What is supply chain management? How it works and different SCM types

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.

With careful consideration, you can optimize your business operations and bring down the cost of production and delivery of your goods. Let’s break down what supply chain management is and help you choose which SCM approach to use.

What is supply chain management?

It encompasses planning, implementing, and controlling operations to optimize cost efficiency while meeting quality standards and delivery timelines. SCM focuses on creating integrated networks that balance inventory levels, transportation costs, and production capabilities across the entire supply system.

With that, the primary goal of supply chain management is to deliver the right products to customers at the right time, in the right quantities, and at the right cost. It coordinates the flow of materials, information, and finances to ensure products are available when and where needed, while keeping expenses in check and maintaining high standards of quality and reliability.

Benefits of supply chain management

Effective supply chain management is central to business success in a connected global market. By organizing the flow of goods, information, and finances from suppliers to customers, you can unlock several key benefits that directly affect your bottom line.

• Secure lower costs: Monitor your expenses and note how they fluctuate over time to identify areas where you can optimize your budget, establish better relationships with vendors, and save money
• Improve quality control: Observe your vendors and the materials you use for your business so they can provide a better product to you, and you can provide a better product to customers
• Increase efficiency: Track supply chain analytics to predict your customers’ demand and be prepared to meet it, and create contingencies to address potential supply chain issues
• See higher profits: Lower your costs and increase efficiency to improve profits while meeting customer demand
• Ensure customer satisfaction: Provide high-quality products to customers at lower prices, and improve delivery processes for a better customer experience

The advantages of well-managed supply chains extend throughout your entire business, helping you build stronger relationships with suppliers and deliver greater value to your customers.

Five key processes in supply chain management

Supply chain management relies on five key processes that work together to ensure products flow efficiently from suppliers to customers. Each process plays a distinct role in creating value while minimizing costs throughout the entire supply network.

1. Planning

Planning in supply chain management involves establishing metrics, determining inventory requirements, and allocating resources to meet anticipated demand. This strategic process balances supply capabilities with customer needs while considering cost limitations. It requires collaboration across departments and careful analysis of historical data to forecast future requirements accurately.

For example, a clothing retailer can analyze past sales patterns and potentially identify that sweater demand increases each October. Their planning team adjusts procurement schedules, allocates warehouse space, and coordinates with manufacturers six months in advance to ensure adequate stock levels while minimizing excess inventory costs.

2. Sourcing

Sourcing involves selecting and managing suppliers who provide materials, components, or services needed for production. It includes evaluating potential vendors, negotiating contracts, establishing payment terms, and maintaining supplier relationships. Sourcing strategies should focus on quality, reliability, cost-efficiency, and alignment with company values while continuously monitoring supplier performance.

For instance, that clothing retailer develops relationships with multiple fabric suppliers across different regions. They evaluate each supplier based on material quality, delivery speed, pricing, and sustainability practices. When sourcing wool for their sweater line, they select a supplier who meets their quality standards and can guarantee consistent delivery during peak production seasons.

3. Manufacturing

Manufacturing encompasses all activities that convert raw materials into finished products. It includes scheduling production runs, managing equipment and facilities, monitoring quality control, and coordinating workflow. Effective manufacturing processes prioritize efficiency, minimize waste, maintain consistent quality standards, and adapt to demand.

As an example, the clothing retailer operates a production facility where wool from their supplier is processed into sweaters. Their manufacturing team follows detailed specifications, using specialized machinery to cut, sew, and finish each garment. The facility schedules production in batches, starting with popular sizes and colors based on sales forecasts, while maintaining strict quality checkpoints throughout the process.

4. Delivery

Delivery involves moving finished products from manufacturers to customers, including transportation, warehousing, inventory management, and order fulfillment. This process requires coordinating shipping methods, tracking systems, and distribution networks. Strong delivery systems balance speed, reliability, and cost while adapting to customer demands and market conditions.

For example, the clothing retailer ships completed sweaters from their manufacturing facility to regional distribution centers. From there, products are allocated to individual stores or shipped directly to online customers. Their logistics team uses tracking software to monitor each shipment, manage carrier relationships, and optimize delivery routes to ensure stores are stocked before seasonal demand increases.

