What is Supply Chain Management?
Supply chain management (SCM) oversees the entire supply chain process of moving products from raw materials to the customer.
It manages everything from suppliers and manufacturers to distributors and retailers. The goal is to keep things running smoothly so products are delivered on time and within budget.
Solid SCM systems allow businesses to work more efficiently, cut costs, and keep customers happy. They also help spot potential problems and mitigate them before they cause problems.
Effective supply chain management also offers businesses an edge by helping them adapt quickly to market changes and meet customer needs. Given the complex network of global supply chains, it’s also key for handling international challenges like logistics and regulations.
History and Evolution of Supply Chain Management
Supply chain management dates to ancient Rome when systems were created to move goods, mainly for the military. These early methods also helped people obtain items once considered luxuries. Even though those practices seem old-fashioned now, they laid the foundation for modern-day supply chains.
However, traditional supply chains as we know them began during the Industrial Revolution. As mass production took off, better organization was needed to keep the flow of goods smooth from sourcing to delivery.
1980s and 1990s
In 1982, experts officially defined supply chain management as managing the flow of assets from sourcing to delivery.
Before this, companies handled logistics, procurement, and manufacturing processes separately. The 1980s and 1990s introduced Just-In-Time inventory systems to reduce waste and improve operational efficiency.
The Y2K scare led to investments in new technology, including Enterprise Resource Planning (ERP) systems. These systems helped businesses integrate their processes but didn’t always adapt well to market changes.
2000s and Globalization
The early 2000s brought significant changes, with China joining the World Trade Organization in 2001 and globalization.
Companies began expanding their supply chains worldwide to cut costs by reducing inventory and sourcing from suppliers. This would work well if global conditions were stable.
Supply Chains Go Digital in the 2010s
In the 2010s and last decade, companies shifted to digital tech in their supply chains. Companies started using data analytics, AI, and the Internet of Things (IoT) to get real-time information and improve forecasts. Amazon set ambitious standards with fast deliveries, pushing other businesses to rethink their supply chains.
Recent Supply Chain Shifts
Recently, the focus has been on making the modern supply chain more resilient. Companies are bringing production closer to home, diversifying their suppliers, and using AI to make better decisions and managing supply chain risks.
However, unpredictable government policies and rising logistics costs complicate supply chain planning. Events like the COVID-19 pandemic and the Russia-Ukraine conflict have shown that businesses must be prepared for supply chain disruptions.
Many are dealing with issues like inaccurate forecasts and delays, so they are working on building strong, flexible, and sustainable supply chains.
Supply Chain Management Core Principles
Supply chain management, important for any business, is guided by a few principles that keep everything running smoothly.
Integration
Integration in supply chain management ensures suppliers, manufacturers, and distributors work together smoothly. It cuts down on delays and costs, which speeds up production. Dell’s success, for example, comes from having a well-connected supply chain that keeps inventory low and delivery quick.
Operations
Supply chain operations involve managing the whole product journey to boost efficiency and cut costs. This includes what happens inside the company and outside tasks like sourcing raw materials and logistics. When operations management is done right, it means faster service and better-quality products.
Purchasing
Purchasing in supply chain management is all about buying goods and services efficiently. Centralizing purchases can help control costs, but good coordination is needed. Building strong supplier relationships can get you better deals, but it takes regular communication. Managing inventory and negotiating terms are also crucial to effective purchasing.
Distribution
Supply chain distribution management focuses on efficiently getting products from suppliers to customers. It includes packaging, inventory, and logistics. When well-managed, it keeps everything running smoothly, reduces delivery errors, and ensures products arrive on time, even when dealing with challenges like changing customer demands, communication with distribution centers, or unexpected issues.
Key Elements of Supply Chain Management
Here is a breakdown of the key components that keep a resilient supply chain running smoothly in today’s market.
Demand Planning
Demand planning, or demand forecasting, means predicting what customers will want in the future so you have the right number of products ready. Getting this right helps avoid having too much or too little stock.
It also means having the right tools at your disposal. The global demand planning solutions market is expected to grow by 10.3% annually from 2022 to 2030, hitting USD 8.68 billion by 2030.
Procurement
Procurement is about buying raw materials and services at the best prices. By understanding pricing strategies, strategic sourcing, and negotiation – procurement helps keep costs down.
Supply chain management also handles logistics like shipping, warehousing, and turning raw materials into products for distribution. Procurement teams work to secure better deals and keep the supply network efficient and reliable.
Manufacturing
Manufacturing is where products are made based on projected demand. Strong manufacturing supply chain processes help ensure the finished product is delivered on time and up to par.
