Supply Chain Management - Benefits & Best Practices

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  • 1:07 Benefits
  • 3:00 Best Practices
  • 4:41 Lesson Summary
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Lesson Transcript
Instructor: Kimberly Winston

Kimberly has a MBA in Logistics & Supply Chain Management

Supply chain management plays a critical role in running a successful business. In this lesson, you'll learn about the benefits and best practices of supply chain management.


Before you can understand the benefits and best practices of supply chain management, you need to understand what it is. A supply chain is the network of partners that a business uses to move its product from one stage of development to another.

For instance, Sparkle Designs purchases jewels from Green Mine, Inc. It then creates custom jewelry designs, which are sold at several jewelers throughout the United States. Everyone that participates in this process is part of the supply chain. This would include such businesses as a distributor, a supplier, or a retail store. It would also include the customer, since the customer's demand for a product is the catalyst for a business to supply it.

Supply chain management is a systematic approach to integrating and managing all functions related to producing a product. This approach includes:

  • Sourcing and procuring products
  • Product design
  • Production planning
  • Material handling
  • Inventory management
  • Customer service
  • Order processing
  • Warehousing
  • Transportation


Now that you have a good understanding of what supply chain management is, imagine that you are the supply chain manager at Sparkle Designs. What type of benefits do you think you'd gain from supply chain management? What type of benefits do you want to gain? Both of those questions are important, because there are many benefits to be gained from supply chain management. However, you're unlikely to gain all of them.

Supply chain management uses an analytical approach to improving the supply chain. Its benefits may include the reduction of waste, shipping delays, or overhead. Past data, such as sales reports or other financial reports, are used to understand past trends and create future forecasts for inventory. Forecasting inventory based on past trends helps you to reduce overhead, since you have a better idea of how much inventory you will need and when.

Past data may also provide information to determine an optimal way of shipping, which could help you reduce shipping costs and/or reduce shipping delays. As in life, in business, there are always tradeoffs. So as the supply chain manager, you need to decide which benefits are more important to your business. Finding the best shipping company for Sparkle Designs may mean that you have to decide between lower shipping costs or fewer shipping delays, because you may not be able to find both benefits in one shipper. Is it more important for Sparkle Designs to have a lower shipping cost or a faster delivery? It should be noted that the answer to this question may change over time, or depend on your customers' needs.

Using past data to determine future actions also helps firms to mitigate risk related to purchasing materials and delivering products. Since you'll have a better understanding of past successes and failures, you're better able to make decisions. This will allow you to improve operations and gain a competitive advantage.

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