5. Returns

Returns management handles products coming back from customers due to defects, damage, or customer dissatisfaction. It involves receiving, inspecting, and processing returned items while collecting data on return reasons. A well-designed returns system minimizes financial losses, maintains customer satisfaction, and provides valuable feedback for product improvement.

For instance, the clothing retailer has a dedicated returns processing center where sweaters are inspected upon arrival. Their team categorizes returns by reason code, reselling perfect condition items, repairing minor flaws, and recycling damaged goods. They analyze return patterns monthly, which leads them to adjust their sizing chart after noticing higher return rates for certain styles.

Mastering these five fundamental processes will help you build a resilient supply chain that responds effectively to market shifts while maintaining quality standards and satisfying customer needs.

Which supply chain management approach should you choose?

Selecting the right supply chain management approach depends on your specific business needs and goals. Each methodology offers distinct advantages in cost reduction, responsiveness, resource allocation, waste elimination, and forecast accuracy for different operational contexts.

Lean SCM

Lean supply chain management focuses on minimizing waste while maximizing value through the entire supply chain. This approach emphasizes eliminating anything that doesn't add value to the final product, including excessive inventory, unnecessary transportation, and inefficient processes.

The core principle of lean SCM is doing more with less by streamlining operations and reducing waste in all forms. Companies implementing lean SCM typically maintain minimal inventory levels and adopt just-in-time delivery systems to reduce storage costs and capital tied up in stock.

For example, a furniture manufacturer adopted lean SCM principles by rearranging their factory floor to minimize movement between workstations. They also established strong partnerships with local wood suppliers who deliver materials exactly when needed rather than maintaining large wood inventories. This reduced storage space requirements while maintaining production capacity.

Agile SCM

Agile supply chain management prioritizes flexibility and responsiveness to changing market conditions. It enables companies to adapt quickly to fluctuations in demand, supply disruptions, and customer preferences. This approach emphasizes speed, flexibility, and collaboration across the entire supply chain network.

Agile SCM involves creating systems that can rapidly adjust to unexpected changes. Companies implementing this approach usually invest in real-time data analytics, maintain strategic inventory buffers, and develop strong relationships with multiple suppliers to ensure continuity during disruptions.

As an example, the furniture manufacturer implemented agile SCM by creating a flexible production system that can switch between different product lines within hours instead of days. They established relationships with wood suppliers across different regions to mitigate risks from local shortages. When a sudden spike in desk orders occurred, they quickly reallocated resources from dining table production to meet this demand without lengthy delays.

Continuous flow SCM

In continuous flow supply chain management, the focus shifts to creating seamless movement of products and information without interruptions or bottlenecks.

Materials, components, and finished goods move steadily through the production process like water flowing through a pipe. The primary objective is to eliminate stops, starts, and delays that can cause inefficiencies. This approach minimizes the buildup of work-in-progress inventory and reduces lead times significantly.

For instance, the furniture manufacturer implemented continuous flow SCM for their bestselling chair line. They arranged workstations sequentially with materials flowing continuously from one end to finished chairs at the other. Each station performs at a consistent pace with no waiting time between steps, reducing production from seven days to just two while maintaining quality.

Efficient SCM

Efficient supply chain management focuses on maximizing output while minimizing input costs across the entire supply chain. It aims to deliver products at the lowest possible cost through systematic optimization of every process from sourcing to delivery.

Efficient SCM is all about cost reduction without compromising quality. Companies using this approach typically standardize their processes, negotiate favorable supplier contracts, optimize transportation routes, and maintain minimal but adequate inventory levels. The goal is to eliminate waste in all forms, whether it's excess inventory, unnecessary transportation, or inefficient processes.

For example, the furniture manufacturer implemented efficient SCM for their standard bookcase line by consolidating supplier orders for volume discounts and redesigning delivery routes to serve multiple retailers per trip. They reconfigured factory layout to minimize material movement and standardized assembly procedures. These improvements reduced production costs while maintaining quality, allowing for better pricing without sacrificing profits.

Flexible SCM

Flexible supply chain management revolves around creating systems that can expand or contract in response to demand fluctuations. It's particularly valuable for businesses facing seasonal peaks and valleys or unpredictable market conditions where rigid supply chains would struggle.

