The vulnerabilities of today's global supply chains were starkly exposed by the COVID-19 crisis, its fallouts in a post-pandemic world, and the conflict in Ukraine. In recent years, it has become unambiguously clear that organizations need to move rapidly towards supply chain digitization and futuristic supply chain practices to keep the ecosystem rolling in a well-oiled way.
This can be achieved by recognizing three essential priorities resilience, agility, sustainability, and the supply chain function's conventional cost, quality, and service goals. In addition, global supply chain leaders must revamp their supply chain management solutions to align with these SCM models and approaches:
- Agile Supply Chains provide flexibility and quick responses to shifting customer demands and unpredictable market changes.
- Continuous Flow Models focus on smooth and uninterrupted movements to minimize delays and bottlenecks.
- Resilient Supply Chains manage disruptions through adaptability, scalability, visibility, and reliability.
- Green Supply Chains focus on emissions reduction, resource optimization, and aiding the transition to a clean economy.
- Digital Supply Chain solutions use advanced analytics, artificial intelligence, the Internet of Things, and digital twins to improve visibility, predictability, and decision-making.
- Six Sigma Supply Chains utilize a data-driven approach to shrinking defects, cutting down variability, and improving quality.
- Total Quality Management (TQM) enables a climate of customer focus and operational excellence throughout the supply chain to improve and synergize redundantly.
What is Supply Chain Management?
Simply put, supply chain management encapsulates the coordination of a business’s entire production flow, from sourcing raw materials to delivering the final product. It’s not just about the final goods. It’s also about managing a vast network of suppliers, distributors, wholesalers, retailers, customers, and internal resources. An effective supply chain strategy focuses on minimizing waste, time, and costs in the production cycle, allowing enterprises to build a competitive advantage while increasing profitability.
The Five Stages of SCM
The entire SCM process is comprised of five key stages, from the point of strategy and forecasting demand to final distribution to customers and managing returned products. Let’s explore what happens in each stage:
Planning
You can’t put a solid plan into action without a proper plan. That’s why planning is done at the first stage. This is where the supply chain team develops a strategy for managing all resources required to meet customer demands. The process involves forecasting demand and aligning resources based on the company’s current and future needs. Below are key planning decisions made in supply chain management:
- Streamlining operations
- Reducing operating costs
- Negotiating supply and demand
- Organizing all people and materials required to meet demands
Sourcing
Also known as the procurement stage, sourcing is considered the most important stage in the entire SCM process. It is also the stage where significant cost savings can be achieved compared to the rest. Here, companies handle key areas of procurement, including ordering, receiving, and managing inventory. It also involves selecting suppliers and authorizing their payments. Supply chain managers have additional responsibilities as well, such as:
- Negotiating contracts with suppliers to receive the necessary goods
- Building a network of suppliers, even from different geographical regions and nurturing relationships.
Manufacturing
This is where the magic happens. In this stage, all plans and procurement come together, allowing the organization to transform raw materials into semi-finished or complete goods. Here, supply chain professionals actively perform and oversee all activities related to the in-house production of goods. Some of the core activities include product testing, production output, inventory optimization, packaging, quality assurance, etc.
Delivery
The next stage is about getting the finished goods to the customers. This is a crucial stage that emphasizes the safe distribution of goods and overall customer satisfaction. Supply chain leaders figure out the logistics of how and when the product will move to the next stage of the supply chain and across distribution channels.
Returns
Also known as reverse logistics, this stage simply focuses on the process of receiving returned goods and assigning refunds. Customer dissatisfaction, defective products, or product recalls are a few of the reasons this may occur. This may be the last stage, but it can trigger consequences concerning future supply chain steps, especially when the product does not meet safety standards. Such situations can be avoided when supply chain teams are proactive in recognizing problems and organizing corrective actions.
History & Evolution of SCM
The history and evolution of supply chain management can be traced back to several key stages evolving across centuries:
Early Beginnings
- The concept of supply chains existed for thousands of years, 3000 BC, with the barter system, where ancient societies like the Egyptians and Mesopotamians traded valuable goods like spices, cloth, and metals.
- Trade routes like the Silk Road became active all the way till the mid-15th century, not only promoting world commerce but also leading to the formation of diverse societies across the globe.
Industrial Age
- During the late 18th to early 19th century, Industrialization introduced the assembly line and marked the history of supply chains with mechanization and mass production.
- The development of steam engines, railroads, and other means of transport gave the supply chains and the farther reaches of the world in expanded the supply chains.
Creation of SCM Concept
In 1982, Keith Oliver, a British logistician and consultant, coined the term “Supply Chain Management.” He used this term to describe the integrated management of all processes from raw materials to final consumption.
The principle focused on managing the flow of goods, cost reduction, and re-engineering of key supply chain processes.
Globalization and Expansion
- After World War 2, global supply chains expanded rapidly with advancements in transportation and containerization.
- The advent of multinational logistics companies like DHL and FedEx also simplified physical distributions.
- Throughout the latter half of the 20th century, supply chains evolved into complex global networks including multiple tiers of distributors and suppliers.
Digital Transformation and Industry 4.0 (The future of SCM)
- Digital technologies from the 1990s further revolutionized supply chain management, thanks to Electronic Data Interchange and ERP systems.
- The internet further enhanced existing processes with supply chain visibility.
- Now, Industry 4.0 leads the future of supply chain management by introducing the concept of smart manufacturing. This system emphasizes the use of IoT sensors, big data, AI, and automation. They also facilitate dynamic routing, predictive maintenance, risk management, and responsiveness, adding more to global interconnectivity.
