By: Helen Fenton
In this article, we’ll explore what supply chain management is, what supply chain management software does, and the advantages and disadvantages of its processes.
Supply Chain Management (SCM) explained
If your company creates and produces any number of products using parts purchased from various suppliers, and those products are sold to customers, then, in a nutshell, what you have is a supply chain.
SCM is the acronym commonly used for the term “Supply Chain Management.” Certain supply chains are rather simple, yet others are somewhat complicated.
It stands to reason that the overall complexity of the supply chain will vary according to the size of the business and the intricacy and number of items manufactured in the production process.
Supply Chain Management – the management of a network of interconnected businesses with a common goal
Essentially, Supply Chain Management is the management of a network of interconnected businesses involved in a common goal. That is the ultimate provision of product and service packages required by end customers (Harland, 1996).
Supply Chain Management covers the full spectrum
Hence, Supply Chain Management covers the full spectrum of movement and storage of raw materials, work-in-process inventory as well as finished goods from point of origin to point of consumption. This is what ultimately forms what we now know as the ‘supply chain.’
Supply Chain Management and efficiency
Supply chain management (SCM) is a process used by companies to ensure that their supply chain is as efficient and as cost-effective as possible. A supply chain is the collection of steps that a company takes to transform raw components into the final product. What follows are the five basic components of Supply Chain Management.
Basic components of Supply Chain Management
- Develop (Source)
The very first stage in supply chain management is known as the plan. A plan or strategy should be developed to address how a certain product or service will meet consumer needs. A significant portion of the strategy should focus on planning a profitable supply chain.
This is the strategic phase of Supply Chain Management. Businesses require a strategy to manage necessary resources that contribute towards meeting consumer demand for their product or service.
An important task involved in Supply Chain Management planning centres around developing a set of metrics to monitor the supply chain so that it is efficient, more cost effective and delivers high quality and value to consumers.
The next stage in Supply Chain Management is develop. This involves building a strong and healthy relationship with suppliers of the raw materials needed in making the product the company produces. This stage not only involves identifying reliable suppliers but also planning methods for shipping, delivery, and payment.
Metrics monitor and improve relationships
Businesses should choose suppliers to deliver the goods and services they need to create their product. Therefore, supply chain managers need to develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships.
SCM managers put together process for managing their goods and services inventory
Hence, SCM managers put together processes for managing their goods and services inventory, including receiving and verifying shipments, transferring them to the manufacturing facilities and authorising supplier payments.
During the third stage, make, the product is manufactured, tested, packaged and scheduled for delivery.
This is the manufacturing phase. Supply chain managers then schedule the activities necessary for production, testing, packaging and preparation for delivery. This is the most metric-intensive step in the supply chain. This step ensures that companies are able to measure production output and worker productivity.
What then follows is the logistics phase or deliver, whereby customer orders are received and delivery of the goods is planned. This fourth stage of the supply chain management process is aptly named deliver.
This is the part that many SCM insiders refer to as logistics, where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.
The final stage of supply chain management is called return. As the name suggests, during this stage, customers may return defective products. The company will also address customer questions at this point.
A problematic part of the supply chain
The return stage can be a problematic part of the supply chain for many companies. Supply chain planners should create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have problems with delivered products.
To ensure that the supply chain is operating as efficiently as possible and generating the highest level of customer satisfaction at the lowest possible cost, companies have adopted Supply Chain Management processes and associated technology.
Supply chain management has three levels of activity
Supply Chain Management has three levels of activity with different parts upon which companies should focus: strategic, tactical and operational.
At this level, management will be looking to high level strategic decisions concerning the entire organisation. For instance, the size and location of manufacturing sites, partnerships with suppliers, products to be manufactured and sales markets.
Strategic activities include building relationships with suppliers and customers as well as integrating information technology (IT) within the supply chain.
Tactical decisions focus on adopting measures that will produce cost benefits such as using industry best practices, developing a purchasing strategy with favoured suppliers, working with logistics companies to develop cost effective transportation methods and developing warehouse strategies to reduce the cost of storing inventory.
