Introduction to SCM

Effective supply chain management (SCM) is essential for business success in today’s complex global markets. The supply chain encompasses the end-to-end flow of information, products and services, and finances between suppliers, manufacturers, wholesalers, distributors, retailers and ultimate consumers. Supply chain management involves strategically coordinating the movement and storage of materials, inventory, and finished goods from the point of origin to the point of consumption.

With increasingly competitive markets and rising customer expectations, organisations must optimise their supply chains for efficiency, flexibility, responsiveness and cost-effectiveness. This article overviews key concepts, strategies, technologies, and best practices for managing modern supply chains. It examines SCM’s core components and activities across areas like sourcing, procurement, logistics, inventory control, and relationships. Measuring supply chain performance through metrics and KPIs is also covered. Understanding these fundamentals is essential for leveraging supply chain management for business success.

Key Concepts in Supply Chain Management

Before looking at managing supply chains, it is important to understand some foundational concepts:

Defining the Supply Chain

The supply chain refers to the linked network of individuals, organisations, resources, and activities involved in creating and distributing a product or service, from the delivery of source materials from suppliers to manufacturers to the ultimate delivery to end-user customers.

It encompasses the upstream and downstream flows of physical products, information, and finances between entities. Supply chain management focuses on optimising and controlling these flows.

Supply chain logistics refers to transportation, distribution, and warehousing activities within the broader supply chain. Effective logistics is a key part of overall SCM.

Supply Chain Management Objectives

The core objectives of effective SCM include:

• Enhancing efficiency and minimising waste across supply chain processes
• Reducing overall supply chain costs
• Delivering quality products and services to meet customer requirements
• Achieving speed and flexibility to respond quickly to changes in demand
• Increasing visibility across the supply chain through data sharing
• Building collaborative relationships with supply chain partners

Supply Chain Members

Typical members of a supply chain include:

• Suppliers of raw materials, components, and services
• Manufacturers who transform materials into final products
• Distribution centres and warehouses for storage of materials or products
• Transportation providers moving products between facilities
• Retailers, distributors and sales channels bringing products to customers
• Customers who purchase and use the products

Types of Supply Chains

Supply chains can take many forms depending on products, industries, and company business models. Some typical categories include:

• Make-to-stock – manufacturing based on demand forecasts
• Make-to-order – manufacturing after customer orders are received
• Engineer-to-order – engineering and building to customer specifications
• Retailer-managed – retailer-centric chains managing product flow to stores
• Continuous flow – supply chains with smooth, high-volume flows

Understanding these fundamental SCM concepts provides the foundation for managing supply chain operations and flows.

Supply Chain Strategy and Planning

Supply chain management should be aligned with the overarching business strategy. Companies must design their supply chains to achieve strategic objectives and priorities. This requires extensive planning and analysis:

Developing Supply Chain Management Strategy

SCM strategy aims to build core capabilities that align with corporate strategy and customer needs. It entails:

• We are defining supply chain strategic priorities – cost, quality, speed, flexibility, visibility, etc.
• Segmenting products and tailoring supply chain capabilities as needed
• Collaborating with supply chain partners to optimise end-to-end flows
• Incorporating emerging technologies for efficiency and competitiveness
• Enabling flexibility and agility to react to changing markets

Supply Chain Design

The structure and flows of the supply chain must be optimised to meet strategic goals. Key aspects of the design include:

• Determining the number, location, and types of production and warehousing facilities
• Defining transportation modes and shipment routes
• Establishing supplier and distribution networks
• Configuring the decoupling point where product flows transition from push to pull
• Evaluating make versus buy decisions for components and services

Demand and Supply Planning

Planning provides the critical link between supply chain design and operational execution.

• Demand planning involves forecasting customer demand to determine requirements.
• Supply planning includes sourcing supplies, planning production, and managing inventory.
• These plans guide procurement, manufacturing, and logistics activities.
• Advanced planning systems facilitate detailed modelling, optimisation and simulation.

Companies can effectively coordinate supply chain operations with a strategic supply chain management foundation.

