Supply Chain Management (SCM Overview): What is it and How it Works?

supply chain management
Reading Time: 6 mins

Supply chain management (SCM) is the essential driving force of every business. Think of it from the perspective of a humble smartphone. From the mining of rare minerals to the precision assembly lines of a high-tech factory, and finally, into the eager hands of a consumer on the opposite side of the world.

The journey, facilitated primarily by SCM, highlights its complex yet vital role in contemporary business. This article is an ideal starting point to elucidate and understand the concept. So, let’s explore supply chain management’s origins and significance. We will also look at the challenges businesses confront in their absence and how to overcome them.

What is Supply Chain Management?

Supply chain management optimizes the end-to-end flow of goods through meticulous planning and execution. A multifaceted field, it has gained prominence due to its critical role in meeting the growing demands of the modern global marketplace.

In 2022, supply chain management (SCM) emerged as the most rapidly expanding sector within Gartner’s enterprise application software segment, boasting an estimated revenue of $20.24 billion. The figures highlight the increasing importance of SCM as businesses seek to leverage automation to enhance efficiency and reduce costs.

How Supply Chain Management Works and Why is it Important?

Supply chain management is the backbone of every business. It ensures efficient movement of goods across manufacturers and customers. It is a complex web of interconnected processes that involve procurement, production, inventory management, transportation, and distribution. Coordinating the flow of materials and finances helps SCM reduce lead times and enhance responsiveness.

Supply chain efficiency is critical in the global marketplace, where goods traverse continents, and customer expectations are ever-rising. Timely deliveries and cost-effective operations are the lifeblood of businesses striving for profitability and sustainability.

The Supply Chain Management Process

The supply chain management process is a comprehensive framework. Here are the critical stages in the process with specific objectives.

  • Planning: It involves forecasting demand and designing a supply chain strategy that aligns with the organization’s objectives. It includes assessing capacity and creating production schedules.
  • Sourcing: In this phase, organizations negotiate contracts and manage relationships with suppliers. It involves evaluating supplier performance and optimizing procurement processes.
  • Making: The making stage focuses on the actual production of goods. It involves managing manufacturing processes and utilizing resources to meet production targets.
  • Delivering: Delivery is a critical phase where products go to distribution centers or directly to customers. It includes managing logistics, inventory levels, transportation, and more to ensure cost-effective deliveries.
  • Returning: This stage deals with product returns and reverse logistics. It addresses product recalls and returns due to defects. Effective handling of returns is essential for maintaining customer satisfaction.

Challenges that Supply Chain Management can Tackle

The supply chain management system has the following challenges. Let’s look at them and understand how you can navigate them effectively.

Demand Forecasting

The COVID-19 pandemic highlighted the difficulties in demand forecasting. This is mainly for essential goods like toilet paper and hand sanitizer. To overcome such challenges, consider adopting advanced forecasting models incorporating real-time data. Furthermore, it includes variables like market sentiment and historical trends. Agility in forecasting can help you adapt quickly to unexpected demand shifts.

Inventory Management

Striking the right balance for inventory is a perennial challenge. Excess stock ties up and incurs increased storage costs. Your company should invest in inventory optimization tools that offer instant visibility into stock levels. Implementing just-in-time inventory practices and leveraging data analytics can help optimize inventory with reduced carrying costs. If you’re interested in digitally optimizing your inventory and other warehouse operations, you must check out our list of best warehouse optimization software and solutions.

Global Supply Chain Issues

The COVID-19 pandemic highlighted shortcomings in global supply chains, with border closures and shipping delays disrupting operations. To mitigate such risks, your business must diversify its supplier base geographically and establish contingency plans. Resilient supply chains with alternative sourcing options can help your organization prepare for unforeseen disruptions.

Supplier Management

Supplier management issues can have far-reaching consequences in the SCM system, as evidenced by the challenges faced by Boeing. These problems led to higher-than-expected losses, with the company reporting a loss of $1.27 per share. Boeing’s disclosure of a “non-standard manufacturing process” by one of its suppliers affecting a significant number of 737 Max jets in production shows the critical importance of effective supplier management.

