3 Reasons Why Supply Chain Management is Essential for Business Success

Supply chain management (SCM) is the process of managing the flow of goods and services from the source of raw materials to the final customer. SCM involves planning, sourcing, production, distribution, and returns of products and services. SCM can help businesses achieve various benefits, such as:

Cost reduction
Quality improvement
Customer satisfaction
Competitive advantage
Risk management

KEY TAKEAWAYS

Supply chain management (SCM) is the process of managing the flow of goods and services from the source of raw materials to the final customer.

SCM can help businesses achieve various benefits, such as cost reduction, quality improvement, customer satisfaction, competitive advantage, and risk management.

The main components of SCM are planning, sourcing, production, distribution, and returns.

Some best practices for SCM are aligning supply chain goals with business goals, building long-term relationships with supply chain partners, implementing lean and agile supply chain principles, adopting digital technologies and data analytics, enhancing supply chain visibility and collaboration, and fostering a culture of continuous improvement and innovation.

Some challenges for SCM are managing supply chain complexity and uncertainty, balancing supply chain efficiency and effectiveness, ensuring supply chain sustainability and social responsibility, protecting supply chain security and privacy, and developing supply chain talent and skills.

Some trends for SCM are increasing customer expectations and demands, growing globalization and diversification of supply chains, rising environmental awareness and regulations, advancing digital transformation and automation of supply chains, and emerging new business models and opportunities for supply chains.

In this article, we will explain what SCM is, how it works, and why it is important for business success. We will also cover the main components, best practices, challenges, and trends of SCM.

What Is Supply Chain Management?

Supply chain management is the handling of the entire production flow of a good or service — starting from the raw components all the way to delivering the final product to the consumer. A company creates a network of suppliers (“links” in the chain) that move the product along from the suppliers of raw materials to those organizations that deal directly with users.

How Does Supply Chain Management Work?

According to CIO, there are five components of traditional supply chain management systems:

Plan and manage all resources required to meet customer demand for a company’s product or service. When the supply chain is established, determine metrics to measure whether the supply chain is efficient, effective, delivers value to customers and meets company goals.

Choose suppliers to provide the goods and services needed to create the product. Then, establish processes to monitor and manage supplier relationships. Key processes include: ordering, receiving, managing inventory and authorizing supplier payments.

Organize the activities required to accept raw materials, manufacture the product, test for quality, package for shipping and schedule for delivery.

Coordinate customer orders, schedule deliveries, dispatch loads, invoice customers and receive payments.

Create a network or process to take back defective, excess or unwanted products.

Why Is Supply Chain Management Important?

Effective supply chain management systems minimize cost, waste and time in the production cycle. The industry standard has become a just-in-time supply chain were retail sales automatically signal replenishment orders to manufacturers. Retail shelves can then be restocked almost as quickly as product is sold. One way to further improve on this process is to analyze the data from supply chain partners to see where further improvements can be made. By analyzing partner data, the CIO.com post identifies three scenarios where effective supply chain management increases value to the supply chain cycle:

Identifying potential problems. When a customer orders more product than the manufacturer can deliver, the buyer can complain of poor service. Through data analysis, manufacturers may be able to anticipate the shortage before the buyer is disappointed.

Optimizing price dynamically. Seasonal products have a limited shelf life. At the end of the season, these products are typically scrapped or sold at deep discounts. Airlines, hotels and others with perishable “products” typically adjust prices dynamically to meet demand. By using analytic software, similar forecasting techniques can improve margins, even for hard goods.

Improving the allocation of “available to promise” inventory. Analytical software tools help to dynamically allocate resources and schedule work based on the sales forecast, actual orders and promised delivery of raw materials.

TIP

One tip for improving SCM is to conduct regular audits and assessments of your supply chain performance, processes, practices, and risks. This can help you identify gaps, issues, opportunities, and best practices for your supply chain. You can also benchmark your supply chain against industry standards or competitors to measure your progress and competitiveness.

What Is Supply Chain Management?

Supply chain management (SCM) is the process of managing the flow of goods and services to and from a business, including every step involved in turning raw materials and components into final products and getting them to the ultimate customer. SCM can help streamline a company’s activities to eliminate waste, maximize customer value, and gain a competitive advantage in the marketplace.

How Is Supply Chain Management Changing?

Supply chain management is changing rapidly due to various factors, such as globalization, digitalization, sustainability, and customer expectations. Some of the trends that are shaping the future of SCM are:

Globalization: As businesses expand their operations across borders, they need to coordinate their supply chains with multiple partners, regulations, and cultures. Globalization also increases the complexity and risk of supply chain disruptions, such as natural disasters, trade wars, and pandemics.

Digitalization: Technology is transforming the way supply chains operate, enabling greater visibility, agility, and efficiency. Some of the technologies that are driving digitalization are cloud computing, artificial intelligence, blockchain, internet of things, and 5G.

Sustainability: Consumers and regulators are demanding more transparency and accountability from businesses regarding their environmental and social impacts. Supply chain management plays a key role in reducing carbon emissions, waste, and resource consumption, as well as ensuring ethical sourcing and fair labor practices.

Customer expectations: Customers today expect faster delivery, lower prices, higher quality, and more customization from their products and services. To meet these expectations, supply chain managers need to adopt a customer-centric approach that focuses on delivering value at every touchpoint.

What Is the Demand for Supply Chain Management?

The demand for supply chain management is expected to grow significantly in the coming years, as businesses face increasing challenges and opportunities in their supply chains. According to a report by Grand View Research, the global supply chain management market size was valued at USD 15.85 billion in 2020 and is projected to expand at a compound annual growth rate (CAGR) of 11.2% from 2021 to 2028. The report cites the rising adoption of cloud based SCM solutions, the growing need for inventory management and demand planning, and the emergence of e-commerce as some of the factors driving the market growth.

FREQUENTLY QUESTIONS

Q: What are the main components of SCM?
A: The main components of SCM are planning, sourcing, production, distribution, and returns. Planning involves forecasting demand, determining resource requirements, and coordinating supply chain activities. Sourcing involves selecting and managing suppliers that provide raw materials and components. Production involves transforming raw materials and components into finished goods. Distribution involves delivering finished goods to customers through various channels. Returns involve handling defective, excess, or unwanted products.

Q: What are some examples of SCM software?
A: Some examples of SCM software are enterprise resource planning (ERP), warehouse management system (WMS), transportation management system (TMS), inventory management system (IMS), and order management system (OMS). These software tools help automate, integrate, and optimize various aspects of SCM.

Q: What are some best practices for SCM?
A: Some best practices for SCM are: