Empower your logistics business with sales process management tools for logistics

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supply chain management is critical to many organizations and their operations but what are those terms and definitions you need to know to understand supply chains i'm going to talk about that here today [Music] my name is eric kimberling i'm the ceo of third stage consulting we're an independent consulting firm that helps clients throughout the world on their digital transformation journeys and supply chain management is one of the hottest areas to be in right now it's one of the more important parts of any organization simply because supply chains have become so complex over the years there's been global disruptions to the supply chains supply chains are very strained right now in the 2020s and it's important to understand what some of those terms and definitions are and what some of those key concepts are in order to understand how supply chains work and how they might apply to your organization and that's what i want to talk about today [Music] procurement is one of the most important things to understand when you think about supply chains and procurement in essence is the way that you purchase or acquire raw materials and other things that you need to run your organization so there's really two major types of procurement you have direct and indirect procurement direct procurement is the acquisition or the procurement of raw materials that are going to be used in producing your finished product it could also be the procurement of semi-finished goods or any sort of work in progress that you're going to finish the assembly on within your own operations or if you're purely a distribution company or retailer it could be that you're procuring finished goods but whatever your product or service is or anything that's related directly to the production of that product is going to be direct procurement indirect procurement is when you acquire things like office supplies something that's not going to be critical or directly related to your end good or material but it is something that's critical to running your business so that indirect procurement is oftentimes run through similar processes and operational models as with direct procurement but those are generally how you break down this general concept of procurement so another important concept with supply chain management is supplier management we just talked about procurement and procurement is related to what you buy from suppliers or vendors so this whole concept of managing your supplier base understanding who your suppliers are who your vendors are is very important and especially for more complex supply chains for producers of products that have hundreds or thousands of different parts or raw materials that go into a finished good you can just imagine how many different vendors and suppliers you have to deal with within an organization and that's why this function is so important so when you think about supplier management there's a few different dimensions one is understanding who the suppliers are for all the different raw materials and components you might be using for your end product and each raw material or each type of product that you acquire or procure in your processes might have multiple vendors which leads me to another important dimension of supplier management which is measuring the quality of what suppliers are best who's giving you the best price who's giving you the best quality product and what happens if you're a supplier your number one preferred supplier for any given material or product what happens if that vendor can't supply what you need when you need it who's your backup do you have a number two do you have a number three supplier and so those are some of the things you have to think about and you also have to be thinking too about how you can proactively hedge risk of having any sort of disruption within your supply chain in case one vendor isn't able to deliver you want to make sure you've mitigated that risk by having backups but this whole supplier management concept is really focused on ensuring you know who your vendors are for all your different raw materials and components and also what their quality and cost ratings are [Music] now procuring raw materials and products from vendors and suppliers is just one part of the process but once you have procured the products then you have to figure out what you're going to do to manage that inventory so whether it's raw material finished goods indirect procurement whatever the case may be you want to make sure that you have a way to track and manage your inventory and that's what this whole concept of inventory management is it's understanding what materials you have understanding where they are and ultimately understanding when you might need to order more of that particular material inventory management also has to do with your warehouse and how you manage your warehouse and where you place materials and store materials within your warehouse and i'm going to talk about warehouse management in a moment so i won't get into too much detail here but in general inventory management is focused on what products do you have what's your inventory level where's the material at when you need it and ultimately how are you going to get it to your end customer [Music] now in order to communicate with vendors and suppliers and even customers organizations will typically use something called edi or electronic data interface and essentially this is an electronic way to communicate with your vendors and suppliers and also your customers so if your customer places a order with you they may place that order through edi when you place your order with your suppliers you may be placing that order via edi as well and most organizations have moved to this edi model or they use edi tools either as part of their core enterprise technology or whatever other electronic means or digital means they have but this whole concept of edi is a really important way to manage and communicate with different players throughout your supply chain [Music] moving your products whether it's your raw materials or your end products throughout the entire supply chain is a very important part of your supply chain management function and when you think about where you order your raw materials from it's a matter of understanding how your raw materials are going to get from the manufacturer the producer of that raw material to your facilities oftentimes that involves a ship you're going to put the raw materials in a container on a ship it's going to go on the water it'll be on the water for however many weeks until it gets to your port it gets from the port onto a truck which then gets delivered to your warehouse and so that whole concept of freight and transportation is important understand because you have to have his ability to and understand what exactly is happening from the time a raw material order is placed and that raw material actually goes out for shipment from the vendor supplier ultimately how it gets to your warehouse and ultimately when your customer places an order for that finished good how are you going to get the finished good to your customer whether it be through trucks or maybe you're going to ship it out through another port to to a different customer however that may be you want to make sure you understand how things are moving throughout your supply chain so this whole concept of freight and transportation is a critical part an essential component of any supply chain management function [Music] just as it is important to understand your freight and transportation it's also important to understand how you manage that freight in transportation and the overall logistics and that is oftentimes referred to as logistics management how do i move things around throughout my supply chain and how do i have visibility to it and how do i manage that ultimately and so it's really a good way to tie all this together things we've been talking about so far so oftentimes