What is Supply Chain Management?

Broadly defined, the supply chain management process (SCM) refers to the coordination of all activities amongst participants in the supply chain, such as sourcing and procurement of raw materials, manufacturing, distribution center coordination, and sales. Finding procedures that guarantee a seamless, effective flow of goods to provide an outstanding experience for clients, drive profitability, and advance the organization’s business reputation and long-term sustainability is the ultimate goal of supply chain management.

Supply chain leaders can rely on many different supply chain strategies to bring finished goods to market, but the most common approaches to SCM are lean supply chain, agile supply chain, and responsive supply chain. The lean supply chain strategy focuses on minimizing waste, reducing inventory levels, and optimizing processes to increase efficiency and responsiveness; agile supply chain strategy emphasizes flexibility, adaptability, and responsiveness to changing market conditions, customer needs, and supply chain disruptions; and responsive supply chain strategy combines elements of both lean and agile approaches to balance efficiency with flexibility.

Regardless of their SCM approach, organizations will need a strong supply chain network with solid partnerships and good logistics management procedures in order to meet supply chain management KPIs. Meeting these key performance indicators is crucial for business leaders to assess the performance of internal processes, suppliers, and service providers.

Organizations that use ERP and EPM software are often more successful at supply chain management, as these solutions provide integrated platforms for data management, process automation, demand planning, supply chain optimization, performance monitoring, and collaboration. ERP and EPM solutions leverage IOT and machine learning capabilities to create an ecosystem that centralizes data and processes from all business modules. ERP enables real-time visibility and collaboration across the entire supply chain, allowing stakeholders to make informed decisions based on accurate and up-to-date information.

Leveraging EPM tools for demand planning and forecasting allows organizations to optimize inventory levels, align production schedules with customer demand, and reduce the risk of leaving distributors and retailers with stockouts or excess inventory. Download this brochure for more details about the benefits of connected planning and supply chain management.

History of Supply Chain Management

While businesses have always done supply chain management, the SCM process didn’t have a proper name until the late 20th century. The first recorded use of the term 'supply chain management’ was in a 1982 Financial Times interview with Keith Oliver, a consultant at Booz Allen Hamilton. The concept of supply chain management caught on and gained popularity through the 1990s as leaders in the product development and logistics management fields authored a number of books and industry articles on the subject.

Originally, supply chains were defined as including all operations related to the flow of goods from raw materials to the final customer or end user, as well as the information flows that accompany them. Supply chain management, therefore, was the integration of supply chain activities through strengthened supply chain relationships to gain a competitive advantage.

Today, supply chain management is understood to include the management of upstream and downstream value-added flows of materials, final goods, and related information among suppliers, companies, resellers, and final consumers. In order to ensure customer satisfaction at the point of delivery, modern supply chain strategies must include a holistic view of the links in the chain that work well together. Supply chain managers should strive to reduce costs throughout the chain by eliminating unnecessary expenses and focus instead on creating efficiency and added value for the end user. Performance is measured in terms of overall system efficiency and the fair distribution of financial rewards to supply chain participants.

According to the Council of Supply Chain Management Professionals (CSCMP), supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, logistics, and warehousing management. It also includes coordination and collaboration with channel partners, which may be suppliers, intermediaries, wholesalers, third-party service providers, or customers. Supply chain management integrates supply and demand management within and across companies.

What is a Supply Chain?

A supply chain is a network of interconnected organizations, resources, activities, and processes involved in the creation and delivery of goods or services to customers. Supply chain systems encompass all the steps needed to bring products or services from raw materials to end-users, including sourcing, production, transportation, warehousing, distribution, and delivery.

Operations management plays a vital role in supply chain management. It focuses on the design, planning, execution, and control of the processes that transform inputs into finished products or services. Operations managers coordinate activities such as procurement, manufacturing, inventory management, and logistics to ensure efficient and effective operations throughout the supply chain.

Providers within the supply chain include suppliers, manufacturers, distributors, retailers, and service providers, each contributing to the flow of goods or services from source to destination. Suppliers provide raw materials, components, or services needed for production, while manufacturers transform these inputs into finished products. Distributors and retailers then distribute and sell the products to end-users.

Customer satisfaction is the key goal of supply chain management, as it ultimately determines the success and competitiveness of businesses. By delivering high-quality products or services on time and in full, meeting customer expectations, and providing excellent customer experience, organizations can enhance customer satisfaction, loyalty, and retention, ultimately driving long-term success and profitability.

Effective supply chain management involves forecasting demand, managing inventory levels, and collaborating with suppliers to prevent shortages and ensure the timely delivery of goods or services to customers. Real-time visibility and communication are essential to this process, enabling stakeholders to monitor operations, track inventory levels, and respond quickly to changes in demand or supply. Choosing the right financial reporting software gives you access to crucial real-time data and allows you to track supply chain KPIs for reporting – tracking this information is key to making informed decisions, optimizing processes, and minimizing disruptions, ultimately improving efficiency and responsiveness.

