Supply Chain Management (SCM) is as much a philosophical approach as it is a body of tools and techniques. Typically, it requires a great deal of interaction and trust between companies to work. For right now, however, we’ll talk more about the role it has in your business customers’ value maximization. We’ll also look at the three major developmental stages.
As well as the unique processes that have brought SCM to the forefront of management’s attention. Including the information revolution, increased competition and globalization in today’s markets, and relationship management. In addition to all the benefits of SCM at large and how to use it to an advantage. Imagine not having to upload data externally.
Specifically, on a website like Facebook or on an app like WhatsApp. And yet, being able to share it with friends and other users. That’s where supply chain management systems come in handy.
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For Supply Chain Management to work well, it’s powered by tools, systems, and software under a supply chain. To enumerate, according to Investopedia, a supply chain is a network between a company and its suppliers. Whilst, allowing them to produce and distribute a specific product to the final buyer.
This network includes different activities, people, entities, information, and resources. In addition, the supply chain also represents the steps it takes to get the product or service from its original state to the customer. The main reason why companies develop supply chains is in order to help them reduce their costs. And more so, remain competitive in their business landscape.
What Is Supply Chain Management (SCM)?
In marketing, Supply Chain Management (SCM) is the active management of all business supply chain activities. In order to maximize their customer value and achieve sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective & efficient ways possible.
As I said, For an SCM to work well, it requires a well-manned supply chain. Eventually, that’s why a good supply chain management system is a very crucial process for any business to undertake. Simply, because an optimized supply chain results in lower costs and a faster production cycle.
But, it all involves a series of steps involved to get a product or service to the customer. That said, some of the key steps include moving and transforming raw materials into finished products. Or rather, transporting those products, and distributing them to the end-user.
Some of the entities involved include producers, vendors, warehouses, transportation companies, distribution centers, retailers, etc. While on the other hand, the elements of a supply chain include all the functions that start with receiving an order to meeting the customer’s request.
Some Key Notes:
- For newbies, a supply chain is a network between a company and its suppliers to produce and distribute a specific product or service.
- The entities in the supply chain include producers, vendors, warehouses, transportation companies, distribution centers, and retailers.
- The functions in a supply chain include product development, marketing, operations, distribution, finance, and customer service.
- In the long run, good supply chain management results in lower costs and a faster production cycle.
Basically, some activities in a supply chain cover everything from product development, sourcing, production, and logistics. As well as the information systems needed to coordinate these activities.
There’re also some key elements that control an SCM. Including product development, marketing, operations, distribution networks, finance, and customer service. Forthwith, I am sure that you’ve got an idea of what a supply chain is.
So, without much further ado, let’s now have a look at how its management system works. Technically, supply chain management is a very important part of any business process.
How Supply Chain Management Works
There are many different links in this chain that require skill and expertise. When supply chain management is effective, it can lower a company’s overall costs and boost profitability. If one link breaks down, it can affect the rest of the chain and can be costly.
The concept of an SCM is based on two core ideas. On one side, practically every product that reaches an end-user represents the cumulative effort of multiple organizations. Hence, that’s why these organizations are referred to collectively as the Supply Chain.
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On the other side, though supply chains have existed for a long time, most organizations have only paid attention to what was happening within their “four walls.” And as such, making few businesses understand much less about the whereabouts around their whole chain management.
For instance, consider the entire chain of activities that ultimately delivered products to their final customer. As a result, with less knowledge in SCM, there are disjointed and often ineffective business outcomes. The organizations that make up the supply chain are “linked” together through physical and information flows.
They involve the transformation, movement, and storage of goods and materials. They’re the most visible piece of the supply chain. But, just as important are information flows.
They allow the various supply chain partners to coordinate their long-term plans. In addition to the control of the day-to-day flow of goods and materials up and down the supply chain.
Conversely, businesses that organize, streamline, and manage their supply chains benefit from lower direct and indirect costs. As well as increased revenue from all business operations.
SCM covers all the activities associated with managing an organization’s procurement with the goal of reducing costs, improving efficiency, and satisfying demand. Having that in mind, let’s now pay our attention to the major developments that have brought SCM to the forefront of management’s attention.
1. The Information Revolution Era
In the early 1960s when computers were first developed, a mainframe computer filled an entire room. With the development of the integrated circuit, the cost and speed of computer power increased exponentially.