Monitoring and studying competitor activity and making decisions regarding production and delivery would fall under the tactical category.
Decisions at the operational level are made each day in businesses that affect how the products move along the supply chain.
Operation decisions involve making schedule changes
Operational decisions involve making schedule changes to production, purchasing agreements with suppliers, taking orders from customers and moving products in the warehouse.
Daily management of supply chain
The operational category involves the daily management of the supply chain, including the compilation of production schedules.
What does supply chain management software do?
Supply chain management software is perhaps the most fractured group of software applications in the world. Each of the five major supply chain steps previously outlined is comprised of dozens of specific tasks, many of which have their own specific software.
Software under a single roof
Numerous vendors have assembled many of these different chunks of software together under a single roof, but no one has a complete package that is right for every company.
Systems are only as good as the information they contain
It is also worth mentioning that the old adage about systems only being as good as the information that they contain applies doubly to Supply Chain Management. If the information entered into a demand forecasting application is not accurate, then an inaccurate forecast will be the result.
Similarly, if employees bypass the supply chain systems and try to manage things manually (using the fax machine or spreadsheets), then even the most expensive systems will provide an incomplete picture of what is happening in a company’s supply chain.
What is the relationship between ERP, CRM and SCM?
Many SCM applications are reliant upon the kind of information that is stored inside enterprise resource planning (ERP) software and, in certain cases, on some customer relationship management (CRM) packages.
Theoretically speaking, a company could assemble the information it needs to feed the SCM applications from legacy systems (for most companies this means Excel spreadsheets spread out all over the place), but it can be nothing short of a nightmare to even attempt to get that information flowing on a fast, reliable basis from all the areas of the company.
ERP – the battering ram
ERP is the battering ram that integrates all information into a single application, and SCM applications benefit from having a single major source to go to for up-to-date information.
“putting your information house in order.”
Certain companies that have attempted to install SCM applications claim that it was better to have first installed ERP. Many refer to ERP projects as “putting your information house in order.” Of course, ERP is expensive and difficult, so you may want to explore ways to feed your SCM applications the information they need without doing ERP first.
“kill two birds with one stone”
Nowadays, most ERP vendors have SCM modules, hence doing an ERP project may be a way to kill two birds with one stone, quite literally. In addition, the rise and importance of CRM systems inside companies today puts even more pressure on a business to integrate all of its enterprise-wide software packages.
Companies will need to decide if these products meet their needs or if they need a more specialised system.
Applications need to communicate with ERP
Applications that simply automate the logistics aspects of SCM are less dependent upon gathering information from around the company, so they tend to be independent of the ERP decision. However, chances are, companies will need to ensure that these applications communicate with ERP to a certain degree.
It is important to pay attention to the software’s ability to integrate with the Internet and with ERP applications since the Internet will drive demand for integrated information.
Integrating ERP and supply chain applications
For example, if a company wants to build a private website for communicating with their customers and suppliers, the company will want to pull information from ERP and supply chain applications together to present updated information about orders, payments, manufacturing status and delivery.
What is the goal and relative importance of installing supply chain management software?
Before the Internet came along, the aspirations of supply chain software devotees were limited to improving their ability to predict demand from customers and make their own supply chains run more smoothly. But the cheap, ubiquitous nature of the Internet, along with its simple, universally accepted communication standards, has thrown things wide open.
A single vast network that optimises costs and opportunities
Now, companies can connect their supply chain with the supply chains of their suppliers and customers together in a single vast network that optimises costs and opportunities for everyone involved. This was the reason for the B2B explosion; the idea that everyone a company does business with could be connected into one big happy, cooperative family.
Naturally, reality isn’t quite that happy and cooperative. But today most companies share at least some data with their supply chain partners. The goal of these projects is greater supply chain visibility.
The supply chain in most industries is like a big card game
The supply chain in most industries is like a big card game: the players don’t want to show their cards because they don’t trust anyone else with the information, but if they showed their hands they could all benefit.
Suppliers wouldn’t have to guess how many raw materials to order
Suppliers wouldn’t have to guess how many raw materials to order, and manufacturers wouldn’t have to order more than they need from suppliers to make sure they have enough on hand if demand for their products unexpectedly increases.
