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Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Supply Chain Management – Everything You Should Know

Key take-aways

  • Supply Chain Management (SCM) coordinates the flow of goods, data, and finances throughout the product lifecycle.
  • Industry 4.0 in SCM uses advanced technologies that enable data-driven decisions, responsiveness to customer needs, and cost savings.
  • The five essential phases—planning, sourcing, manufacturing, delivering, and returning—ensure a customer-centric and streamlined supply chain.
Supply chain management (SCM)  is needed to streamline the flow of goods, especially now that global demand is continuously rising. However, what is it?

For this article, we will discuss what supply chain management (SCM) is. We will tackle what Industry 4.0 in the supply chain is and the phases of supply chain management (SCM). Additionally, we will talk about the benefits you can gain and the best practices you can use for SCM.

Once you are done reading this article, you will gain a deeper understanding of what supply chain management (SCM) is, enabling you to streamline the flow of your goods in your operations.

Supply Chain Management: What is it?

Supply Chain Management (SCM) involves handling the movement of goods, data, and money for a product or service. Some people mistakenly believe it’s only about delivery, which is just one part (logistics) of SCM.

In reality, SCM covers everything from getting raw materials and making the product to delivering it to customers. Supply chain management aims to move goods and services efficiently and cost-effectively while keeping customers satisfied.

Supply Chain Management (SCM) has changed a lot over time. In the past, people traded goods over long distances with simple supply chain practices. Then, during the industrial revolution, factories and mass production needed better ways to get materials and distribute products.

The 19th century brought railways and telegraphs, improving transportation and communication in the supply chain.

In the late 20th century, companies started working together more closely in supply chain integration to handle global complexities. Later on, e-commerce and the internet presented new challenges and opportunities, needing flexible and efficient supply chain strategies.

Today, SCM keeps evolving with technology, customer preferences, and global changes. It remains an important part of businesses to deliver goods and services on time and at a lower cost while meeting customer demands.

Industry 4.0 in Supply Chain Management

Industry 4.0 in Supply Chain Management (SCM) refers to the usage of advanced technology and data-driven solutions to improve how supply chains work. It’s like the fourth industrial revolution, building on past advancements like steam power and automation.

With Industry 4.0, things like AI, machine learning, IoT, and automation are changing how companies make and deliver products.

Industry 4.0 SCM is a huge advantage over traditional SCM because it helps companies plan and execute their operations better, saving costs.

For example, let’s consider a clothing company using Industry 4.0. They can collect real-time data on the latest fashion trends and customer preferences.

With this information, they can produce just the right amount of popular clothing items, reducing excess inventory and minimizing the risk of unsold items.

Furthermore, Industry 4.0 in SCM creates a smarter and more efficient supply chain that responds quickly to customer needs. It encourages companies to make better decisions using data, streamline processes, deliver goods faster, and meet customer demands.

The Phases of Supply Chain Management

Supply Chain Management is done with the following phases:

1. Planning

For SCM to work well, start with planning to meet customer demands. Companies have to anticipate what they’ll need in the future and plan accordingly.

This includes knowing how much raw material is needed, equipment capacity, and the right number of staff for each step in the SCM process. Big companies often use ERP systems to gather information and create plans.

2. Sourcing

During this phase, organizations identify and choose vendors who can supply materials smoothly and effectively based on agreements.

During vendor selection, companies assess various factors such as the vendor’s reliability, quality of products or services, pricing, and delivery capabilities.

This is a critical stage where supply chain collaboration begins and remains important throughout the entire supply chain management process.

3. Manufacturing

During this phase, products are manufactured. In the manufacturing phase, companies carefully follow their production plans to create the products. They test the products to make sure they meet quality standards and comply with any legal requirements.

Once the products are ready, they are packed and stored until they are released for sale or distribution.

4. Delivering

The delivery phase represents the first direct interaction between customers and the products, making it a crucial part of the overall customer experience. During this phase, the company manages transportation, warehousing, and inventory to meet customer demand efficiently.

It strives to find the most effective and reliable methods to deliver products to their destinations.

5. Returning

At the end of the supply chain process, companies deal with product support and customer returns. When customers need to return products, it can be a hassle for everyone.

This is called reverse logistics, and companies need to be ready to handle returns and give refunds if needed.

The returning phase covers all kinds of product returns, like defective items or products that are no longer supported.

It involves managing inventory and transportation, making sure everything goes smoothly.

