Shanxi Hongsheng Chemical
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Why Supply Chain Management



There are significant differences between supply chain management and traditional logistics management in the way of inventory management, goods flow, cost, information flow, risk, planning and inter-organizational relationship, etc. These differences make supply chain management more advantageous than traditional logistics management.

From the perspective of inventory management and supply logistics, in supply chain management, inventory management is coordinated among supply chain members to minimize inventory investment and cost; while traditional logistics management pushes inventory forward or backward, depending on who has the most initiative in the supply chain. In fact, traditional logistics management pushes inventory to suppliers and reduces inventory investment in the channel by simply shifting inventory. The solution to this problem is to reduce uncertainty and bring down safety stock by providing information about production schedules, such as sharing information about expected demand, orders, and production schedules.

In terms of cost, supply chain management optimizes the supply chain by focusing on the final cost of the product. The final cost mentioned here refers to the total cost actually incurred to reach the customer, including the price at the time of purchase and delivery costs, inventory costs, etc. Traditional logistics management is still limited to minimizing costs within the company.

Risk and planning are two other important aspects that distinguish supply chain management from traditional logistics management. In supply chain management, risks and plans are shared and communicated by supply chain members, while traditional logistics management only stays within the company. In terms of inter-organizational relationships, the members of supply chain management reach cooperation based on the control of final costs, while traditional logistics management is based on cost reduction within the company.

Supply chain management is implemented because it is more dynamic than traditional logistics management and provides substantial benefits to supply chain members. However, in order to successfully implement supply chain management, there must be good information sharing among supply chain members; and it is not easy for enterprises pursuing different goals to share information openly and honestly, especially when an enterprise cooperates with its many competitors, it is even more difficult to realize information sharing. Therefore, successful supply chain integration requires node firms to first agree on the following aspects: a common understanding of the level of service demand from end customers, a common determination of the location of inventory in the supply chain and the amount of inventory to be held at each point, and a common formulation of policies and procedures for managing the supply chain as a single entity.

The first of these aspects is relatively easy to achieve, but it is often easy to lose sight of this objective when making decisions. The service needs of the end customer are the key to identifying inventory in the channel, and successful manufacturers are able to recognize the customer and its needs, and thus coordinate inventory flows within the manufacturer's own organization and throughout the channel. The second aspect is the basic operating principle of logistics management, i.e. meeting customer demand should include what is needed, where it is needed and how much is needed. The third aspect requires the sincere cooperation of each node enterprise in the supply chain in order to realize, only when each node enterprise stands at the height of the whole supply chain to see the problem, it is easy to make understanding and concession with each other, and jointly formulate certain policies and procedures, and then establish a comprehensive logistics organization.



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