Supply chain management is the interrelationship between the major players among them suppliers, distributors, customers and other firms for the sake of designing, building, and selling a product. The importance of supply chain management cannot be overemphasized based on the fact that it helps companies get the right products to the right place at the right time in the correct quantity and an acceptable price. Companies with strong supply chain management can correctly forecast demand, manage their inventories, and enhance their relationships with the customers, distributors, suppliers and other stakeholders. Companies can also be able to receive feedback on the status of every part of the supply chain ( Luo, 2012; Schniederjans $ LeGrand, 2013).
The life cycle of a supply chain starts when the two parties dedicated to having a working formula towards a common goal. They show commitment by offering or accepting a consideration in exchange for something of value. The next step is to develop a plan or procedure mostly in writing for an agreed objective concerning the way activities are to be carried out. The company then makes the products as per the requirements of the customer, and finally, it delivers it to the buyer ( Luo, 2012; Schniederjans $ LeGrand, 2013).
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Organizations use different models to manage forecasting, planning, and inventory. Such models offer an accurate prediction of demand and required inventory and also inform when to replenish stocks when a certain level is reached. Some companies use economic order quantity to help them determine the optimum inventory requirements. Similarly, optimal order quantity models can be used to determine the replenishment rate or planned shortages and back orders ( Luo, 2012; Schniederjans $ LeGrand, 2013).
Organizations absorb some of the costs on inventory and logistics. Some of the inventory costs include purchase costs, processing, distribution, inventory holding and carrying cost and lastly shrinkage. Logistics costs include insurance, labor costs, preventive maintenance, installation of new system, supplier and customer related expenses ( Luo, 2012; Schniederjans $ LeGrand, 2013).
Companies use different parameters to monitor the performance of the supply chain. Some measure their inventory to ensure that it is adequate to meet the needs of the enterprise. Similarly, work in progress needs to be measured. Companies also measure their performance based on the time taken to accomplish the desired task. Other parameters include communication among the members, customer service levels, balanced scorecards, visibility of the supply chain and security ( Luo, 2012; Schniederjans $ LeGrand, 2013).
Luo, Z. (2012). Innovations in logistics and supply chain management technologies for dynamic economies . Hershey, PA: Business Science Reference.
Schniederjans, M. J., & LeGrand, S. B. (2013). Reinventing the supply chain life cycle: strategies and methods for analysis and decision making . Upper Saddle River: FT Press.