What Is Supply Chain Management (SCM) and Why Is It Important?
Here’s a really basic definition of supply chain management: it’s everything that happens behind the scenes to deliver a product to a customer. The purchasing and ordering. Manufacturing. Transportation. Inventory management – and more. The process begins by listening to the market to find out what customers want – and when, and how much of it. The journey then progresses through all of the steps, from sourcing to production to logistics. For this incredibly complex undertaking to be as efficient as possible, each partner – or “link” – in the chain, must be integrated into a tightly coordinated and responsive system.
In 2020, the entire world woke up to the critical importance of supply chains. When supplies failed to arrive – or when manufacturers were unable to source essential materials – both companies and consumers understood the value of supply chains that are resilient and scalable. Companies everywhere are now taking a closer look at their global supply chains and the technologies that run them – and asking themselves what they can do to future-proof their businesses.
Why is supply chain management important?
Look around you. Basically, nothing in your home or workplace would be there without supply chains. Hundreds of millions of jobs around the world are linked to these activities. From inexpensive consumer goods to surgical equipment and vital resources, everything comes through a supply chain. Yet despite SCM being at the core of global economies, many companies are still running their supply chains with the same processes and machines they’ve been using for 50 years.
Improved SCM practices can transform businesses. Companies can become more competitive by minimizing waste and surplus while lowering costs and increasing efficiency. They can boost customer loyalty by offering personalized logistics that meet individual preferences. And they can automate their processes to be faster, smarter, and more productive.
Global supply chain management – yesterday and today
In past decades, global supply chains were created to take advantage of the lower wages and cheaper raw materials to be found in some countries. Now, the world has changed in many important ways. Trade and tariff policies are shifting, often unpredictably. Political futures are uncertain. Customers want to be better informed about the provenance and sustainability of their products, from raw materials all the way to packaging and the fuels used to bring the delivery truck to their front door. Fortunately, technology has been changing, too. Modern supply chains use the Big Data generated across all the links in the chain to streamline production and manufacturing – and at the same time, they’re developing more home-grown supply chain solutions.
The basic components of supply chain management
Supply chain planning is the process of anticipating product demand and then coordinating all the links in the supply chain to deliver it. In addition to demand forecasting and planning, it includes supply planning, materials requirements planning (MRP), production planning, and sales and operations planning (S&OP). In modern SCM, these plans are typically all connected into a single, integrated business plan (IBP).
Logistics management is the transportation and storage of goods from the start of the supply chain, with raw goods and manufacturing, to the delivery of finished products to stores or customers – and even on to product servicing, returns, and recycling. The business functions involved include inbound and outbound transportation management, fleet management, warehouse management, inventory control, and customer service.
A big priority of manufacturing in SCM is to keep production and processes as lean as possible – while maintaining (and improving) quality, sustainability, and customer satisfaction. Artificial intelligence (AI) and Internet of Things (IoT)-powered systems in the supply chain can gather and analyze big data to streamline and automate manufacturing processes. On-demand 3D printing can eliminate shortages and surplus, and smart machines can economically deliver mass customization.
Product lifecycle management (PLM) is the process of managing a product throughout its entire lifecycle – from ideation, engineering, and design to manufacture, service, and disposal (or recycling). PLM software systems bring these processes together, facilitate enterprise-wide collaboration, and provide a product information backbone for every product across its lifecycle.
Enterprise asset management is the process of managing and maintaining physical assets across the supply chain, from factory robotics to delivery fleets. IoT sensors, machine-to-machine (M2M) connectivity, and digital twins are transforming EAM – improving efficiency, uptime, safety, and preventive and predictive maintenance. Some connected assets can even anticipate repairs or breakdowns and perform maintenance on themselves – right down to sourcing and ordering the parts needed to extend their lifecycles.
Procurement is the process of acquiring materials, goods, and services to meet business needs, ensuring the quality and value of those goods, and negotiating fair prices. A major challenge for procurement and sourcing teams is anticipating accurate order volumes, as both shortages and surpluses can be damaging to the business. SCM systems that incorporate machine learning and predictive analytics can help eliminate guesswork in procurement and purchasing.
Benefits of supply chain management
- Increased productivity: Enterprise asset management systems and predictive maintenance help machines and systems run more efficiently. This can fix bottlenecks, improve workflows, and boost productivity. Automated processes and responsive data analysis also mean faster shipping and delivery times.
