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What is SCM (supply chain management) and why is it important?

Global supply chain management is powered by ideas and insights. It begins with businesses listening to market trends and gathering feedback from their customers on what products they want, and when and how they want to get them. Companies can then take this data on board and use it to optimize their SCM operations – from sourcing, R&D, and manufacturing, all the way to last-mile logistics and final delivery. 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 SCM system. 

 

In 2020, the entire world awoke to the vulnerability of some of the most essential global supply chains. Companies quickly understood the urgent need for modernization and for supply chain management processes that could bend without breaking. Today, the best companies are taking an unflinching look at their SCM operations and the technologies that run them – and asking themselves what they can do to make their businesses more efficient, profitable, and future-proof.

Graphic describing six steps in the supply chain management process

Key components in supply chain management

Supply chain management definition

Supply chain management includes all activities that turn raw materials into finished goods and put them into customers’ hands. This can include sourcing, design, production, warehousing, shipping, and distribution. The goal of SCM is to improve efficiency, quality, productivity, and customer satisfaction. 

Global supply chain management: history and evolution

Supply chains have always been driven by a multitude of global and political forces, and even by weather and natural events. But there is one thing that’s certain in supply chain management and that’s change. 

 

Shifting trade, environmental, and economic trends are causing many businesses to rethink their dependency upon Overseas manufacturing. And it is SCM technologies to a large degree, that are driving the evolution toward near-shoring and more domestic manufacturing. Industrial IoT networks allow equipment and supply chain managers to connect in real time, helping to automate tasks and reduce inefficiency and breakdown. AI-powered solutions allow businesses to safely narrow their margins, reduce surplus, and minimize production times. This ability to see around corners – and analyze data in real time – gives businesses the efficiency and productivity they need to become less reliant on foreign production.

 

Another fast-moving development is the growing demand for transparency around the provenance and sustainability of products, from raw materials to labor conditions, and the fuels that power delivery fleets. Modern shoppers also want more control over omnichannel shopping and fulfillment options which adds an ever-evolving layer of complexity to supply chain management processes.

The importance of supply chain management

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.  

Supply chain management process

Alexander the Great once famously said: “My logisticians are a humorless lot… for they know if my campaign fails, they are the first ones I will slay”. And while that example is a bit extreme to say the least, it nonetheless illustrates how important supply chains have always been to human civilization. Efficient and resilient supply chain management tools and practices are an essential component to your company’s survival – and success. Some of the core SCM processes include:   

  • Supply chain planning is the process of anticipating product demand and coordinating 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, sales and operations planning (S&OP), and more. 

  • 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. 

  • Procurement is the process of acquiring materials, goods, and services to meet business needs – and ensuring the quality, fair price, and value of those goods. 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.

  • 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. 

  • Manufacturing execution management (MES) monitors, tracks, documents, and controls the process of manufacturing goods. It keeps production and processes as lean as possible – while maintaining (and improving) quality, sustainability, and customer satisfaction. The system uses data gathered from AI and Industrial IoT-powered systems to streamline and automate manufacturing processes. Companies can use on-demand 3D printing to eliminate shortages and surplus, and smart machines to deliver mass customization economically. Benefits include improved quality control, increased uptime, reduced inventory, a paperless shop floor, and improved product tracking and genealogy. These systems also help to ensure that the latest compliance and regulatory practices are in place.

  • 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 they need to extend their lifecycles.

The benefits of supply chain management

Many businesses would simply stop running without supply chain management – so that’s a pretty big SCM benefit right there. The challenge for a lot of today’s businesses is whether to continue to nurse and prop up their outdated systems, or to get out in front of inevitably fast-paced technological and social evolution – and build a modern, digitally optimized supply chain that can grow and scale with the times. Some of the benefits of optimized supply chain management include: 
  1. 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.
  2. 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.
  3. Greater supply chain agility and resiliency:  Trends and market shifts can happen suddenly. Resilient SCM systems 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.
  4. 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.
  5. 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, enabling both micro-fulfillment and personalization at scale.
  6. Greater transparency and sustainability: SCM allows full transparency, from the design and manufacturing stage through to last-mile logistics, delivery, and returns. With the ability to see all inputs and outputs throughout the chain, organizations can greatly improve their environmental footprint, often working directly with suppliers and other vendors to do so. 

The future 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, who made them, and how they arrived in the store were not subjects that were given much consideration. Today, supply chain transparency and sustainability are of vital concern to consumers. As is the ability to have 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, you can transform supply chain management and build the new, responsive kind of supply chains you need to see your business through the 2020s and beyond 

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