organizations will have specific departments or functions focused on logistics management they're the ones that ensure that they are managing the whole process of shipment that's going on a container onto a ship that's going to be shipped overseas to your location manage that entire process from the time it leaves your supplier's warehouse until it gets on a container until it gets on a ship and ultimately goes through a port and through customs at the port that whole process has to be managed via logistics management it's a very complex function especially if you're dealing with multiple countries multiple ports you have tariffs you have customs you have to deal with all those different international trade sorts of dynamics are an important part of logistics management and oftentimes organizations will use technologies like enterprise resource management or erp systems or supply chain management systems to help manage some of this logistics management type of function [Music] once you get your raw materials into your warehouse you then have to figure out how you're going to produce the product which means you've got to pull those materials back out of your warehouse go manufacture or do whatever you're going to do with those raw materials and then typically you're going to put it back in your warehouse is it finished good and it's going to sit in your warehouse if you're a make to stock sort of environment and that whole process that whole concept of producing the product using materials in your warehouse putting the finished product back in your warehouse and then ultimately shipping from the warehouse to your end customer that's a very complex undertaking that requires a lot of good information good data and good systems and processes to manage it and i'm actually going to have a future video that will focus more specifically on key terms and concepts and definitions within warehouse management but for today's video i'll summarize by saying warehouse management is the whole function of managing that entire warehouse how you track inventory where inventory is how you track inventory levels when you trigger reorder quantities for any sort of raw material finished good that might be dropping below a certain minimum threshold you may have defined the whole pick pack and ship process from the time you get a customer order you've got to then go find the product in the warehouse pack it ship it and get it out the door to your customer those are just some of the things that happen within warehouse management and are important to understand as part of your overall supply chain management function [Music] in today's age of high customer expectations and the whole effect that amazon has had on global organizations expecting that they can get products shipped to their door very quickly organizations are under a tremendous amount of pressure to get products produced and shipped as quickly as possible and ultimately get it to their customers as quickly as possible oftentimes this requires that you bypass the traditional warehouse management function that i just described so in other words it may be that instead of storing things in your warehouse or acquiring a product from a vendor storing your warehouse and then shipping to your customer you might bypass that warehouse management function and just have it go straight from your supplier straight to your customer so that's called the drop shipment when you just ship directly from your vendor supplier straight to the end customer one of the simplest examples are ways to understand this on a basic consumer level is when you think about either amazon or alibaba if you shop with either of those types of retailers or any other sort of large internet retailer oftentimes when you go buy a product on the app they're going to ship from their warehouse but oftentimes you're buying from third parties or other people that are outside the amazon ecosystem of warehouses and they're going to ship directly from their own warehouse they're going to produce the product or acquire the product however they do it and they're going to ship it directly to you rather than going through amazon's warehouse before it gets to you so that's a real simple consumer example but organizations even in b2b situations will do that same thing they'll get the product from the vendor they won't store it in the warehouse and they'll ship it directly to their customers now of course this only works with finished products if you're talking about raw materials or semi-finished goods it's going to have to come to your location most likely to then be produced or finished before it can be shipped out to your customers but oftentimes drop shipments are a way to speed up the whole supply chain [Music] now oftentimes when you're trying to get raw materials or components or even finished goods within your supply chain you find that the vendor supplier or suppliers you're dealing with can't get it to you right when you need it and that triggers what is known as a back order that means that you have back order or a backlog of orders that the vendor needs to catch up on now one note about back orders is that when you run into situations where a certain vendor is getting backlogs or delays and getting product to you that's where supplier management becomes so important the topic we talked about earlier in this video where ideally you would have a backup vendor or someone you know you could go to when one vendor can't deliver you've got someone else that you can fall back on and presumably deliver faster cheaper than what the other one might be able to at that moment in time so supplier management can be a good way to mitigate against the risk of back orders [Music] when you're looking at the cost of your overall supply chain and ultimately the cost of your individual products that you're producing for your customers you want to understand what the total landed costs are so if for example you're outsourcing manufacturing and you're acquiring a product from let's just say china and let's just say it's a it's an iphone you're going to produce a thousand iphones from china it may be that each individual iphone costs a hundred dollars let's say for you to buy each iphone from that vendor that supplier but when you add on things like freight costs and customs and other costs that go along with international trade and shipments it may be that instead of a hundred dollars it's actually 130 dollars when you add in things like freight and other costs so this concept is known as landed cost what is your total landed cost from the time you order a product until it gets to your warehouse what is that cost per unit so that you know how to ultimately price the product and ultimately know what your margins are going to be it also helps you understand where you might be able to optimize costs if your freight costs are really high because you're relying on air freight for example it may be that you look at shipping via water which is typically less expensive on a per unit basis so that's just one example of how you can use this whole concept of landed cost to fully understand your total cost of your supply chain at individual product levels so that you can optimize those costs and ultimately it should affect your pricing as well [Music] i hope this has provided you with a few examples of things that you should be aware of and understand in your quest to understand supply chains better and understand the whole function and discipline of supply chain management i've also included some links below to some other supply chain management resources and digital transformation resources i hope will help you in your journey in understanding some of these concepts in more detail so be sure to check out some of those links below including our top 10 ranking of the best supply chain management systems in the marketplace this will give you some context of specific technologies that can help manage some of these supply chain management functions that we've talked about here today i hope you found this information useful and hope you have a great day