Today, a laptop computer exceeds the storage and computing capacity of mainframe computers made only 15 years ago. But, there came an emergence of the personal computer, optical fiber networks, and the Internet.
This allowed the cost and availability of information resources easy link and eliminate information-related time delays in any supply chain network. Wal-Mart’s ability to send daily sales information to its suppliers is just one example.
2. New Electronic eCommerce Systems
Organizations are moving towards a concept known as electronic commerce. Whereby, information transactions are automatically completed via a variety of systems. Such as Electronic Data Interchange (EDI), Electronic Funds Transfer (EFT), Point of Sale (POS) devices, and other approaches.
In addition, the late 1990s and early 2000s saw the emergence of online “trading communities” too. That put thousands of buyers and sellers in touch with one another. Ariba is just one example of a Business to Business (B2B) exchange. The old “paper”-type transactions are becoming increasingly obsolete.
At the same time, the proliferation of new telecommunications and computer technology has made instantaneous communications a reality. Such information systems — like Wal-Mart’s satellite network — can link together suppliers. As well as manufacturers, distributors, retail outlets, and ultimately, customers, regardless of location.
3. Increased Competition & Globalization
The second major trend is increased competition and globalization of businesses. The rate of change in markets, products, and technology is increasing. Leading to situations where managers must make decisions on shorter notice. Oftentimes, with less information, and with higher penalty costs.
New competitors are entering into markets that have traditionally been dominated by “domestic” firms. At the same time, customers are demanding quicker delivery and state-of-the-art technology. As well as products and services better suited to their individual needs.
Despite the imposing challenges of today’s competitive environment, some organizations are thriving. These firms have embraced the changes facing today’s markets. Thus, they have put a renewed emphasis on improving their operations and, in particular, supply chain performance.
For instance, Johnson Controls can now receive an order for seats from a Ford assembly plant, make the seats, and deliver the order — all within four hours. This requires incredibly flexible operations within Johnson’s own manufacturing systems. As well as dependable information links with its supply chain partners.
4. Global Economic Expansion
In some industries, product life cycles are shrinking from years to a matter of two or three months. One management guru even compared current global markets to the fashion industry. Whereas, products go in and out of style with the season.
To survive, many firms today find that they must increase market share on a global basis and be on the “ground floor” of rapid global economic expansion. Simultaneously, these firms must vigorously defend their domestic market share from a host of “world-class” international competitors.
To meet this challenge, managers are seeking to find ways to rapidly expand their global presence. They must position inventories so products are available when customers (regardless of location) want them, in the right quantity, and for the right price.
This level of performance is a constant challenge to organizations, and can only occur when all parties in a supply chain are “on the same wavelength”.
5. Steady Relationship Management
The information revolution has given companies a wide range of technologies for better managing their operations and supply chains. Furthermore, increasing customer demands and global competition have given firms the incentive to improve these areas.
But, this is not enough. Any efforts to improve operations and supply chain performance are likely to be inconsequential without the cooperation of other firms. As a result, more companies are putting an emphasis on relationship management.
Of all the activities operations and supply chain managers perform, relationship management is perhaps the most difficult. And is, therefore, the most susceptible to break down. A poor relationship within any link of the supply chain can have disastrous consequences for all other supply chain members.
For example, an unreliable supplier can virtually cripple a plant, leading to inflated lead times and resulting in problems across the chain, all the way to the final customer.
Tools for Supply Chain Management
Eventually, Supply Chain Management Tools allow businesses to significantly reduce errors (and the unnecessary expense resulting from those errors) while enabling full optimization of the whole supply chain. Amazon continues to raise the world eCommerce bar each day.
Whilst, the margin of error within the various types of supply chain management gets thinner and thinner. A simple mistake could easily cost your business thousands of dollars and allow your competitors to get ahead. But, all thanks to the supply chain management software.
It’s never been easier for companies to avoid such pitfalls. Specialized tools and established supply chain management tools and techniques make it possible for users to reduce errors and costs. While optimizing the entire supply chain.
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So, are you still thinking about how these supply chain management tools could empower your operations in the digital age? Well, if what you’re imagining is where you’d like to see your company in the near future, it’s high time you invested in a supply chain solution.
However, in order to select a system with the tools your business needs most, you’ll have to create a list of requirements first. Supply chain management tools are the most critical blocks to your business operations.