And retailers would have fewer empty shelves if they shared the information they had about sales of a manufacturer’s product in all their stores with the manufacturer.
The Internet makes showing your hand to others possible, but centuries of distrust and lack of coordination within industries make it difficult.
The payoff of timely and accurate supply chain information is the ability to make or ship only as much of a product as there is a market for. This is the practice known as just-in-time manufacturing, and it allows companies to reduce the amount of inventory that they keep.
This can cut costs substantially, since you no longer need to pay to produce and store excess goods. But many companies and their supply chain partners have a long way to go before that level of supply chain flexibility can be achieved.
Key Features of Supply Chain Management
Supply chain software packages are robust, feature-rich technology software that enhance operations from end-to-end.
Supply chain software boosts bottom line
Today’s popular supply chain software can help companies achieve and maintain a competitive edge by empowering them to streamline and enhance their most important supply chain operations from start to finish. With supply chain software in place, organisations can maximize cost-efficiency, increase productivity, and give their bottom line a massive boost.
This functionality is designed to fully automate and support supply chain processes from end-to-end, and includes:
With a supply chain package, companies can significantly improve the way they track and manage their supplies of raw materials and components needed for production, finished goods to satisfy open sales orders, and spare parts required for field service and support. This eliminates excess and waste, frees up valuable real estate for other important purposes, and minimises related storage costs.
Supply chain software can dramatically accelerate the execution of the entire order-to-delivery cycle by helping companies to more productively generate and track sales orders. Supply chain also enables the dynamic scheduling of supplier deliveries to more effectively meet demand, and more rapid creation of pricing and product configurations.
All activities and tasks associated with sourcing, purchasing and payables can be fully automated and streamlined across a company’s entire supplier network with a supply chain software package.
Build stronger relationships with vendors
As a result, businesses can build stronger relationships with vendors, better assess and manage their performance, and improve negotiations to leverage volume or bulk discounts and other cost-cutting measures.
As companies expand globally, their supply chains become more and more complex. This makes the coordination of the numerous warehouses and transportation channels involved quite a challenging endeavor without supply chain software in place.
Improve on-time delivery performance
With supply chain, businesses can improve on-time delivery performance and boost customer satisfaction by achieving complete visibility into how finished goods are stored and distributed, regardless of the number of facilities or partners that participate.
Forecasting and Planning
With supply chain software, organisations can more accurately anticipate customer demand and plan their procurement and production processes accordingly.
As a result, they can avoid unnecessary purchases of raw-materials, eliminate manufacturing over-runs, and prevent the need to store excess finished goods, or slash prices to move products from warehouse shelves.
Supply chain software can simplify and accelerate the inspection and handling of defective or broken goods – on both the buy and sell side of the business – and automate the processing of claims with suppliers and distributors, as well as insurance companies.
Many supply chain offerings also include add-on options or modules designed to enhance related activities. Through these features, support is provided for a variety of important processes such as contract management, product lifecycle management, capital asset management and so forth.
Advantages of Supply Chain Management
Supply chain software provides numerous advantages to organisations, empowering them to improve operations from end-to-end.
Key Benefits of Supply Chain Management Software:
- Improve supply chain network
- Minimise delays
- Enhance collaboration
- Reduce costs
Disadvantages of SCM
The biggest disadvantage of global supply chain management is the heavy investment of time, money and resources needed to implement and oversee the supply chain.
About the author
Helen Fenton, Senior Analyst, Business Optimization Training Institute
Business Optimization Training Institute (BOTI) is a Johannesburg based, Level 1 BBBEE business. As a Services and MICT SETA accreditd company, we have trained thousands of individuals from over 650 compnies and our extensive course offering consists of Short Courses, Soft Skills Training and Recognition of Prior Learning (RPL) Learnership Programs. In addition, we offer bespoke training programs designed to cater to specific business needs. Our training courses are focused on knowledge and skills transfer and we pride ourselves in being able to provide training anytime, anywhere across South Africa.