AI’s role in manufacturing is growing, with 55% of major OEMs expected to redesign their service supply chains using AI by 2026.
Inventory Management
Inventory management helps businesses keep the right amount of stock to meet customer demand without having too much or too little.
Technology plays a critical role in inventory, and there’s a growing trend towards using data to manage stock levels. Currently, 63% of companies use tech tools to monitor their inventory more closely.
Warehousing
Warehousing involves the storage of goods before they’re shipped out. Good warehousing practices help reduce handling costs and improve inventory control.
Robotics are becoming more common in warehouses, with a 14% annual increase in robotics use expected by 2025. This growth reflects the shift towards automation to make warehousing more efficient.
Transportation
Transportation is moving goods from one place to another, and when done well, it can lower costs and speed up deliveries.
Managing fleets is becoming increasingly important as supply chain operations get more complicated. Companies are now using AI and robotics in fleet management to tackle today’s logistics challenges better.
Reverse Logistics
Reverse logistics covers handling returns and recycling. Making this process more efficient helps manage returns and cut down on waste. Since supply chain disruptions cost around $1.5 million/day, improving reverse logistics is a smart way to save by better-managing returns and related costs.
Supply Chain Management Strategies
Supply chain management professionals have a range of SCM solutions and strategies to rely on.
Lean Supply Chain
A lean supply chain aims to make the entire delivery process as efficient as possible by cutting out waste. It’s not just about saving money but also about speeding up each step and building resilience. By eliminating unnecessary processes, companies can respond quickly to changes and get in the way of delays.
Agile Supply Chain
An agile supply chain prioritizes flexibility and quick adjustments. It uses real-time data to adjust production and inventory based on current demand, which helps avoid issues like overstocking or running out of products. Companies with agile supply chains can handle demand shifts as they occur and reduce waste.
Hybrid Supply Chain
The hybrid supply chain combines aspects of both lean and agile strategies. This approach is useful in industries like pharmaceuticals and automotive, where a purely lean or agile model might be appropriate. The hybrid method helps companies stay efficient while adapting to changes, a balance that has become key given recent global events.
Technologies in Supply Chain Management
The COVID-19 pandemic revealed big gaps in global supply chains, pushing companies to overstock and face tough forecasting challenges. To handle these issues, tech is stepping up as a key player. Here is a look at how various technologies is making a difference.
Enterprise Resource Planning (ERP) systems: ERP systems combine supply chain functions like finance, HR, and supply chain management into a single platform. This integration makes operations run more smoothly by sharing data in real time.
ERP helps with managing inventory and tracking orders. The market is set to hit $300 billion by 2027 and has grown 8% since 2022. Around 8.7% of companies using ERP systems are distributors and wholesalers.
Warehouse Management Systems (WMS): WMS technology makes warehouse operations more efficient by managing supply chain tasks like inventory, picking, packing, and shipping. Thanks to real-time tracking and integration with other supply chain systems, it helps store goods properly and fulfill orders accurately.
Transportation Management Systems (TMS): TMS software helps businesses manage, execute, and optimize the movement of goods.
It handles tasks like route and logistics planning, choosing carriers, and managing freight payments. TMS can help cut costs and speed up delivery times by improving visibility into transportation operations.
Artificial Intelligence and Machine Learning in SCM: AI and ML are changing the game in supply chain management by automating tasks and delivering useful insights.
AI takes care of routine tasks like inventory management, while ML looks at data to identify patterns and make forecasts.
Recent data shows that 95% of supply chain leaders view AI and ML as essential for success. 85% believe AI will give them a competitive advantage in the future, and 54% are investing in AI to strengthen their supply chain.
Benefits of Effective Supply Chain Management
Cost Reduction
Good supply chain management helps reduce costs by making business processes more efficient and getting better deals. For example, some companies keep their raw material costs low by negotiating well, which helps them keep their profits healthy.
Improved Efficiency
Efficiency is another big plus. Companies can save money and improve their operations by cutting down on unnecessary distribution channels and using logistics experts. Wing It Cosmetics, for instance, made its shipping process more efficient by reducing the number of separate shipping steps.
Enhanced Customer Satisfaction
Better supply chain management also leads to happier customers. It ensures timely delivery of products that meet quality standards.
So, it is no surprise that 83% of companies expect their supply chains to lead to higher customer satisfaction. If you are a supply chain manager, you understand how crucial a well-managed supply chain is for meeting customer expectations and improving customer experiences.
Risk Mitigation
A solid supply chain is crucial for reducing risks. Potential problems can be managed by mapping value chains, diversifying suppliers, and adjusting inventory strategies. Strong supplier relationships minimize disruptions even when challenges occur.