How Does Supply Chain Management Work?

Supply chain management coordinates and integrates all the activities, processes, resources, and stakeholders involved in procuring, producing, and delivering in-demand goods or services to customers. There are several stages that supply chain professionals complete in the SCM process.

1. Sourcing and Procurement: The process begins with sourcing and procurement, where organizations identify, select, and negotiate with suppliers to obtain the necessary materials, components, or services needed for production. This involves evaluating supplier capabilities, negotiating contracts, and managing supplier relationships to ensure a reliable supply of inputs.

2. Production and Manufacturing: Once materials are sourced, they are transported to manufacturing facilities where they are transformed into finished products through various production processes. Product lifecycle management ensures production activities, including scheduling, quality control, and resource allocation, remain efficient.

3. Inventory Management Processes: Throughout the production process and supply chain, inventory levels are managed to balance supply and demand, minimize stockouts, and reduce excess inventory. Inventory managers monitor inventory levels, track stock movements, and optimize inventory replenishment strategies to ensure products are available when needed without overstocking.

4. Logistics and Transportation: After production, the final product is transported from manufacturing facilities to distribution centers or directly to customers through logistics and transportation activities. This involves selecting the most cost-effective transportation modes, optimizing routing and scheduling, and managing transportation contracts to ensure timely and efficient delivery.

5. Warehousing and Distribution: Warehousing and distribution centers play a crucial role in storing, sorting, and distributing products within the supply chain. Warehouse managers oversee receiving, storing, picking, packing, and shipping operations to ensure accurate and timely order fulfillment while minimizing handling and storage costs.

6. Customer Service and Support: Finally, supply chain management involves providing excellent customer service and support to ensure customer satisfaction. Customer service representatives handle all aspects of sales management, including inquiries, orders, and complaints, while customer support teams address issues such as returns, exchanges, and repairs, ensuring a positive experience throughout the customer journey.

Throughout the supply chain, information flows are critical for coordinating activities, monitoring performance, and making informed decisions. From local to global supply chains, supply chain managers use information systems, data, and blockchain technology to track inventory, forecast demand, optimize processes, and collaborate with stakeholders. They ultimately drive efficiency, responsiveness, and competitive advantage in the marketplace.

5 Stages of Supply Chain Management

Because supply chain management can be quite complex, managers tend to break it up into five distinct stages. These stages encompass various aspects of planning, coordination, execution, monitoring, and optimization within the supply chain ecosystem.

The planning stage involves using continuous planning and forecasting strategies to set objectives and design the overall structure of the supply chain. This includes defining supply chain models, such as lean, agile, or hybrid, based on demand variability, lead times, and customer needs. Supply chain managers also use the planning stage to establish KPIs to measure supply chain performance and establish partnerships with suppliers, manufacturers, distributors, and other supply chain partners.

The sourcing stage focuses on identifying, selecting, and managing suppliers to obtain the necessary materials, components, or services needed for production. This involves evaluating supplier capabilities, negotiating contracts, and managing relationships to ensure a reliable supply of inputs. Supply chain partners play a crucial role in the sourcing stage, as organizations collaborate with suppliers to optimize sourcing strategies and mitigate supply chain risks.

The manufacturing or production stage involves transforming raw materials or components into finished products through various production processes. This includes supply chain operations such as production scheduling, quality control, inventory management, and resource allocation to ensure efficient and timely manufacturing. Supply chain performance in this stage is measured by metrics such as production efficiency, cycle time, and defect rates.

The delivery or logistics stage focuses on transporting finished products from manufacturing facilities to distribution centers or directly to customers. This involves supply chain operations such as transportation, warehousing, inventory management, and order fulfillment to ensure timely and efficient delivery. Supply chain partners, including logistics providers and carriers, play a critical role in this stage, as organizations collaborate to optimize transportation routes, reduce lead times, and improve delivery performance.

The return or reverse logistics stage involves efficiently handling product returns, exchanges, repairs, or recycling processes. This includes supply chain operations such as return authorization, product inspection, restocking, and disposition to minimize costs and maximize value. Supply chain partners collaborate to streamline reverse logistics processes, improve customer satisfaction, and reduce the impact of returns on supply chain performance.

What are the five basic components of supply chain management?

• Plan: forecast demand, set inventory levels, and develop strategies to efficiently meet customer demand

• Source: identify and select suppliers, negotiate contracts, and manage relationships with suppliers to ensure a reliable supply of goods and services

• Make: convert raw materials into finished products through production processes that optimize efficiency, quality, and cost

• Deliver: manage transportation, warehousing, and distribution activities to ensure timely delivery of products to customers while minimizing costs and maximizing service levels

• Return: handle product returns, exchanges, and repairs efficiently to minimize disruptions to the supply chain and maintain customer satisfaction

Why is Supply Chain Management Important?

