What is supply chain management (SCM)?
SCM includes all activities that turn raw materials into finished goods and put them into customers’ hands.
Supply chain management overview
Global supply chain management is powered by ideas and insights. It begins with businesses listening to market trends and gathering feedback from customers on what products they want, and when and how they want to get them. Companies 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.
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: change.
Shifting trade, environmental, and economic trends are causing many businesses to rethink their dependency on overseas manufacturing. And it is SCM technologies to a large degree, that are driving the evolution toward near-shoring and more domestic manufacturing.
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 order 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 this example may be extreme, it 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 management, increased uptime, reduced inventory holding cost, 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
For many businesses, supply chain management is not an option. It’s simply a foundational part of doing business. But all too often, the challenge is whether to continue with outdated systems or to 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:
- Increased productivity: EAM 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.
- 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.
- 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.
- 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.
- 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.
- 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 supply chain, organizations can greatly improve their environmental footprint, often working directly with suppliers and other vendors to do so.
Trends in supply chain management today
The value of ERP and SCM integration
While robust supply chain management systems excel in helping businesses adapt, operate efficiently, and meet customer needs, their power is supercharged when integrated with modern ERP systems, which centralize data from various departments such as finance, human resources, manufacturing, and procurement.
Integrating ERP with SCM can give your supply chain professionals access to critical data related to inventory levels, production schedules, order statuses, and financial information. This not only helps to streamline operations management but also allows for the integration of real-time operational and business data. By helping you to automatically embed contextual data into supply chain processes, such integration improves decision-making and execution.
Integration also plays a critical role in helping you to avoid gaps, inaccuracies, and mistakes in processes. This makes your supply chain much more efficient, resulting in dramatic cost-savings. And with digital connections to supply chain partners, you can expose your connected processes throughout the extended supply chain to increase visibility, transparency, and planning capabilities.
SCM and the cloud
Many organizations have moved supply chain management to the cloud because of the flexibility and adaptability it affords. Running in the cloud, organizations are better positioned to remain agile and responsive in the face of constantly changing demand and fluctuating market conditions. Additionally, scalability becomes virtually a non-issue with the cloud, allowing for the expansion of resources without incurring exponential costs, thereby accommodating growth without financial strain.
At the same time, cloud technology is hardly a one-size-fits-all proposition. To the contrary, organizations running in the cloud can tailor solutions to fit specific business requirements, supporting a personalized approach that maximizes benefits.
Importantly, transitioning to the cloud doesn't need to happen all at once. Instead, organizations can incrementally adopt cloud capabilities while maintaining existing systems where necessary. Furthermore, the cloud's resilience and disaster recovery capabilities provide built-in redundancy and safeguards against unexpected disruptions, ensuring the protection of critical data and applications during emergencies.
The impact of AI in supply chain management
As with almost every other area of business, AI is transforming SCM. Leveraging advanced algorithms and machine learning techniques, AI can help you:
Optimize processes: By analyzing historical data patterns and real-time information, you can optimize critical supply chain processes for inventory management, demand forecasting, logistics planning, and more. AI can detect trends, anticipate demand fluctuations, and recommend optimal inventory levels, leading to reduced stockouts and lower inventory costs.
Enhance decision-making: AI can be used to provide actionable insights derived from complex data analysis. AI-powered analytics can identify inefficiencies, predict potential disruptions, and suggest optimal solutions, enabling faster and more informed decision-making by supply chain executives.
Reduce costs: The cost-saving potential of AI for supply chain management is enormous. By automating repetitive tasks, optimizing resource allocation, and minimizing errors, AI technologies help reduce operational costs and improve overall profitability.
Generate actionable insights: AI can analyze large volumes of data from various sources, including sensors, IoT devices, and enterprise systems, to uncover actionable insights. By identifying patterns, correlations, and anomalies in the data, AI enables proactive decision-making and risk management within the supply chain.