SCM Software Solutions Include:
- Bid and Spend Tools
- SCM Security Software
- Collaboration Chain Portals
- Software Tools For Logistics
- Shipment Status Tracking Tools
- Demand Forecasting System Tools
- Order Management Systems (OMS)
- Lean Inventory Management Software
- Supply Chain Analytics & Reports Software
- Lean Manufacturing Management Software
- Warehouse Management Software Systems
- Supplier Management Software Systems
- Business Oversight Software Systems
- SCM Compliance and Auditing Tools
- Transportation and Logistics Tools
In nutshell, as the world of manufacturing and retail continues to evolve, more businesses are looking at their internal processes for increased revenue. Shaving the margin of error down in a supply chain can yield enormous financial benefits.
More so, thanks to supply chain management software and system tools. For one thing, it has never been easier to reap those rewards.
Methods of Supply Chain Management
You may have a winning supply chain model in place with all of the best tools on the market, but without a proper management strategy in place, you’re bound to hit an expensive snag before too long. Much like the tools and types of supply chains, there is no method that can solve the issues of every industry.
In reality, procurement is often a collection of disparate suppliers selected almost randomly on the basis of a perceived ability to deliver products at a price that appears right. While this may be a bit of an overstatement, it’s true that in many instances, businesses make little effort to organize their suppliers or implement coherent supply chain methods.
Because there are costs associated with achieving business procurement goals, it’s essential that organizations devise and implement sure supply chain plans, strategies and methods. And also, determine service levels and long- and short-term procurement goals.
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These goals should link and be compatible with a business’s corporate strategies. Once such a strategy is in place, it’s possible to make rational and informed decisions. Regarding how raw materials should be procured and finished goods delivered to customers.
This includes guidelines on who the business sources from, the appropriate product quality standards, and how goods are delivered. A strategic SCM method helps supply chain managers determine the appropriate action to take when things go wrong.
Such as what to do when a supplier delivers late or how to deal with quality issues. Consequently, before jumping on a particular strategy be sure to speak to your logistics partners to find out the best way to approach streamlining your supply chain management. Below are methods to consider in your SCM plan.
Transaction Cost Analysis (TCA)
Of course, Transaction Cost Analysis (TCA) is a method that may come off sounding complicated. But, the short version is that this helps supply chains ensure that their supplies were bought at a low price. And that their final products are sold high.
By accessing historical data, TCA can determine when to purchase goods at the lowest prices to prepare for an upcoming influx in demand. Basically, transaction cost analysis leverages market data to determine when products should be purchased to properly stock up at low cost before selling off when demand reaches its zenith.
Material Requirements Planning (MRP)
Holding onto unnecessary components or goods can get expensive quickly, especially if your business has multiple warehouses in the mix. Material Requirements Planning (MRP) discovers the minimum amount of required inventory needed to keep up production without taking up excess space.
This type of planning takes independent and dependent demand into account as well, or more simply, the demand for finished goods or component parts. Cutting down on warehouse space is a great way to reduce the costs of keeping your supply chain running smoothly.
Materials Logistics Management (MLM)
Most probably, you’re going to need physical goods to create the products that your customers demand. Materials Logistics Management (MLM) takes care of everything in terms of your business transaction logistics. Thus, it’s a very useful method to stay on the right path.
Many businesses in today’s economy are utilizing a 3PL partner. For many industries, they are now pivotal for business success. From planning, sourcing, procuring, building, and distributing materials with the help of 3PL partners. If you’re looking for better online order fulfillment, warehouse management, or distribution, you should look no further than a 3PL.
But, it’s important to realize, bringing in a 3PL partner isn’t absolutely necessary. However, they often have connections and partnerships with other companies that can help them cut costs. Therefore, no matter if you are a new business or a long-established business that’s looking for a way to handle growth, a 3PL can be the ideal solution.
Some more Methods to Consider include:
Supply chains succeed with the help of third-party partnerships. By utilizing current network connections, this method identifies potential networking opportunities the business hasn’t capitalized on yet.
If your supply chain has multiple underperforming areas, total quality management can help you straighten them out. If end-to-end optimization is your goal, TQM identifies flagging areas for managers to strengthen.
Countless supply chains rely on the expertise of 3PL partners to properly deploy and manage their supply chains. This method has your business and your 3PL partner sit down to hammer out the specific requirements of your supply chain.
3PL partners can leverage customer data to better position your supply chain to attract new customers and retain return clients. Good customer service optics are invaluable and can give you the edge over a competitor.