Competitive Advantage
Finally, a strong supply chain can give you an edge over the competition. 95% of supply chain executives say that AI and ML are key for future success, these technologies can help businesses stay ahead.
Challenges in Supply Chain Management
If you are a supply chain manager, you are familiar with the challenges that can make or break the efficiency of your operations.
Globalization Complexities
Managing a global supply chain is complex. With production, logistics, and inventory spread across various countries and time zones, problems occur.
The pandemic revealed how interconnected and vulnerable these networks can be. It led to sudden shifts in consumer behavior and mismatches in supply and demand.
Geopolitical and trade disputes have added more challenges, caused delays and increased shipping costs. Rising fuel prices also make transportation more expensive, adding to the difficulty of managing a global supply chain efficiently.
Risk Management
After the disruptions caused by COVID-19, supply chain professionals worldwide realized that risk management needs to be a top priority.
With ongoing geopolitical instability, economic changes, and natural disasters, supply chain risk management is all about being prepared for anything that comes their way.
One way to do this is to use cloud-based supply chain management tools. These tools provide real-time visibility and predictive analytics, helping companies identify potential problems early and respond swiftly.
Sustainability Concerns
Sustainability in supply chains is not about being eco-friendly. It also means dealing with social and labor issues. Companies are under more pressure to address worker exploitation and lower their carbon footprint.
To cut emissions, supply chain processes can optimize transport routes, use cleaner transportation, and focus on energy-efficient manufacturing.
Good tracking and reporting systems are also important to meet ESG standards, especially as extreme weather events become more common.
Tech Integration
Adding advanced tech to supply chain management can make a major difference. Tools like AI, machine learning, and IoT have been proven to boost supply chain efficiency and help decision-making. But, getting these modern technologies up and running can be challenging because of their excessive costs and complexity.
Many companies face problems with outdated IT systems, lack of expertise, and communication issues. Still, the benefits—like real-time data and improved risk management—often make overcoming these challenges worth it.
Talent Shortage
As supply chains get more complex and tech-focused, finding the right supply chain talent is becoming harder. Many companies are dealing with this issue, with 64% reporting a gap in supply chain talent.
The problem is made worse by the lack of necessary training for these roles, making it tough for businesses to fully utilize digital tools.
Supply Chain Management Certifications and Education
Certification in supply chain management can move your career forward and potentially increase your salary. The Association of Supply Chain Management (ASCM) even found that certifications can lead to up to a 20% salary bump for supply chain professionals. Here are some certifications to consider:
- ASCM Certified Supply Chain Professional (CSCP): This covers everything from managing demand and global supply chains to handling risks.
- ASCM Certified in Production and Inventory Management (CPIM): This certification focuses on the essentials of supply chain management, from understanding inventory management to process improvements.
- ISM Certified Professional in Supply Management (CPSM): This certification spans various areas of supply chain management and involves passing three exams plus ongoing education.
- Certified Six Sigma Black Belt: Centers on improving quality and cutting waste using Six Sigma techniques.
- SCPro Council of Supply Chain Management Professionals (CSCMP): Features a multi-level supply chain certification process with exams and projects to evaluate your supply chain skills.
Academic Programs
If you prefer an academic program focused on supply chain education, many universities offer degrees in Supply Chain Management.
- Michigan State University: Ranked #1, Michigan State in East Lansing, MI, is known for its supply chain management program. With faculty who are global leaders in the field, it covers everything from what makes supply chain management important to procurement and logistics.
- Arizona State University: Coming in at #2, Arizona State in Tempe, AZ, offers a supply chain program at the W. P. Carey School of Business. The school focuses on real-world issues and has a faculty known for their expertise in supply chain logistics and procurement.
- Massachusetts Institute of Technology (MIT): MIT is ranked #3 in Cambridge, MA. Their supply chain management degree is quick to complete and delivers a great return on investment, with grads earning salaries on par with MBA holders.
- University of Tennessee, Knoxville: Ranked #4, the University of Tennessee in Knoxville connects students with the supply chain industry through its Global Supply Chain Institute. The program keeps up with the latest trends in supply chain management both locally and globally.
- Ohio State University: Ohio State University, ranked #5, offers a comprehensive supply chain management program in Columbus, OH. Its approach mixes theory with real-world application, preparing students to tackle real challenges in the field.
Supply Chain Management: Looking Ahead
We have come a long way since the early days of supply chain management. With new technologies like blockchain, IoT, and predictive analytics to rely on, we’re seeing supply chains become faster and more reliable.
It’s also clear that getting the right people on the right tasks is key to a smooth supply chain. Upland PSA makes it easy to keep everything on track. Want to simplify resource management? Learn how Upland PSA can help.
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