Why will resilient supply chains triumph?
Achieving supply chain resilience has become essential for organizations aiming to navigate challenges and maintain operational continuity. Historically, supply chain designs used to be "episodic," requiring annual upgrades. But modern organizations can perform design exercises on demand, thanks to accurate data analytics and digital twins.
Technology is helping bridge the barriers between supply chain risk management solutions and procurement, and enabling them to collaborate effectively. Organizations can now identify voids during the supply chain design phase and turn them into sourcing events. New technologies that optimize supply chain design and sourcing will become a competitive advantage.
Cloud-based platforms also assist and enhance supply chain finance. This ensures that organizations pay suppliers on time, maintain their loyalty and liquidity, and establish a win-win situation for customers and suppliers.
Key Challenges in SCM
There are plenty of supply chain strategies and solutions that you can follow in SCM. However, they’re not without some underlying challenges that may hinder the process. Let’s look at some of them:
Unexpected delays
Global supply chains involve several steps and covering long distances, leaving the entire SCM process or parts of it vulnerable to delays. Long lead times for goods also contribute to unexpected delays in shipments.
Cost control
Costs of raw materials, energy, freight, and labor have witnessed significant spikes due to several factors, like changing consumer demands, raw material shortages, inflation, trade wars, and policy changes. This can take a hit on the company’s profits, with supply chain leaders having to restructure production and delivery plans at reasonable rates.
Port congestion
This happens when ports become overwhelmed, and ships wait to dock and unload. The result is a ripple effect of problems from shipping delays and backlogs, longer wait times, and increased costs. It is the kind of challenge that can cause the most impact, as the combined effects of delays, costs, and inventory issues will disrupt the flow of goods, from raw material availability to final product delivery.
Supply chain management trends shaping the future
The Internet of Things (IoT), big data, and advanced analytics are among the most crucial developing technological fields for supply chain solutions. Here are some innovative approaches that would accelerate digital transformation in the upcoming years:
Hyper Automation
A collection of technologies, such as robotic process automation (RPA), smart robots, artificial intelligence (AI), and machine learning (ML), can facilitate or automate large-scale procedures and activities that required human decision-making or action in the past.
Digital Supply Chain Twin
A digital depiction of multiple representations between the physical supply chain data elements, used as a foundation for local and end-to-end coordinated decision-making.
Immersive Experience and Application
The use of augmented reality (AR), mixed reality (MR), and virtual reality (VR) gives users including clients and staff a cutting-edge perception of the virtual world.
Edge Ecosystems
Integrating edge computing and edge data processing, delivered through human resources networks, equipment, smart machines, sensors, and computing systems, helps make well-informed, dependable, secure, and swift decisions.
Supply Chain Security
The implementation of security across information and digital levels (customer information, intellectual property, proprietary coding, transactions, and personal data) and physical levels (devices, equipment, products, operations infrastructure, and assets). The future of supply chain security will be crucial in protecting against cyber threats and ensuring data integrity. In this case, SCM accelerators will play a major role in enhancing such levels of security for future-ready retail network solutions.
Environmental, Social, and Governance (ESG)
Corporate performance and evaluation metrics that assess a company's ability to effectively manage its environmental and social effects and the strength of its governance processes.
Integrated AI and Analytics
Software features that integrate advanced analytics and intelligence, such as machine learning (ML), predictive analytics, and prescriptive analytics, directly into enterprise business applications in real time.
Augmented Reality and Data Intelligence
A tool that combines old and new technologies with near-real-time data from the ecosystem. This enables enhanced data processing and the transmission of insightful data, forecasts, and suggestions that are pertinent and adaptable to user experiences.
Momentum for change
Today, supply chain consulting trends and management practices must be future-proofed to ensure the resilience, agility, and sustainability of the supply chain function. And looking past the current supply chain crisis, we can expect progress. For supply chain leaders, the past two years have been crucial, and many are building on the momentum they achieved during the pandemic by taking action to adapt and modernize. While there are other ways to building the supply chain of the future, these methods are a great starting point to minimize future disruption.
The future of supply chain security will continue to evolve, with a focus on protecting against increasingly sophisticated cyber threats and ensuring the integrity of data throughout the value chain. CPG supply chain digitization and management will play a crucial role in enhancing security measures and enabling real-time monitoring of potential risks.
Future-proof supply chain by enabling last-mile adoption with Tredence today! Our expertise in management and digitization of supply chain can help you build a resilient and agile supply chain ready for the challenges of tomorrow.
FAQs
1. What are the 5 stages of SCM?
The SCM process consists of five stages
- Planning
- Sourcing
- Manufacturing
- Delivery
- Returns
To expand upon each stage, it begins with anticipating demand, securing reliable suppliers and expediting negotiations, producing the goods efficiently, delivering the final product, and handling returns.
2. What’s the difference between SCM and logistics?
Logistics is simply a subset of the broader SCM process. It specifically deals with the tactical execution of goods movement, storage, and distribution. On the other hand, SCM refers to the entire supply chain lifecycle, beginning from the planning and sourcing of raw materials to final delivery.
3. What are the 7 C’s of SCM?
The 7 C’s of supply chain management are:
- Connect
- Create
- Customize
- Coordinate
- Consolidate
- Collaborate
- Contribute
4. How does supply chain management impact business success?
From lower expenses to higher customer satisfaction, effective supply chain management solutions have many advantages. Businesses can also easily adjust to changes in the market, keep positive relationships with suppliers, and establish a sustained competitive advantage.
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