What is Supply Chain Management (SCM)?

The supply chain management process looks at every step in the creation and distribution of your products. This starts with the procurement of whatever raw materials you need, what is involved in using those materials to create your product, and then what it takes to get your product to your customers. It’s the end-to-end lifespan of your product — where it comes from, how it’s made, and how it gets to where it needs to be.

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With careful consideration of every moment in this lifespan, you can optimize your business operations and bring down the cost of production and delivery of your goods. The benefits of supply chain management are quite simply that you improve your bottom line and earn that much more to take home at the end of the day.

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What is supply chain management?

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Supply chain management examines and optimizes everything that makes up each step of the supply chain. The supply chain management process will look at how you get the resources used to make your goods, as well as all the actions you apply to those resources in order to create your end product, and how you get your product to your end user.

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What does a supply chain manager do?

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The supply chain manager is responsible for every point in the supply chain process. This starts with the suppliers for the business. They build relationships to get the best quality goods at the best prices, and that they get just the right amount they need based on the inventory that they want to hold. They must know how much will be sold so they can source the right amount to keep costs down. 

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It’s all one continuous cycle through the supply chain. From procuring the resources, through the creation of products, to the delivery to customers, back to using the sales data to help plan how many more resources to purchase, and over and over. These are all part of the supply chain process and the supply chain manager is in charge of the inventory at all points in this lifecycle.

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It’s important to not hold too much inventory to reduce carrying costs, but also to make sure that you always have enough inventory so you’re still ready to meet every customer’s needs and that you’re never caught without enough stock. 

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The supply chain manager must also be prepared to manage any risk over the course of the supply chain, like breakdowns or delays in production, and making sure that every product is of the highest quality. The smallest errors can erode customer trust and loyalty.

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Key processes in supply chain management

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It is generally accepted that there are five different components to the supply chain management process. These are planning, sourcing, manufacturing, delivery, and returns. Let’s look more closely at each.

‍Planning

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Companies calculate what the demand for their product will be like and then plan accordingly. They need to predict what kind of raw materials they will need, what facilities they’ll need to use, and what manufacturing processes they will employ. As they go through multiple cycles of producing and selling, they can more easily figure out what the market will bear and be better prepared for the next round of supply chain management.

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Sourcing

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Sourcing is the act of the company finding and procuring whatever material they need to create the products that they’ll be selling in each round of sales. They want to get them at the best price possible, but still ensure that the goods are high quality. These could be perishable or non-perishable items. If they’re perishable, the company wants to make sure not to get too much to avoid any waste. And if they’re non-perishable, they want to make sure they get enough to cover all the demand, so there will be no lost sales.

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Manufacturing

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Manufacturing, as the name suggests, is the actual creation of the product to be sold. It’s the conversion of the raw materials into the goods that the customer will receive. The company will want to optimize this process as best possible to make sure they are creating the best product at the least expense. And they want to listen to hear what their customers think to help improve the product even more.

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Delivery

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This is how the company gets their product into their customers’ hands and is a large part of their customers’ satisfaction. It should have a quick turnaround from order to delivery and should have a professional look and feel. This will help build confidence in the company and the services they provide.

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Returns

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This is where the company can really seal the deal with their customers. They want to make sure to provide good customer service and keep their customers happy. Each customer can become a positive or negative testimonial so every brand experience needs to be a great one. If there’s ever something wrong with the product, the company should be able to make good on that transaction quickly. This is what will keep customers coming back.

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By seeing how much product sells and how your customers react to your product, you can take this feedback to inform how much material you will need to source in the next round of sales. This is called supply chain optimization.

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Benefits of supply chain management

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There are a host of benefits your company will enjoy when you optimize your supply chain management process, not the least of which include being able to secure lower costs, improve quality control, increase efficiency, improve business profit, and ensure customer satisfaction.

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Secure lower costs

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Keeping a close eye on your expenses and seeing how they fluctuate over time will allow you to identify areas where you can tighten your budget, establish better relationships with vendors, and save yourself money.

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Improve quality control

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Supply chain optimization will give you the chance to see what’s going on with your vendors and the materials you use for your business. This is good for your business and for your vendors so they can provide a better product to you, and you can provide a better product to customers.

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Increase efficiency

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The more you consistently monitor your supply chain analytics, the better you’ll be able to predict your customers’ demand and be prepared to meet it. If there are ever problems with your vendors or if you experience fluctuating economic trends, you’ll be able to build backup contingencies to address them.

