activities in the planning function include sales and operations planning (S&OP), demand planning, and network optimization.

Sourcing

Sourcing is one of the functions of supply chain management. Process of identifying and selecting suppliers to provide materials, components, or services for the supply chain. It involves evaluating supplier capabilities, negotiating contracts, and managing relationships. Sourcing ensures a reliable and cost-effective supply base. Key activities include supplier selection, contract negotiation, monitoring performance, and supplier development.

Procurement

Procurement is the function responsible for acquiring the goods and services required for production or operation. It involves activities such as order placement, supplier payment, and managing the procurement process. Effective procurement practices ensure the timely availability of quality materials at the best possible prices. Key activities in the procurement function include requisition processing, purchase order management, supplier evaluation, and invoice reconciliation.

Production

Production is a critical function in the supply chain that involves transforming raw materials or components into finished goods. It encompasses activities such as manufacturing, assembly, testing, and quality control. The importance of production lies in meeting customer demand while maintaining efficiency and quality standards. Key activities in the production function include capacity planning, production scheduling, resource allocation, and continuous improvement initiatives. For example, production processes in B2B supply chains include make-to-order, make-to-stock, and lean manufacturing.

Transportation and Logistics

An integral component of the supply chain is transportation and logistics. They involve the movement of goods from one location to another and encompass activities such as transportation planning, warehouse management, order fulfillment, and distribution. The significance of transportation lies in ensuring the timely and cost-effective delivery of products to customers. Key activities in this function include carrier selection, route optimization, inventory management, and order tracking.

The Role of Inventory in Supply Chain Management

Inventory management plays a critical role in supply chain management, ensuring the smooth flow of goods and services. Effective inventory management enables businesses to meet customer demand, mitigate uncertainties, and optimize production and distribution efficiencies. Now, we will examine the key functions of inventory in supply chain management:

Definition and Importance of Inventory in the Supply Chain

Inventory comprises the stock of goods or materials that a business sells to customers for profit. Inventory management involves tracking inventory from manufacturers to warehouses and, ultimately, to the point of sale, ensuring a continuous flow of products.

The warehouse is where all types of goods held by the company are stored

Inventory holds immense importance in the supply chain due to the following reasons:

  • Balancing Supply and Demand: Inventory meets customer demand, prevents stockouts, and maintains satisfaction.

  • Minimize stockouts: By having sufficient inventory levels, businesses can minimize the occurrence of stockouts, ensuring that customers can always find the products they need.

  • Maintain optimal levels of customer service: By having the right amount of inventory on hand, businesses can fulfill orders promptly, meet customer expectations, and deliver products in a timely manner.

Functions of inventory in supply chain management

  • Inventory in supply chain management serves key functions:

  • Meeting Customer Demand: Inventory ensures prompt fulfillment of customer orders, reducing lead times and enhancing satisfaction.

  • Buffering Against Uncertainties: Inventory acts as a buffer to mitigate supply chain uncertainties, minimizing the impact of demand fluctuations, delays, and disruptions.

  • Enabling Economies of Scale: It allows businesses to take advantage of bulk purchasing and production, reducing costs and optimizing efficiency.

  • Facilitating Production and Distribution Efficiencies: Inventory optimization ensures smooth production schedules, minimizes idle time, and streamlines order fulfillment, enhancing overall operational effectiveness.

Examples of Inventory Management Practices in B2B Supply Chains

In B2B supply chains, effective inventory management practices play a crucial role in optimizing operations. Some examples of these practices include:

  • Just-in-Time (JIT) Inventory: Minimizing inventory levels by receiving and producing goods just in time for customer demand, reducing costs and waste.

  • Vendor-Managed Inventory (VMI): Suppliers monitor and manage inventory levels for customers, improving visibility, reducing stockouts, and enhancing supply chain coordination.

  • Cross-Docking: Unloading incoming shipments and directly loading them onto outgoing vehicles, minimizing storage time and inventory holding costs.

  • ABC Analysis: Categorizing inventory items based on value to prioritize management efforts and allocate resources effectively.

In Summary

The functions of supply chain management are seamlessly enhanced through the utilization of a global trade platform and a well-managed supply chain.

The global trade platform serves as a digital infrastructure that connects various stakeholders involved in the supply chain, enabling efficient collaboration and communication. Within this platform, a managed supply chain effectively executes key functions such as procurement, inventory management, production planning, logistics, and customer fulfillment.

By leveraging the capabilities of the global trade platform, organizations can streamline their procurement processes, optimize inventory levels, synchronize production activities, optimize logistics operations, and meet customer demands promptly. The integrated nature of the managed supply chain on the global trade platform promotes transparency, agility, and responsiveness, enabling businesses to navigate the complexities of global trade with ease and deliver value to customers effectively.

Through this information, you have gained a clear understanding of the functions of supply chain management, particularly the role of inventory management. By efficiently managing inventory from the manufacturer to the point of sale, businesses can optimize their supply chain operations, reduce costs, and meet customer needs. It is crucial to learn and implement the appropriate supply chain management practices to enhance your business performance.

 

Blog comments

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inventory managementtvjfranklin@gmail.com
12 January 2024
I wanted to express my sincere gratitude for sharing your perspective on types of inventory management. In my experience, d.
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