What is SCM (Supply Chain Management)?
In a broad sense, supply chain management (SCM) is the management of the flow of goods and services from raw materials through to delivery to the customer. This includes all the processes involved in planning, sourcing of goods, manufacturing, delivery, and returns. Typically, supply chain management attempts to centrally control and link all these processes to create a more efficient system. In this article, we’ll look at supply chain management in more detail, breaking down the core processes and explaining how businesses can implement a system that will cut excel costs and expedite delivery to end consumers.
The Five Processes of Supply Chain Management
There are five basic components to supply chain management that cover the core processes involved in everything from production and product development to delivery:
Planning and managing the resources required to meet customer demands is essential to SCM. Planning ensures manufacturers have the materials and the workforce required to produce and deliver products on time and minimize the risk of surplus resources.
Sourcing involves choosing the best suppliers to provide the goods and services needed to manufacture your products. Key processes include ordering, managing inventory, and authorizing supplier payments. Businesses should focus on monitoring and managing good relationships with suppliers.
This includes all the activities required to turn raw materials into the end product. Businesses should organize production, quality testing, shipping, and schedule for delivery.
4. Delivery and Logistics
Coordinate customer orders, schedule deliveries, dispatch loads, invoice customers and manage payments.
Create an efficient process for the return of defective, excess, or unwanted products.
The Core Functions of Supply Chain Management
Five main functions are important for successful supply chain management:
1. Aligning Flows
SPC keeps the money, materials, and information passed between customers and suppliers flowing up and down a supply chain.
2. Integrating Functions
SPC connects the processes involved in logistics, purchasing, and operations, ensuring that businesses have a singular goal that benefits the overall performance.
3. Coordinating Processes
SPC aligns processes used to plan, source, make, deliver and return company products and services, increasing efficiency and profitability.
4. Designing Complex Systems
Simulation tools can predict how a supply chain will behave and identify potential disruptions in the flow of materials.
5. Managing Resources
Supply chain managers are responsible for allocating people, processes and technology to best meet the demands of customers.
Why Do Businesses Need SCM?
We have established a deeper understanding of the role of supply chain management, but what do businesses stand to gain from implementing a successful strategy? The benefits of effective SCM include:
Information flow is a key challenge in the supply chain, integrated management solutions remove bottlenecks and allow for the seamless sharing of information. This provides a big-picture view of the supply chain from end-to-end, allowing management to make more informed decisions to improve efficiency and the bottom line.
Strict Quality Control
Companies implementing effective SCM principles benefit from having greater control over their suppliers and their suppliers’ supplier. Establishing a minimum control criterion provides direct suppliers with the ability to identify and partner with secondary suppliers who also meet those requirements. It recommends businesses implement a Management Operating System (MOS) for monitoring key performance indicators including:
- On-time delivery
- Scrap rates, reworks, and other issues at suppliers
- Final product quality
- Time for complaint resolution
- Findings from supplier quality assessment
This data allows manufacturers to maintain strict quality control, delivering the best possible goods to their customers.
Greater Efficiency and Risk Mitigation
The real-time data provided by supply chain management means manufacturers can be flexible and limit the problems caused by things like delays and material shortages. Analyzing big-picture data can reveal potential risks, allowing for proactive action to be taken to supply chain disruptions. Having backup plans in place to readily respond to unexpected circumstances limits disruptions and the potential negative impact from the disruptions. Investing in automation solutions also helps increase efficiency on the production line, leading to faster delivery times and a positive customer experience.
Using the data to predict demand and allocate resources reduces overhead costs associated with slow-moving inventory. Businesses can stock less low-velocity inventory and make more room for higher-velocity and revenue-producing inventory. Optimizing your warehouse layout by adopting the right automation solutions can improve productivity and reduce warehouse fulfillment costs. SCM also helps identify unnecessary spending and achieve leaner operations. It allows business leaders to make more informed decisions regarding where budget is spent, and revenue is made.
The cost of delivering goods is growing, particularly after the increase in demand caused by the COVID-19 pandemic. This has made shipping optimization a priority, and SCM helps identify the most efficient shipping methods for a range of products and order sizes. This also contributes to lower overhead costs, boosts the company’s bottom line and leads to happier customers.
Keeping Up with Demand
Without an effective supply chain management strategy, there can be a disconnect when it comes to communicating supply and demand changes, leading to surplus resources or shortages. Real-time, accurate information, and integrated data allow supply chain leaders to predict demand and respond to an ever-changing market.
How to implement supply chain management software
Here are eight tips that will help you correctly implement the right SCM software for your business:
1. Identify what you need
The first step for implementing SCM is to know what your business needs in both the short term and long term. An audit of existing systems and processes, gathering information from staff and stakeholders, and having a clear vision of what future are the best ways to do this.
2. Assess your options
There are many SCM solutions available. It’s best to take your time choosing a good fit for your business. Make a shortlist of the products you feel are the best and set up meetings with representatives to find out what they can offer.
3. Make a plan
Create a roadmap and define what success means to your business. Include objectives, milestones, key activities, and timelines in your plan. Supply chain planning is essential for success, you can learn more here.
For more information on supply chain planning, check out Wiley and Plex's Supply Chain Planning for Dummies.
4. Mitigate risk
Supply chain risk management is important. Businesses should look to:
- Evaluate and identify current risks
- Prioritize by probability
- Ensure supply quality
- Diversify suppliers
- Be aware of suppliers’ risks
- Include partners in risk planning
- Purchase cargo insurance
- Be transparent with partners
- Consider trade credit insurance
- Review risks periodically
Following these steps will support businesses with supply chain risk management and increase the probability of successfully implementing a supply chain management system.
5. Communicate your plan
Key staff and senior management should be aware and agree with the implementation of a new system. To ensure this is the case, develop a business case for why a new system is needed and the old one is no longer fit for purpose. Consistent communication through every step of implementation is essential for everyone to know their roles and work together moving forward.
6. Train and up-skill staff
Even the best system in the world can fail if it’s not correctly operated. Make sure you have a robust, ongoing training program to up-skill staff and ensure they have the knowledge required for the successful implementation of your new system.
7. Test early and often
There will be bumps along the road with any new system, so make sure you test it before it goes live. Key staff should be involved every step of the way, with an open line of communication where they can report any issues.
8. Monitor your progress
The work doesn’t stop after implementation; businesses should look to monitor and continuously improve on their supply chain management. A monitoring plan that allows staff and external partners to provide feedback on what’s working well and what isn’t will help you increase the efficiency of the current system and deal with any issues quickly and decisively.
This article should cover everything you need to know about supply chain management, allowing you to identify your business requirements and successfully implement a new system. PLEX DemandCaster improves inventory management, reduces costs, exceeds market delivery expectations, and optimizes the supply chain. You can learn more about Plex Supply Chain Management’s features here.