What Is Supply Chain Management (SCM) and Why Is It Important?

Here’s a really basic definition of supply chain management: it’s everything that happens behind the scenes to deliver a product to a customer. The purchasing and ordering. Manufacturing. Transportation. Inventory management – and more. The process begins by listening to the market to find out what customers want – and when, and how much of it. The journey then progresses through all the steps, from sourcing to production to logistics. For this incredibly complex undertaking to be as efficient as possible, each partner – or “link” – in the chain, must be integrated into a tightly coordinated and responsive system.  

In 2020, the entire world woke up to the critical importance of supply chains. When supplies failed to arrive – or when manufacturers were unable to source essential materials – both companies and consumers understood the value of supply chains that are resilient and scalable. Companies everywhere are now taking a closer look at their global supply chains and the technologies that run them – and asking themselves what they can do to future-proof their businesses.

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Why is supply chain management important?

 

Look around you. Basically, nothing in your home or workplace would be there without supply chains. Hundreds of millions of jobs around the world are linked to these activities. From inexpensive consumer goods to surgical equipment and vital resources, everything comes through a supply chain. Yet despite SCM being at the core of global economies, many companies are still running their supply chains with the same processes and machines they’ve been using for 50 years.

Improved SCM practices can transform businesses. Companies can become more competitive by minimizing waste and surplus while lowering costs and increasing efficiency. They can boost customer loyalty by offering personalized logistics that meet individual preferences. And they can automate their processes to be faster, smarter, and more productive.  

Global supply chain management – yesterday and today

 

In past decades, global supply chains were created to take advantage of the lower wages and cheaper raw materials to be found in some countries. Now, the world has changed in many important ways. Trade and tariff policies are shifting, often unpredictably. Political futures are uncertain. Customers want to be better informed about the provenance and sustainability of their products, from raw materials all the way to packaging and the fuels used to bring the delivery truck to their front door. Fortunately, technology has been changing, too. Modern supply chains use the Big Data generated across all the links in the chain to streamline production and manufacturing – and at the same time, they’re developing more home-grown supply chain solutions.

 

Benefits of supply chain management

  1. Increased productivity: Enterprise asset management systems and predictive maintenance help machines and systems run more efficiently. This can fix bottlenecks, improve workflows, and boost productivity. Automated processes and responsive data analysis also mean faster shipping and delivery times.
  2. Reduced supply chain costs: The use of predictive analytics helps eliminate costly “guesstimating,” which reduces wasteful stockpiles and risky shortages. IoT lets existing assets become more responsive and deliver the most efficient and useful workflows possible for every situation. This also delivers more accurate forecasting to help reduce half-full delivery trucks, uncoordinated delivery routes, and inefficient fleet management.
  3. Greater supply chain agility and resiliency: Trends and market shifts can happen suddenly, so it’s important to be adaptive and have resilient SCM systems in place that have the agility to adapt to any situation. Real-time data and smart insights can help supply chain managers re-allocate machines and staff into better workflows. Customer feedback can be heard and acted upon right away. Virtual inventories and smart warehouse processes keep supply and demand aligned.
  4. Improved product quality: Linking customer feedback directly to R&D teams means that product design and development are fully informed by customer needs. R&D and manufacturing teams can use the insights from machine learning and analytics to respond to customer trends and wishes with meaningful product design improvements.
  5. Better customer service: The best SCM practices are customer-centric and designed to be responsive and adaptive. With the competition only a click away, modern SCM allows companies to implement customer feedback and trends all the way from the design and manufacturing stage through to last-mile logistics, delivery, and returns.

 

Evolution of supply chain management

For many decades, the customer’s involvement in the supply chain only came at the very end. Where products came from, what they were made of, and how they arrived in the store were not the subject of much consideration. Today, supply chain transparency and sustainability are of vital concern to consumers. As is the ability to have total control over how and where they shop and the options they expect to have along the fulfillment journey.

To grow and compete in today’s market, modern SCM software must be able to gather and interpret all the data generated and captured across the entire supply chain. New technologies are needed to fully leverage this data – turning it into real-time insights and using it to automate SCM processes and workflows in a really smart and agile way. While we can’t predict the future, we can be certain that there will be economic shifts, unexpected events, and rapidly evolving customer demands. With the use of data- and technology-driven SCM systems, we can transform supply chain management and build the new, responsive kind of supply chains we need to see us through the 2020s and beyond.