Benefits of Supply Chain Management

Here are some of the benefits that companies can gain when they effectively manage their supply chain:

1. Improved ability to predict and meet customers’ demand

SCM allows companies to analyze market trends and historical data to make more accurate demand forecasts.

With improved forecasting, companies can ensure they have the right amount of inventory on hand, reducing stockouts and overstock situations, which ultimately leads to better customer satisfaction.

2. Reduced process inefficiencies and less product waste

SCM focuses on streamlining processes, reducing bottlenecks, and eliminating inefficiencies in the supply chain.

Optimizing production and distribution processes can minimize waste, reduce costs, and enhance the overall productivity of companies.

3. Better visibility

SCM uses technology and data analytics to gain real-time visibility into supply chain operations.

With better visibility, companies can proactively identify potential risks and disruptions, allowing them to mitigate those risks and respond to challenges more effectively.

4. Enhanced quality

Through SCM practices, companies can ensure consistent quality across their products or services.

By monitoring and controlling processes at every stage of the supply chain, they can maintain high-quality standards, leading to increased customer satisfaction and loyalty.

5. Improved sustainability practices

SCM enables companies to make environmentally and socially responsible decisions. It involves considering factors like carbon footprint, ethical sourcing, and responsible waste management, leading to more sustainable practices.

6. Decreased overhead costs

SCM helps identify cost-saving opportunities by optimizing inventory levels, transportation routes, and manufacturing processes.

By reducing overhead costs, companies can improve their profit margins and remain competitive in the market.

Best Practices in Supply Chain Management

Here are some of the best practices to foster successful supply chain management:

1. Automate your processes

In today’s digital age, leveraging advanced technology and automation is vital for a modern and efficient supply chain. This includes using software for inventory management, demand forecasting, order processing, and data analytics.

By embracing technology, companies can improve visibility, reduce manual errors, optimize processes, and respond quickly to changes in demand or market conditions.

2. Foster collaborative relationships or partnerships

A key factor in managing a supply chain is having good partners who collaborate well. This means having open communication, shared goals, and working together.

Without these alliances, the supply chain can struggle, leading to inefficiency, lost profits, and unhappy customers due to late or damaged deliveries.

To strengthen these partnerships, set measurable goals for improvement and have a clear plan to resolve any issues that may arise. Using tools like carrier scorecards can help track performance and address problems, making your transportation spending more effective.

3. Inventory optimization

Inventory management is crucial in a well-functioning supply chain. Once you know the expected demand, you need to figure out the right amount of inventory to keep on hand.

This involves calculating optimal stock levels and developing replenishment practices. Having clear visibility into inventory is essential for accurate demand planning.

Another important aspect is aligning inventory management with supply chain goals.

This means adjusting operations to match inventory with demand, reducing costs, speeding up the order process, shortening delivery times, and improving document management.

Real-time inventory tracking and automated reordering based on specific criteria help companies make informed decisions and improve their inventory management strategy.

It provides valuable insights and supports data-driven planning.

4. Performance evaluation

Regularly evaluating supply chain performance through key performance indicators (KPIs) and metrics allows companies to identify areas for improvement.

By analyzing supply chain data, companies can pinpoint inefficiencies and implement continuous improvement initiatives to enhance overall supply chain performance.

5. Set up a robust organizational structure

To make the supply chain work smoothly and efficiently, it’s essential to have a strong foundation. The way a supply chain is organized reflects its success.

Companies can choose between a centralized or decentralized approach, but a hybrid system combining both strategies offers flexibility and adaptability.

Once the structure is decided, hiring the right people becomes crucial. Many companies now include purchasing, procurement, planning, contract management, and logistics under the supply chain head.

Putting the right people in charge ensures an optimized supply chain structure.

Conclusion

Supply Chain Management is a dynamic and evolving discipline crucial for businesses to navigate the challenges of global demand.

From its historical roots to the current Industry 4.0 advancements, SCM ensures efficient operations, customer satisfaction, and adaptability to technological and market changes.

Frequentlyasked questions

What is supply chain management?

Supply Chain Management (SCM) involves handling the movement of goods, data, and money for a product or service.

What is Industry 4.0 in SCM?

Industry 4.0 in Supply Chain Management (SCM) refers to the usage of advanced technology and data-driven solutions to improve how supply chains work.

Why is SCM important for businesses?

SCM is important for businesses because it helps optimize processes, reduce costs, improve customer satisfaction, and enhance overall efficiency. An effective supply chain ensures timely delivery, minimizes waste, and supports better decision-making, contributing to a competitive advantage.

About the author

My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.

Marijn Overvest Procurement Tactics