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Improve business profits

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Plain and simple, lower costs plus increased efficiency equals improved profits. With solid supply chain management, you can deliver better for your customers, while spending less on the way in. It’s a win-win.

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Ensure customer satisfaction

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Supply chain optimization will help you be more likely to provide high quality products to customers at a lower price. And by examining what happens during the delivery process, you can provide a better experience for customers here, too. According to Voxware, 69% of customers are less likely to shop with a retailer if a product is not delivered within 2 days of the promised date. Your vigilant supply chain management can help you make good on that execution.

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Challenges and solutions in supply chain management

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You may face many challenges in supply chain management. There could be fluctuations in freight prices, or issues with your supply chain, or you may even make forecasting errors that could affect your business significantly.

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Freight pricing

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Rising fuel costs could suddenly affect your ability to get the materials you need to make your product, or they could make it more expensive for you to get your product into the hands of your customers. With proper supply chain optimization, you can better predict what it will be like to get the raw materials you need, in addition to how much it will take to deliver products to customers.

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Supply chain issues

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The geopolitical issues of the last decade, complete with all kinds of international tariffs, can cause major havoc for supply chains, especially if you’re getting raw materials from different vendors. There could be port congestion, and if your end product uses pieces from many locations, one missed resource could bring your entire production line to a halt. Staying on top of your supply chain management and building contingencies into your business plan may very well save you and help you do right by your customers.

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Forecasting errors

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Different challenges can lead to forecasting errors. Fluctuations in perceived demand may leave you with too much inventory or worse, too little. Supply chain issues could also affect your ability to forecast what you can produce and when. The tighter and more accurate your supply chain management, the better.

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The role of technology in supply chain management

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Given the importance of proper supply chain optimization, new tools are being developed to help you get instant access to your data and use your supply chain analytics more efficiently. You can use information about your demand and inventory to start making smarter business decisions regarding your supply chain.

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• You can use artificial intelligence (AI) to better predict all kinds of variables across your supply chain and speed up execution on those predictions. 

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• Because blockchain technology is so transparent as an immutable record of all transactions, you can use this to trace both vendors’ shipments and your products at every point in their journey and be able to make decisions based on each item’s status.

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• Using supply chain analytics can help you bring together disparate data points and help unite them under a single platform to assist in making business decisions as well.

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Real-life examples and case studies

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There are many examples of supply chain management that you can use to inspire how you run your business. A leading packaged goods company was able to save over $14 billion by using its supply chain analytics to streamline their operations. They were able to turn nearly 30 warehouses into 5 major distribution hubs and still service customers overnight. Much can be gained from adopting a zero-inventory policy that connects customers directly with suppliers’ products so the business removes two steps in the delivery process. Again, more efficiency leads to lower prices, faster delivery, and more satisfied customers.

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Cross-docking is a similar inventory strategy where goods are sent from their original suppliers directly to retail locations. Skipping the stop at the warehouse is another way to keep costs down and remove two pauses in the product lifeline. By contrast, other companies may have many fulfillment centers across the country to serve their customers in different regions as they work to find the most cost-efficient fulfillment option for a national audience.

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Decentralized production and distribution centers built near retail stores can also allow for quick stock turnover as well. Companies can meet customers’ demand easily and keep their stock refreshed as tastes change. Other companies create a vertically integrated supply chain where the business manages every step of product development from sourcing through delivery while using comprehensive supply chain analytics to share data across their entire network.

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Even just exploring how to automate your procurement process is a great way to start to optimize your supply chain management.

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Being abreast of your supply chain management is important to keep your business running efficiently and effectively. And it can help you realize the greatest return on your sales. Make sure you’re examining all the data to do the best planning on everything from sourcing the right materials and tools, using them effectively during manufacturing, delivering your product to your customers, and providing them a great experience if there are ever any returns. By looking at all this information, you’ll be able to keep costs down, ensure the highest quality control, run more efficiently, maximize your profits, and keep customers coming back.

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And there are more and more tools at your disposal to do all of this. Good luck on your business journey and see how Ramp can help you do better business.

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Sources

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Voxware, With Great Sales Comes Great Responsibility—to Deliver an Exceptional Customer Experience.

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Unilever, 2015, Restructuring of the Supply Chain Management Practices. PDF

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