Supply chain management (SCM) is the discipline that manages supplies and processes through all of the stages of a project, product or business deliverable. Business material has a journey as it moves from one state to the next until it’s ready to be delivered to the customer or stakeholder. Then there’s the logistics of taking the finished product from one place to another. Getting through these various stages efficiently requires control—that’s where supply chain management comes in.
Every aspect of business is managed to make the most of the resources involved and be as productive as possible. People are managed and supplies require management as well. Whether those supplies are goods or services, they must be accounted for and carried through from start to finish with deliberate control.
What is Supply Chain Management?
Supply chain management is used to describe a number of different approaches that are used to integrate the flow of materials, finances and information efficiently. These items are usually outsourced from any number of places. These sources include suppliers, manufacturers, wholesalers, distributors and retailers. Items can pass through several hands until they reach the customer.
SCM then is tasked with coordinating and integrating this back and forth, within and outside the organization. Its objective is improving service for the customer but not at the expense of the organization, which is seeking at the same time to reduce its supply chain costs.
There are many stops along this route, but first comes the design and plan, which when executed must be monitored as would any other project to measure its progress and control any issues that arise before they become problems that impact the cost of the operation.
Like anything else, SCM didn’t show up fully formed but was influenced by other disciplines. It is made up of bits and pieces of industrial engineering, systems engineering, logistics management, operations management, procurement, information technology and marketing.
The field is anything but static, with developments continuing to this day, including taking into consideration issues of sustainability, as well as other ethical concerns, and incorporating risk management. As markets globalize, supply chain management grows in complexity and reach.
The Challenge of Control
As expected, having to control and integrate all these very different parts is what makes supply chain management a challenge. However difficult that goal might be to achieve, the rewards in customer satisfaction and bottom-line savings are more than enough motivation to seek a cohesive whole, making the journey from raw materials to final goods efficient for the organization and satisfying for the customer.
The mission of any SCM methodology is to coordinate all the varied parts into a cohesive whole, from supplying raw materials to delivering final goods or services. The goal is to reduce costs in achieving this objective. The issue is that there are often many conflicts among supply chain partners. For example, a sales department might want more inventory on hand, but warehouse space is limited and can’t fulfill this need.
Origins of Supply Chain Management
While the idea of supply chain management is certainly as old as commerce itself, the term only dates to 1982, when British logistician and consultant Keith Oliver used in in when interviewed by the Financial Times. Supply chain management was simpler at first, only dealing with the flow and transformation of goods and raw materials to end-users, including associated flows of information. In time it came to include integration of supply chain activities through improved relationships to give one a competitive edge.
Growth in the 90s
By the late 1990s, SCM was starting to show up in the titles of operational managers. It has broken from the shadows to stand as its own discipline. With this, the definition of supply chain management expanded to include management of upstream and downstream value-added flows of materials, final goods and related information among everyone from suppliers to the final customer.
It also spoke to systemic, strategic coordination of traditional business functions and tactics within the company and over its supply chain. It was at this time that SCM began to focus more directly on customer development and their idea of what was of value. It was important to be responsive to these concerns, which lead to the integration of key business processes in the supply chain.
The Process of Supply Chain Management
To get the most out of SCM requires looking at the big picture in terms of an organization’s management. No longer is managing an individual company function enough. The integration of all activities involved in the supply chain is necessary: that means integration between different departments, such as purchasing and marketing.
Supply chain management also needs integration and collaboration between buyers and suppliers, joint product development, common systems and shared information. While ideally there should be a continuous back and forth of information, it is more realistic to think of this flow as a process. That process includes the following:
- Customer-Relations Management: There must be a managed approach to interacting with the company’s current and potential customers in order to understand what they want and expect.
- Customer-Service Management: This differs from customer-relations management in that it focuses on the interactions between the customer and the company instead of a more strategic management process. It helps facilitate a mutually satisfying goal for both customer and the company, as well as eliciting customer feedback and maintaining communications between the two parties, so there are positive feelings from both parties.
- Demand-Management Style: A methodology to forecast, plan for and manage the demand for products and services. This can address both macro-levels, as in global economics, but also micro-levels within the company.
- Order Fulfillment: The process that encompasses everything from point-of-sale interest to delivery of that product or service to the customer. It is the way a company responds to customer orders.
- Manufacturing-Flow Management: Manufacturing is a process, and supplies feed that process based on historic data surrounding how it has been done and what was needed historically. But that process needs flexibility as quantities change. Therefore, one must manage all activities related to planning, scheduling and managing the manufacturing process.
- Supplier-Relationship Management: Supplies likely are coming from a third party, and those interactions must be strategically planned for. This increases the value and reduces risk.
- Product Development and Commercialization: To reduce time to market, customers and suppliers are integrated into product vision and the product development process. Shortening the product life cycle keeps the company competitive. This process includes coordinating with customer relationship management to know customer needs, selecting materials and suppliers with procurement and developing a production technology in the flow of manufacturing to integrate the best supply chain flow for the product and market. When successful, this has a positive impact on cost, quality, delivery and market share.
- Returns Management: There will always be returns and the better they’re managed, the more productive and competitive the SCM process. Management of this aspect of the SCM means fast and easy returns management, automation and deciding how to process returned materials. Make sure information is visible to capture early in the process. Then control the flow of product, including receipts and reconciliation, noting if there are any quality issues.
Why is Supply Chain Management Important?
Supply chain management is a hefty task with hefty rewards. We outline a few ways that well-executed SCM can benefit your business or project.
Keeps Businesses Competitive
The simple answer to why SCM is important to any business is that it helps them remain competitive. Markets change, and as the marketplace becomes increasingly global, the need for better efficiency is crucial. As management goals change, too, there is a move away from the past traditional relationships to incorporate and organize all business processes throughout a value chain of multiple companies.
Paces with Technology
Advances in information technology and the increasing use of outsourcing has also added to the expansion of the supply chain. This has created a need for a more collaborative network, so different enterprises can work harmoniously together.
Creates Productive Environments
These changes in how businesses are managed have led to the development of supply chain environments. Multinational companies, joint ventures, strategic alliances and other partnerships, as well as technological advancements, have contributed to more cooperation among those in the supply chain network. As supply chains become more holistic and cooperative, companies must adapt.
But supply chain management is not merely reactive, it also helps to stimulate innovation and productivity by assisting companies with organizational learning. The more extended a company is in terms of its supply chain, the more adaptive it has to be. That leads to creative thinking, which results in innovation and increased productivity.
Customer service also benefits. Customers demand quality and they expect products to be available where and when they want them or delivered when on time. Supply chain management will also help with sale support after they’ve made the purchase.
Reduces Operating Costs
But it’s not just the customer who benefits. As noted, SCM is instrumental in cutting operation costs. When smartly applied it can decrease purchasing, production and total supply change costs. This improves a company’s financial position by adding to profit leverage, reducing fixed assets and increasing cash flow.
Supply chain management is just one more screw that can be tightened on the ship of business to help it sail better through the turbulent waters of industry. But it’s a complicated process, one that benefits from having robust project management tools to plan, monitor and report on the many aspects of the supply chain that need control. ProjectManager.com is a cloud-based software that has the tools to make you manage more efficiently and effectively. See what it can do by taking this free 30-day trial.