Effective supply chain management reduces time, money, and waste during the process of bringing a new product to market. Supply chain management plays a critical role in driving efficiency, profitability, and sustainability across organizations and industries, ensuring the effective management of resources, processes, and relationships within the supply chain ecosystem. By enabling timely delivery, high product quality, and responsive customer service, SCM ensures long-term business success through high levels of customer satisfaction and loyalty.

Many organizations have realized the benefits of using supply chain management software to ease the complexities and challenges of supply chain operations. This software can help businesses satisfy growing customer demand while controlling costs through a streamlined supply chain, including sourcing, production planning, inventory, and order management.

Additionally, supply chain management software can offer comprehensive reporting on a range of operational parameters for enhanced risk management. By centralizing data and analytics, SCM software enables organizations to identify, assess, and mitigate risks throughout the supply chain. This allows businesses to shave days off supply chain and inventory management timelines.

Watch this on-demand webinar for a comprehensive overview of how reporting software can streamline supply chain management processes.

Frequently Asked Questions

What are the 7 Ss of supply chain management?

1. Source refers to the process of identifying, selecting, and managing suppliers to obtain the necessary materials, components, and services for production.

2. Supplier focuses on building and maintaining strong relationships with suppliers, ensuring reliability, quality, and responsiveness in the supply chain.

3. Supply involves managing inventory levels, demand forecasting, and procurement processes to ensure a steady and efficient flow of materials and products throughout the supply chain.

4. Stock refers to inventory management, including the storage, tracking, and optimization of inventory levels to meet customer demand while minimizing costs and risks.

5. Store involves the management of distribution centers, warehouses, and logistics operations to store, handle, and transport products efficiently within the supply chain.

6. Sell focuses on sales and demand management, including order processing, customer service, and fulfillment activities to meet customer requirements and maximize sales revenue.

7. Service encompasses after-sales support, including returns management, repairs, and customer support, to ensure customer satisfaction and loyalty throughout the supply chain lifecycle.

What is the supply chain in simple words?

• In simple terms, a supply chain is a network of organizations, people, activities, information, and resources involved in moving goods or services from suppliers to customers. It encompasses all the steps and processes required to bring products or services to market, including sourcing raw materials, manufacturing, transportation, warehousing, distribution, and delivery to end-users. The goal of a supply chain is to meet customer demand while minimizing costs and maximizing value creation efficiently and effectively at every stage of the process.

What are the 4 Cs of supply chain management?

1. Cost refers to the financial aspect of managing the supply chain, including expenses associated with sourcing, production, transportation, warehousing, and distribution. Effective cost management is essential for maximizing profitability and competitiveness in the marketplace.

2. Customer focuses on understanding and meeting customer needs and expectations throughout the supply chain. This includes factors such as product quality, availability, responsiveness, and service levels to ensure customer satisfaction and loyalty.

3. Convenience emphasizes making the supply chain processes as efficient and convenient as possible for both businesses and customers. This involves streamlining operations, reducing lead times, minimizing disruptions, and providing seamless experiences from order placement to delivery.

4. Communication involves effective communication and collaboration among all stakeholders in the supply chain, including suppliers, manufacturers, distributors, retailers, and customers. Clear and timely communication facilitates coordination, transparency, and problem-solving, helping to optimize supply chain performance and responsiveness.

How does supply chain management help businesses?

• Supply chain management plays a crucial role in driving efficiency, profitability, and competitiveness for businesses across industries. By optimizing supply chain processes, mitigating risks, and delivering value to customers, SCM helps businesses achieve sustainable growth and success in today's dynamic and competitive marketplace.

What is the difference between supply chain management and procurement?

• While supply chain management encompasses the broader scope of managing the entire supply chain network from sourcing to delivery, procurement specifically focuses on the sourcing and acquisition of goods or services from external suppliers. SCM involves strategic planning, coordination, and optimization of end-to-end supply chain processes, while procurement involves tactical activities related to supplier selection, negotiation, and contract management. Both SCM and procurement play important roles in ensuring the efficiency, reliability, and competitiveness of businesses in today's global marketplace.

What does supply chain management do?

• Supply chain management plays a crucial role in ensuring the smooth and efficient flow of goods or services from suppliers to customers, ultimately contributing to an organization's success and profitability in today's global marketplace.

What is the difference between a supply chain and a value chain?

• The terms "supply chain" and "value chain" are closely related concepts in the field of operations and logistics, but they represent different perspectives on the flow of goods and services within an organization and across its stakeholders. The supply chain encompasses the broader network of organizations involved in the flow of goods and services from suppliers to customers, while the value chain focuses specifically on the internal activities within a single organization and how they contribute to the creation of value for customers.