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Benefits of Supply Chain Management

The following benefits of supply chain management can significantly impact a company’s bottom line. Let’s look at them in detail.

Cost Reduction

Effective supply chain management can help companies reduce costs by optimizing processes and reducing inventory levels. For example, a study found that companies can reduce inventory by 22% if they know risks better in their supply chains.

Improved Efficiency

SCM can help companies streamline their operations and improve efficiency. For example, automation and data analytics can help companies reduce lead times and increase throughput.

Customer Satisfaction

Effective and smart supply chains can help companies improve customer satisfaction by ensuring timely product delivery and reducing stockout risk.

Leverage Technology to Navigate the Future of the Supply Chain with Ease

The power of technology in shaping the future of supply chain management is critical in an era where dynamic market demands and unprecedented challenges dominate. Embracing technologies like artificial intelligence and blockchain can help enhance SCM visibility.

Furthermore, prioritize resilience by diversifying suppliers and establishing contingency plans. Additionally, consider investing in advanced forecasting models and building robust supplier relationships. Leveraging technology will help your business navigate the complexities of the supply chain and remain agile and competitive.

Our Stack of Advanced Analytics Solutions for Supply Chain & Logistics

In the fast-paced world of supply chain management, Gramener emerges as a steadfast ally, providing bespoke solutions that enable efficiency and precision at scale. Image the complexities of supply chain challenges and find out how our intuitive AI solutions have seamlessly revolutionized the way businesses function.

Gramener’s Supply Chain AI Solutions

  • Supply Chain Control Tower: Imagine a supply chain where coordination is seamless and decisions are proactive. With our Control Tower, businesses gain a panoramic view of their entire operation. Picture a logistics manager confidently orchestrating the movement of goods, armed with real-time data from suppliers, production, transportation, and distribution. In this empowered scenario, streamlined workflows and swift decision-making become the norm.
  • AI-Driven Cost Optimization: Picture a CFO smiling as they analyze the cost breakdown with precision. Our solution empowers financial leaders to delve into the nitty-gritty of expenses, identifying areas for optimization. With streamlined processes and reduced costs, the finance department becomes a beacon of efficiency, ensuring every penny is judiciously spent.

Learn More

Check out a snippet of all our manufacturing and supply chain solutions and the ROI they brought to the customers.

Gramener’s Logistics and Warehouse AI Solutions:

  • Smart Warehouse Solution: Step into a bustling warehouse where every square inch is optimized. Thanks to Gramener’s Smart Warehouse Solution, an operations manager efficiently oversees inventory, order processing, and resource allocation. Imagine the ease of managing stock, fulfilling orders, and optimizing manpower with automated precision. In this scenario, the warehouse becomes a model of productivity, ensuring products reach customers swiftly and accurately.
  • Data-Driven Demand Forecasting: We enable demand planners to confidently predict market trends. Our data-driven solution equips them with historical insights, enabling accurate forecasting. By continuously monitoring forecast accuracy and KPIs, the demand planner navigates inventory challenges effortlessly. Picture a scenario where stockouts are minimized, and resources are allocated optimally, all thanks to precise demand forecasting.
  • Smart Labor Task Allocation: A warehouse manager can confidently allocate staff based on workload projections. With this solution, they accurately predict labor requirements, ensuring the right number of staff at all times. Productivity soars as teams are well-staffed and communication flows seamlessly. Imagine a scenario where employees are engaged and tasks are allocated efficiently, resulting in a motivated and productive workforce.
  • Fleet Management Solution: With this solution, a fleet manager tracks vehicles with ease. Armed with GPS and telematics technology, it provides real-time insights into vehicle location and performance. Picture a scenario where route planning is optimized, vehicle utilization is maximized, and safety compliance is never compromised. With proactive maintenance and data-driven decision-making, the fleet manager ensures a smooth and safe journey for every vehicle.

Learn More

Check out a snippet of all our solutions and the ROI they brought to the customers.

Our solutions empower businesses, transforming challenges into opportunities and operational hiccups into seamless processes. We’ll help you transform your supply chain to not only meet demands but anticipate them, ensuring success in every shipment and every decision.

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