Flexible SCM focuses on adaptability without sacrificing efficiency. Implementing this approach means designing an entire operation with variability in mind. It maintains the ability to scale operations up during high-demand periods and scale down during quieter times, preserving resources and minimizing costs during lulls.

For instance, the furniture manufacturer implemented flexible SCM for their outdoor furniture line with modular workstations on the production floor that switch between summer patio sets and winter indoor items. They established variable-volume supplier agreements and maintained a network of pre-trained temporary workers for peak seasons. This approach reduced off-season idle capacity while ensuring they could still meet seasonal demand spikes without delays.

Challenges and solutions in supply chain management

Supply chain management faces ongoing obstacles that can affect efficiency and profitability. By identifying key challenges and implementing practical solutions, you can build a resilient network that weathers disruptions while maintaining service quality.

Freight pricing

Volatile transportation costs create budget uncertainty for businesses shipping products. Price fluctuations stem from fuel costs, capacity constraints, and seasonal demand variations.

You can effectively solve this through multi-carrier strategies, long-term contract negotiations, and freight consolidation practices. Using advanced analytics to track pricing patterns will help you gain better negotiating leverage and lock in favorable rates during market downturns.

Supply chain issues

Disruptions ranging from natural disasters to geopolitical conflicts can halt operations without warning. Manufacturing delays, raw material shortages, and logistics bottlenecks compromise delivery timelines and customer satisfaction.

Building redundancy through alternate suppliers, strategic inventory buffers, and flexible production capabilities helps mitigate these risks. Digital monitoring tools provide you with real-time visibility across networks, enabling swift responses to emerging problems.

Forecasting errors

Inaccurate demand predictions lead to excess inventory or stockouts, both causing financial strain. Forecast deviations affect manufacturing schedules, warehouse space utilization, and cash flow management.

To solve these challenges, leverage advanced predictive analytics, implement collaborative planning with key customers, and develop scenario-based forecasting models. Regular forecast accuracy reviews will help you refine methods and identify systematic prediction biases.

Addressing supply chain challenges requires balanced strategies that enhance resilience without sacrificing efficiency. By implementing targeted solutions, you can maintain reliable operations while adapting to changing market conditions.

Using technology in supply chain management

Technology enhances supply chain operations by improving visibility, efficiency, and responsiveness across all activities. Advanced digital tools help businesses connect with suppliers and customers while reducing costs and streamlining processes.

Artificial intelligence (AI)

AI-powered solutions analyze vast amounts of supply chain data to predict demand patterns and detect potential disruptions before they affect operations. Machine learning algorithms optimize inventory levels, while automated systems handle repetitive tasks, freeing staff to focus on strategic decisions and complex problem-solving activities.

Blockchain technology

Blockchain creates immutable, transparent records of every transaction within the supply chain network. This technology enables all participants to track products from source to customer, verify authenticity, and establish trust. The decentralized nature of blockchain reduces fraud risk while simplifying documentation and verification processes.

Supply chain analytics

Advanced analytics tools process data from multiple sources to provide actionable insights for decision-making. These platforms help businesses identify inefficiencies, forecast future needs, and evaluate supplier performance. Real-time dashboards allow managers to monitor key metrics and quickly respond to changing market conditions.

Add Ramp's technology to your supply chain processes

Technology empowers supply chain management by enabling real-time visibility, automating routine processes, and facilitating better decision-making. Digital solutions help you anticipate disruptions, optimize inventory levels, strengthen supplier relationships, and deliver products more efficiently to customers.

Ramp supports financial workflows that underpin supply chain operations, such as accounts payable and spend visibility. Our intuitive software enhances your supply chain management with intelligent tools that streamline operations, provide real-time insights, and connect all stakeholders across your network for maximum efficiency.

With Ramp, you can:

• Automate vendor payments: For suppliers, manufacturers, or logistics providers in your supply chain
• Track supply-related expenses: Help teams monitor costs related to procurement, shipping, or materials
• Control budgets: Give real-time visibility into spend categories related to supply chain activities
• Streamline approvals for supply chain purchases: Automate invoice and purchase order approvals tied to supply contracts

Learn more about Ramp and how its AI-powered solutions can complement your supply chain processes.