What is supply chain management?
Supply chain management (SCM) describes the process businesses use to manage the flow of goods, data, and payments throughout a supply chain. Effective supply chain management is instrumental in ensuring every element of the supply chain works towards achieving broader business objectives, whether that’s cost-efficiency, resilience, quick order fulfillment, or something else.
The supply chain management process spans the entire supply chain, starting with supply planning, moving through sourcing and manufacturing, and ending with delivery and returns workflows. While it is deeply involved with logistics – determining how inventory moves through the supply chain – SCM also often covers supplier management strategy, inventory management, and deployment of supply chain financing solutions.
Why is supply chain management important?
Supply chain management is a critical consideration because supply chains play a central role in business operations. Practically all businesses rely on their supply chains running smoothly to generate revenue. Common supply chain challenges, such as shortages of raw materials or exposure to supplier risks, can cause serious problems, limiting how effectively businesses can meet existing demand.
Supply chain management can help businesses mitigate or overcome these challenges, make the most of customer demand, and maximize profits. On the other hand, companies without an effective supply chain management procedure may struggle to make their supply chain operate efficiently, resulting in higher costs and decreased competitiveness.
In this way, supply chains transform from being a logistical means to an end to a potential driver of operational efficiency. A well-managed supply chain has benefits far beyond the reliable and timely delivery of goods and manufacturing of products, including reduced manufacturing costs, greater durability against hostile market conditions, and a better reputation.
The supply chain management process
The supply chain management process is made up of the following five main stages:
Before anything else, businesses must develop a supply chain management plan. This begins with establishing core objectives, which may be rooted around cost-efficiency, reliability, speedy delivery, ethicalness, or resilience. The chosen objectives will influence the rest of the supply chain management strategy. They can be broken down into specific KPIs or metrics that make it easier to measure supply chain performance over time.
The planning stage also involves establishing forecasting procedures to guide supply chain activity. Most importantly, businesses should develop their ability to forecast demand. This is critical to ensure that sourcing and procurement can be carried out efficiently, capitalizing on customer demand while minimizing wasted costs.
Effective supply chain management relies heavily on a healthy supplier base and strong relationships with those suppliers. Sourcing is the process through which suitable suppliers are identified, selected, and onboarded. That makes it a critical stage of the supply chain management process, and its success disproportionately impacts the overall efficiency of the supply chain.
The objectives set in the planning stage feed directly into supplier sourcing, dictating what the supplier network should look like. For example, a company that prioritizes resilience in its approach to supply chain management is likely to source more suppliers than is minimally viable. This creates redundancy in the supply chain network but offers protection against supplier risk and reduces the chance that unforeseen circumstances halt manufacturing and order fulfillment.
The natural mid-point of the supply chain management process is manufacturing. At this stage, materials procured from the chosen suppliers are transformed into goods suitable for sale to end customers. The role of supply chain management in the manufacturing process is to ensure the right quantities and quality of materials are procured, at the right time, to facilitate production that matches existing demand.
Supply chain management continues past manufacturing to influence the delivery process. Consumers are increasingly expectant of fast delivery, so this stage is an important contributor to overall satisfaction. Different approaches to inventory management can improve or harm the ability to deliver end-products quickly and reliably to customers, but often come with side-effects like increased inventory carrying costs or risk of stock-outs.
The final stage in the supply chain management process revolves around returns. It dictates what happens with returned end-products and how faulty or unsuitable raw materials are returned to suppliers. Often referred to as ‘reverse logistics’, this process stage is important in upholding strong customer and supplier relationships.
Key features of successful supply chain management
There are lots of factors that contribute to the overall effectiveness of a supply chain management strategy, but these are some of the most important:
Data is an essential component of top-performing supply chain management strategies. In fact, each stage of the SCM process should revolve around data. Ensuring that your approach is guided by demand forecasting, risk assessments, and inventory tracking data ensures that it is operating at maximum efficiency.
Supply chains are inherently collaborative, being based fundamentally around relationships between buyers and suppliers. Effective SCM recognizes this and prioritizes strong collaboration. This can be achieved by establishing and maintaining clear lines of communication with suppliers, and over time building solid and mutually-beneficial relationships.
Especially in sprawling global supply chains, end-to-end visibility is a critical part of effective SCM. Supply chain managers should be able to track inventory throughout the entire chain, starting from the original supplier of raw materials and ending with delivery to the end customer.
Supply chain management software
The fundamental concept of supply chain management has existed for thousands of years, essentially since trade was first invented. However, modern supply chains are managed with much more sophistication than ever, thanks to digital technology.
Supply chain management software is designed to better manage large, often global, supply chains. It typically integrates various modules, including features dedicated to:
- Supplier selection and sourcing
- Supplier information management
- Supplier relationship management
- Requisition and purchasing
- Inventory management
Offering a single, centralized source of truth for supply chain management, SCM software is all but essential in building and maintaining effective modern supply chains. The global market for SCM software has an estimated value of $18 billion – a testament to its importance.
Platforms like Taulia go beyond simply enabling management of the logistical side of supply chains. They also facilitate the use of supply chain financing solutions and dynamic discounting, both designed to free up working capital from the supply chain without harming supplier relationships.
By using modern SCM software, companies can realize their supply chain objectives more efficiently than ever while working towards achieving their ideal working capital position.