What Is Supply Chain Management?

Supply chain management comprises the strategic manipulation of all supply chain processes, including sourcing, manufacturing, distribution and transportation logistics, to optimize operations for improved cost, asset utilization and revenue.

September 21, 2018  •  5 minute read

All around us, the global economy buzzes with activity. Networks of companies are technologically connected to communicate real-time data, sync appropriate business actions, and maximize the cost-efficiency of operations. Companies wishing to succeed in an international marketplace know that offering a great product is not enough to compete with the world’s best supply chains; they must also perfect the processes that move their products along, through, and between the links in their own.

The increasing need for speed and accuracy derives from several market forces:

  1. The quickness of communications by electronic networks creates shorter production cycles.
  2. Consumer habits and expectations are always changing, which keeps pressure on supply chain managers to revitalize operations for faster door-to-door delivery.
  3. Trends consistently come and go, ever-threatening product inventories with obsolescence.

To combat these forces, companies must be both forward-thinking regarding the latest tech applications and efficiencies, yet also grounded and confident in their respective areas of expertise. There is a delicate balance to be struck between expending energies for new product innovation and continuing mastery of delivering the products already brought to market. Companies who can execute this balancing act are those best-equipped to handle changing market tides swiftly, and are poised to turn a profit from progressive market developments.

The strategic manipulation of processes involved in creating and delivering desirable products for the consumers who want/need them is what has come to be known as supply chain management (SCM).

Supply chains may be domestic or global, linear or spider-like—more often, though, supply chains are best described by the latter. Therefore, before discussing SCM, it's necessary to understand the complexity of a global supply chain.

 

What Is a Supply Chain?

A supply chain is defined as "a network between a company and its suppliers to produce and distribute a specific product, and the supply chain represents the steps it takes to get the product or service to the customer."

Supply chains in 2018 entail that nearly every product on the market is the result of multiple organizations working together to move goods through a complex supply chain of suppliers, manufacturers, distributors, and finally retailers, before ultimately landing in the hands of consumers.

A supply chain requires (at least) these three entities: a supplier, a producer/manufacturer, and of course, the customer.

 

SCM: Basic Concepts

Supply Chain Flow Engines

A supply chain may be illustrated as two main flows:

  1. Physical (Product) Flow
  2. Information Flow

Together, physical and information flows comprise the links in a supply chain. Other flow engines include cash, risk, and value flows.

Physical Flows

Comprising the transmutation, movement and warehousing of raw materials and finished commodities, physical flows are the most easily observable elements of a supply chain.

Information Flow

It would be impossible to maximize supply chain profitability without sharing information across the complex network of organizations involved in the supply chain. Information is what bridges the gaps between each stage of supply chain operations, affecting each strategic decision made as commodities move through the chain.

Supply Chain Processes

Planning: This process includes designing and coordinating a network of organizations within a supply chain. Predictive analytics help to anticipate consumer demand and drive decision-making.

Sourcing: Also called procurement, this refers to the buying of raw materials from strategically chosen suppliers.

Manufacturing: This encompasses the mechanisms by which raw materials are turned into parts for a product, or constructed into a final product for sale.

Distribution: Logistics managers ensure the flow of goods and materials are moving through the supply chain quickly and safely.

Return Logistics: This entails reversing the aforementioned flows to mitigate any issues that may arise after product delivery (i.e., incorrect order fulfillment, customer dissatisfaction, or damaged product, etc.).

 

Lucky Sevens

Seven Rights of Fulfillment

This memorable quip—the seven rights of fulfillment—serves as a cheat sheet for the parameters making up a so-called "perfect order."

  1. Right Product
  2. Right Quantity
  3. Right Condition
  4. Right Place
  5. Right Time
  6. Right Customer
  7. Right Cost

If all seven of these requirements are met, a perfect order has been fulfilled.

For more information about the logistics of order fulfillment, visit the Logistics 101 section of this blog: What Is Freight Management Logistics?

Seven Principles of SCM

The first issue of the popular industry magazine Supply Chain Management Review included an article titled "The 7 Principles of Supply Chain Management" by David L. Anderson, Frank F. Britt and Donavon J. Favre. In the decade since its publication, it has become the single-most-requested piece of writing in the history of the magazine.

The article details the authors' analyses of initiatives put forth by more than 100 manufacturers, distributors, and retailers intended to improve supply chain operations. They found that successful organizations focused on initiatives sharing certain common themes:

  • The initiatives were part of "broad efforts" that combined both strategic and tactical change.
  • Supply chain managers view their projects holistically, with the entire supply chain—end-to-end—in mind, and set goals regarding revenue, cost and asset utilization, such that the overall improvement to the supply chain is "greater than the sum of its parts."

When all was said and done, Anderson, Britt and Favre determined that the most profound lessons to come out of their study could be distilled into what is now widely known in the industry as—you guessed it—the seven principles of supply chain management.

The seven principles of SCM include:

  1. Segment customers based on the service needs of distinct groups and adapt the supply chain to serve these segments profitably.
  2. Customize the logistics network to the service requirements and profitability of customer segments.
  3. Listen to market signals and align demand planning accordingly across the supply chain, ensuring consistent forecasts and optimal resource allocation.
  4. Differentiate products closer to the customer and speed conversion across the supply chain.
  5. Manage sources of supply strategically to reduce the total cost of owning materials and services.
  6. Develop a supply chain-wide technology strategy that supports multiple levels of decision-making, and gives a clear view of the flow of products, services and information.
  7. Adopt channel-spanning performance measures to gauge collective success in reaching the end-user effectively and efficiently.

More than a decade later, these principles are still often referred to by industry professionals. Two key takeaways are consistent across all seven principles:

1. Focus on the customer. Since the article's publication, the world has experienced the advent of same-day delivery. We 'future people' can certainly attest that the market has only ever become more consumer-centric as time passes.

2. The importance of seamless coordination of processes across all links in your supply chain cannot be overstated. It is synchronized coordination, rather than superior products, that enable the world's most successful supply chains to reign supreme in the globalized marketplace.

Logistics providers (3PLs, freight forwarders, etc.) are experts at supply chain planning and management. They provide strategic consultation, negotiate shipping rates with carriers, coordinate freight transportation, and handle customs processes for importing and exporting materials and commodities in and out of various countries included in a supply chain, all on behalf of shippers.


CAF Worldwide is an industry-leading freight forwarder with unmatched customs expertise. To learn more about logistics and supply chain management, Subscribe to the CAF Worldwide Blog, or Contact Us to request a quote.

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Topics: Logistics and supply chain management