Managing Supply Chain Operations

Executing on supply chain strategy involves coordinated management across key operations, including:

Procurement and Purchasing

• Identifying and selecting qualified suppliers and vendors
• Negotiating pricing and contractual terms of procurement
• Issuing purchase orders and scheduling material deliveries
• Approving invoices and arranging supplier payments
• Managing supplier relationships and performance

Inventory Management

• Tracking and controlling inventory levels across the supply chain
• Employing inventory optimisation models like economic order quantity
• Streamlining replenishment to maintain target service levels
• Implementing just-in-time inventory management
• Utilising inventory management technology systems

Warehousing and Transportation

• Operating distribution centres and warehouses for consolidated storage and order fulfilment
• Optimising warehouse layouts and material flows to improve efficiency
• Selecting transportation modes (road, air, sea, rail) based on cost-service tradeoffs
• Planning transportation routes and scheduling shipments
• Leveraging transportation management systems (TMS)

Overseeing these core supply chain operations represents a cross-functional effort spanning multiple departments, facilities, and entities. This requires extensive coordination and information sharing for optimal SCM execution.

Using Technology in Supply Chains

Applying information systems and technology is crucial for enabling effective supply chain management in today’s data-driven world. Some core supply chain technologies include:

Enterprise Resource Planning (ERP) Systems

• Integrate internal business processes on a common IT platform, including manufacturing, inventory, procurement, orders, logistics, finance, and HR.
• Provide visibility into operations and shared data across the supply chain

Advanced Planning and Scheduling Systems

• Leverage optimisation algorithms and simulations to improve planning
• Model supply chain flows to assess constraints and guide decision making

Manufacturing Execution Systems (MES)

• Automate production monitoring, control, scheduling, and tracking on the factory floor
• Coordinate machine inputs and outputs to improve manufacturing efficiency

Warehouse Management Systems (WMS)

• Optimise warehousing activities like receiving, putaway, picking, and shipping.
• Provide inventory tracking and visibility in distribution centres

Transportation Management Systems (TMS)

• Automate rating, routing, tendering, planning, and audit functions for shipments
• Enable transportation and logistics collaboration across the supply chain

Blockchain

• Provides verified, shared record of supply chain transactions and flows
• Enhances traceability and transparency between supply chain entities

Leveraging these and other emerging technologies can dramatically improve SCM capabilities in the modern digital world.

Globalisation and Sustainability

Supply chains are becoming increasingly global, driving additional complexity:

Global Supply Chain Challenges

• Longer lead times and transportation distances
• Added customs clearance, regulatory issues, and documentation
• Exchange rate fluctuations and trade management
• Coordinating logistics across continents
• Adapting processes to work across languages and cultures

Supply Chain Risk Management

• Modelling risks related to costs, natural disasters, geopolitics, suppliers, etc.
• Diversifying sources and transportation modes
• Increasing supply chain flexibility and redundancy
• Expanding supplier collaboration and risk sharing

Corporate Social Responsibility (CSR)

• CSR initiatives related to worker safety, labour practices and human rights
• Ensuring suppliers adhere to CSR standards
• Auditing supplier CSR performance
• Achieving transparency into supply chain labour practices

Environmental Sustainability

• Monitoring environmental impacts across the supply chain
• Setting emissions reductions and waste minimisation targets
• Selecting sustainable transportation and logistics approaches
• Leveraging “green” warehouses and packaging

Addressing these global supply chain dynamics is imperative for mitigating risk, decreasing costs, and driving responsible practices.

Measuring Supply Chain Performance

Key performance indicators (KPIs) provide the metrics needed to monitor, control and improve supply chain processes. Some core categories include:

Financial Metrics

• Total supply chain management costs – SCM costs as a percentage of revenue
• Cost per unit – SCM cost by output
• Value add per person – supply chain value relative to labour
• Supply chain profitability – end-to-end and by stage

Customer Service Metrics

• Order fill rates and perfect order percentage – orders filled completely and accurately
• On-time delivery percentage – deliveries on or before the committed date
• Average order cycle time – from the order through fulfilment

Operational Efficiency Metrics

• Inventory days on hand – days of inventory based on the rate of use
• Inventory turns – number of times inventory sold/replaced in a period
• Total supply chain cycle time – order to delivery time across the chain

Tracking and analysing supply chain KPIs enables targeted improvement initiatives. This drives optimisation across SCM processes.

Conclusion

At its core, supply chain management encompasses the strategy, planning, execution and coordination of sourcing, logistics, procurement, manufacturing, and distribution activities across a network of partners. Globalisation and technology have increased both the complexity of modern supply chains and the imperative for effective SCM. Companies must take a holistic view of optimising end-to-end flows and leveraging emerging innovations.

With robust SCM practices and leadership, businesses can improve efficiency, lower costs, enhance customer service, and gain a sustainable competitive advantage. The concepts and best practices outlined in this article provide a framework for elevating supply chain capabilities to succeed in an increasingly dynamic world.