Automate processes: AI-driven automation is being used to streamline supply chain processes, such as order processing, transportation routing, and automated warehouse operations. AI-powered robots and autonomous vehicles improve operational efficiency, reduce labor costs, and enhance overall productivity. And with predictive analytics, AI can help you optimize production schedules, leading to better resource utilization and reduced lead times.
Personalize customer experiences: By analyzing customer preferences, behavior, and purchase history, AI algorithms can tailor product recommendations, delivery options, and pricing strategies, leading to higher customer satisfaction and loyalty.
Solve problems proactively: AI can be used to identify potential issues before they escalate into major disruptions. AI-powered systems can anticipate supply chain risks, such as supplier delays or transportation bottlenecks, allowing organizations to take preemptive measures and mitigate potential impacts on operations and customer service.
SCM and Industry 4.0
Connecting the dots between AI's transformative impact and the rise of Industry 4.0, it's clear that these technologies are reshaping supply chain management in unprecedented ways. Adopting these technologies is no longer a nice-to-have, but a necessity, crucial for keeping up with ever-heightening consumer demands, economic pressures, and environmental considerations. As we delve into the realm of SCM and Industry 4.0, we'll see how these cutting-edge technologies amplify each other's strengths to create smarter, more responsive, and highly efficient supply chains.
Industry 4.0 and SCM integration
By integrating Industry 4.0 technologies, including AI, IoT, and automation, organizations are revolutionizing traditional supply chain processes, introducing new levels of efficiency, transparency, and predictive capabilities.
Real-time monitoring is one of the critical areas where Industry 4.0 technologies are being applied to enhance supply chain efficiency. IoT sensors can track the movement and condition of goods in transit, providing real-time visibility into the supply chain. This allows you to identify and address potential disruptions as they occur, such as delays in shipping or damage to goods, enabling immediate action to prevent further disruptions and maintain the flow of goods.
In addition to real-time monitoring, AI and automation are also transforming traditional supply chain processes by optimizing inventory management, demand forecasting, and logistics operations. For example, AI algorithms can analyze historical sales data and market trends to generate more accurate demand forecasts. Imagine a retail company gearing up for the holiday season; AI predicts the surge in demand for specific products based on past years' data and market trends. This foresight allows the company to stock up on popular items and even deploy autonomous vehicles and drones for faster deliveries during peak times – so get used to seeing delivery robots cruising the sidewalks of your neighborhood.
Smart SCM
Today’s SCM is smart SCM, which is characterized by a shift from reactive to proactive approaches, driven by technologies that enable real-time data collection, analysis, and decision-making. This shift allows organizations to anticipate and respond to potential disruptions or issues before they occur, improving efficiency and reducing costs.
Predictive analytics and smart sensors are key enablers of this proactive approach. Predictive analytics uses historical and real-time data to forecast future outcomes, identify potential risks, and optimize decision-making. Smart sensors play a critical role in collecting real-time data throughout the supply chain.
For instance, IoT-enabled sensors can monitor the condition of goods in transit, such as temperature, humidity, or shock levels. Imagine a pharmaceutical company shipping vaccines; smart sensors can detect fluctuations in temperature during transit that would compromise the vaccine's efficacy. Immediate alerts allow the company to take swift action, helping to ensure the vaccines remain effective and maintain their quality.
Cost savings and efficiency
One of the key advantages of an Industry 4.0 supply chain is the reduced operational expenses achieved through automation, which streamlines processes and eliminates manual labor costs. You can also improve resource utilization through real-time monitoring and predictive analytics, allowing for smarter allocation of resources and reduction of waste.
Automation and data-driven insights play a crucial role in overall efficiency gains in supply chain operations. Automation minimizes human error and speeds up tasks, leading to increased productivity and reduced lead times.
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 were given much consideration. Today, consumers are vitally concerned with supply chain transparency and sustainability.
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 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 for your business to succeed.
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