What are the management components of the supply chain and why inventory management is the most critical component of working capital management?
Supply chain management consists of several components:
1. Planning and managing all resources required to meet customer demand for a company’s product or service.
2. Choosing suppliers that provide the goods and services needed to create the product.
3. Scheduling the activities necessary to accept raw materials, manufacture the product, test for quality, package for shipping, and schedule delivery.
4.Coordinating customer orders, scheduling deliveries, dispatching shipments, invoicing customers, and receiving payments.
5. Creating a network or process to take back defective, excess, or unwanted products.
Inventory management is a critical component of working capital management for several reasons:
Well-managed inventory ensures that customers receive their orders in a timely and accurate manner.
Effective inventory management can help avoid overstocking and associated inventory costs.
An accelerated production flow can streamline the business’s cash flow.
Too little inventory can lead to customer dissatisfaction, but a large inventory also has its downsides, such as storage and insurance costs, and the risk of spoilage, theft, and damage.
Therefore, companies must find the right balance between having too much inventory on hand or not having enough. This makes inventory management a critical component in working capital management.
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