- Reduced supply chain costs: The use of predictive analytics helps eliminate costly “guesstimating,” which reduces wasteful stockpiles and risky shortages. IoT lets existing assets become more responsive and deliver the most efficient and useful workflows possible for every situation. This also delivers more accurate forecasting to help reduce half-full delivery trucks, uncoordinated delivery routes, and inefficient fleet management.
- Greater supply chain agility and resiliency: Trends and market shifts can happen suddenly, so it’s important to be adaptive and have resilient SCM systems in place that have the agility to adapt to any situation. Real-time data and smart insights can help supply chain managers re-allocate machines and staff into better workflows. Customer feedback can be heard and acted upon right away. Virtual inventories and smart warehouse processes keep supply and demand aligned.
- Improved product quality: Linking customer feedback directly to R&D teams means that product design and development are fully informed by customer needs. R&D and manufacturing teams can use the insights from machine learning and analytics to respond to customer trends and wishes with meaningful product design improvements.
- Better customer service: The best SCM practices are customer-centric and designed to be responsive and adaptive. With the competition only a click away, modern SCM allows companies to implement customer feedback and trends all the way from the design and manufacturing stage through to last-mile logistics, delivery, and returns.
Evolution of supply chain management
For many decades, the customer’s involvement in the supply chain only came at the very end. Where products came from, what they were made of, and how they arrived in the store were not the subject of much consideration. Today, supply chain transparency and sustainability are of vital concern to consumers. As is the ability to have total control over how and where they shop and the options they expect to have along the fulfillment journey.
To grow and compete in today’s market, modern SCM software must be able to gather and interpret all the data generated and captured across the entire supply chain. New technologies are needed to fully leverage this data – turning it into real-time insights and using it to automate SCM processes and workflows in a really smart and agile way. While we can’t predict the future, we can be certain that there will be economic shifts, unexpected events, and rapidly evolving customer demands. With the use of data- and technology-driven SCM systems, we can transform supply chain management and build the new, responsive kind of supply chains we need to see us through the 2020s and beyond.
New supply chain technologies
There are many new and emerging technologies driving digital supply chain transformation. AI and machine learning are increasingly being used in supply chain management – as are the Internet of Things, cloud and edge computing, predictive analytics, autonomous things like robots and drones, 3D printing, augmented reality (AR), virtual reality (VR), and blockchain. Together, these technologies are fueling the Fourth Industrial Revolution – or Industry 4.0 – and this is where supply chain management is headed.
Trends in supply chain management
The coronavirus’ impact on supply chains
In 2019, no one could have known the wave of chaos and disruption that was coming our way in 2020. We couldn’t have known – but we most certainly could have been better prepared. Businesses around the world got a wake-up call from COVID-19 that alerted them to just how vulnerable and antiquated some of their supply chain processes were. Businesses that incorporate artificial intelligence, machine learning, and predictive analytics into their SCM systems can make smart decisions, adapting quickly when the unexpected happens – and improve resiliency.
The Amazon Effect
The vastness of Amazon’s warehouse and fulfillment network has allowed them to offer next-day and same-day shipping – and now customers demand the same delivery speeds from all online retailers. The Amazon Effect is having a major impact on SCM and the restructuring needed to keep up with these expectations – from wider warehouse networks to outsourced, last-mile delivery – is extensive.
Green supply chains
Incorporating green practices into supply chain management can transform everything from product design and materials sourcing to manufacturing, logistics, delivery, and even what is done with products and equipment at end of life. Circular supply chains seek to not only recycle but repurpose things like the plastics and electronic components in discarded products.
Supply chain transparency
In 2020, customers are more aware than ever of the global economy and are motivated to give their business to companies whose supply chain practices and policies are known to be ethical. Technologies like blockchain and tracking sensors are being used to create supply chain transparency and sustainability. From the ethical sourcing of raw materials and the labor used in production to the fuel in the delivery truck – customers can see the provenance and origin of every link in the modern supply chain.
Omnichannel supply chains
Expectations around omnichannel shopping are becoming more complex all the time. Beyond simply offering an online store, businesses must deliver shopping experiences that move seamlessly from virtual to brick-and-mortar, and back again. From how they pay to where they order, how they receive their goods, and how they are informed along the way – customers want to be able to personalize their own combination of shopping and fulfillment options. The best SCM systems integrate customer service and shopping options across all their customer touch points.
Trade and political shifts
The past few years have seen extreme unpredictability in new tariffs and trade policies. Companies that were once almost wholly reliant upon overseas suppliers and manufacturers are feeling vulnerable and looking for more secure options closer to home. IoT and demand manufacturing solutions, like 3D printing, are making virtual inventories and domestic manufacturing solutions an increasingly realistic option.