The companies that manage supply chains for multiple businesses require regular coordination. Channel coordination realigns channels to meet the demands and objectives of numerous customers, reducing overall costs and saving time. It is mostly used for inventory management and ordering.
Theory of Constraints:
If a constraint is limiting supply potential or production potential, the theory of constraints can provide an appropriate solution to mitigate the detected constraint. 3PL partners can implement their best practices to resolve their issues.
Supply Chain Roadmap:
This method maps out your entire system through in-depth research and analysis. It takes multiple variables into account and helps determine how your supply chain should run from the very beginning. It mostly emphasizes alignment, managing risk, value addition, and metrics.
As you can see, even though this list is not complete, but these methods are very key to any business success. For example, let’s consider you have to move large amounts of cargo. Or even, you want a service that will enhance your financial and operational performance.
Fortunately, that’s where an effective method such as a 3PL partner comes in. Perse, your 3PL partners will be working with you directly. In order to ensure that your services are customized and scaled to fit your business needs. And also, making sure that the shipping process is far more efficient in the long term.
Benefits of Supply Chain Management Optimization
First of all, today’s global supply chains are increasingly complex, making a data-driven approach to supply chain management a must. Data-driven SCM provides visibility from so many angles.
Like in the case of end-to-end information flow monitoring of services and goods. As well as from procurement to manufacturing to the end consumer delivery. Secondly, data isn’t the only driver of effective supply chain management since there’re other factors to consider. And they make a big impact, too.
Learn More: 50 Expert Tips On Supply Chain Optimization
Such factors include effective cost control, the best vendor, and good supplier relationships. As well as securing the right logistics partners, adopting innovative supply chain technologies, etc. Unfortunately, for many businesses, Supply Chain Optimization isn’t a simple undertaking.
But, there are countless processes, steps, and decisions that can have an impact on the supply chain. One of the reasons is this; fewer than a third of supply chain management professionals view their collaborative processes as being “effective.”
This is according to data obtained from Flexis. It’s a troubling statistic because as every supply chain manager knows, collaboration is crucial for a fully optimized supply chain. Supply chain optimization, however, is very complex.
In reality, it encompasses everything from warehouse operational performance to logistics planning and more. As well as choosing the right logistics management software to even perfecting the order fulfillment process. All in all, effective SCM Optimization offers numerous benefits that improve the bottom line.
With that in mind, in this article, you’ll learn more about the key benefits of effective supply chain management in detail. Or even more Advantages and Benefits of Supply Chain Management as elaborated by AIMS.
The first thing one needs to understand is that SCM doesn’t replace what we’ve learned about management over the last 50 years; it builds upon it. The analogy that a chain is only as strong as its weakest link holds here as well.
Organizations must first be able to provide quality products or services in a timely, cost-effective manner if they want to tackle broader supply chain issues. Therefore, like in the past, there are more relevant programs like Total Quality Management, Just-in-Time manufacturing, and concurrent product development.
In fact, it’s interesting to note that many of the firms that have emerged as SCM leaders had already established their reputations in other areas beforehand.
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The second thing to understand about SCM is that it often requires significant changes in the firm’s organizational structure. SCM issues cut across functional areas and even business entities.
Therefore, the responsibility and authority for implementing SCM must be placed at the highest levels of an organization. Firms that attempt to imbed SCM within a functional unit (such as purchasing, operations, or logistics) usually have limited success.
Thirdly, SCM requires firms to put in place information systems and metrics that focus on performance across the entire supply chain. Simply, because individual units that seek to maximize their performance without regard to the broader impact on the supply chain can cause problems.
For example, a manufacturing unit’s decision to minimize its inventory levels may reduce delivery performance to the end-user. Likewise, a distributor’s decision to chase highly seasonal demand may “bullwhip” its upstream partners, causing significant cost overruns.
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Putting in place the information systems and metrics needed to make intelligent decisions in the face of such trade-offs presents a significant challenge to supply chain partners.
Finally, SCM adds another layer of complexity to a firm’s strategy development efforts. Years ago, firms could succeed by being particularly good in one functional area, such as marketing, finance, or operations.
And then, firms recognized that they had to have sufficient capabilities across multiple functional areas in order to survive. Nowadays, much competition occurs between multi-firm supply chains, not just between individual firms.
In addition to their debates about functional- and business-level strategies, then, managers must now address how they will partner with other firms in order to compete successfully.
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