Busting 4 Common Myths on Supply Chain Management
Global supply chain management has evolved drastically over the years. Technology and innovations are the major contributors in fueling the efficiency and flexibility of supply chain processes across various industries. However, in this era of digitized and globalized business, keeping up with the speed of changes has become more difficult than ever before. As the landscape evolves, supply chains must evolve in order to adapt to stay ahead of the curve. A company’s ability to manage complexity will greatly define how well they can compete and succeed.
Although the importance of supply chain management is quite evident for modern economies, there are several myths and misconceptions that plague the practice. Let’s examine some of the most persistent and stubborn supply chain management myths and carry out a reality check for each of them:
Myth #1: Supply chain management is all about purchasing
Associating the supply chain management process with only purchasing functions is clearly an outdated outlook that ignores the strategic role that SCM plays for modern digital enterprises. Rather, the supply chain must involve greater flexibility, enhanced strategic awareness, and stronger entrepreneurial thinking. Today’s supply chain professionals are also looking at mastering several other key functions that impact SCM, including customer experience, systems thinking, and innovation.
Myth #2: Investing in SCM applications will generate rapid returns
Pragmatic application of supply chain management products in real-world business problems will undoubtedly deliver good returns. However, poorly specified implementation and investment in SCM can result in a cycle of continued investments to support unrealized but promised benefits. Companies must exercise focus on delivery, quality, and time targets. Effective and detailed planning is an essential element of an effective global supply chain management process.
Myth #3: Right forecasting can eliminate supply chain issues
Considering forecast accuracy as the sole cause of issues is dangerous and stems from two main misconceptions. Firstly, forecast accuracy should not be considered as an end in itself. Instead, it is one contributor to outcomes of the supply chain process that needs to be managed to deliver the desired results. Secondly, despite all the best attempts, forecasts in most cases will not be completely correct. It’s much more important for enterprises to recognize this fact and manage an understood level of risk than to spend too much effort in improving forecasting when it may not translate to better outcomes.
Myth #4: Lesser inventories are always better
Controlling costs might be the major agenda for most supply chain managers. Consequently, they try to keep the inventory as low as possible. But on the flip side, this could greatly increase their financial risk. While it’s true that holding a high level of inventory ties up business funds that could rather be used in other areas. However, it is also important to remember that high inventory isn’t always a bad thing — and often proves to be a good sign of growth ahead. For instance, it is remarkable if an organization increases inventories because it is confident about the economy and forecasts higher demand. Furthermore, when comparing the extremes of a stockout versus and holding more inventory than you need, the former is definitely worse. When demand cannot be fulfilled, customers will be disappointed and the risk of alienating them and losing them to competitors are higher.