What is supply chain management (SCM)?
Supply chain management (SCM) is the centralised management of the flow of goods and services to and from a company. It includes all the processes transforming raw materials and components into final products. It ensures the smooth flow of goods, information, and finances from raw material suppliers to the final consumer. In conclusion, SCM encompasses planning, monitoring, and optimising these processes to meet customer demands efficiently and cost-effectively.
With effective SCM, companies can optimise their operations and services, save costs and deliver products to the consumer faster and more efficiently. SCM’s five critical phases are planning, sourcing, production, distribution, and returns.
What are the phases of supply chain management and how does it work?
Supply chain management encompasses several key phases that streamline the flow of goods, services, information, and finances from raw material suppliers to the end customer. These are:
- The planning phase involves forecasting demand, determining inventory levels, and designing the supply chain network.
- The sourcing phase involves selecting suppliers and procuring raw materials or components. It also includes managing supplier relationships, negotiating contracts, and ensuring quality compliance.
- The manufacturing phase focuses on production scheduling, assembly, and quality control. It ensures that products are manufactured efficiently and meet customer specifications.
- The delivery phase encompasses warehousing, order fulfilment, transportation, and distribution, ensuring the timely delivery of finished products to customers.
- Returns (reverse logistics) phase handles product returns, repairs, recycling, or disposal. It aims to minimise waste and enhance sustainability.
- The sustainability optimisation phase focuses on reducing carbon footprint, improving energy efficiency, and optimising supply chain operations to align with environmental and social governance (ESG) goals.
What are the objectives of supply chain management?
The objectives of the supply chain management are:
- Enhancing customer satisfaction: Deliver the right products in quantity, quality, and time.
- Optimising costs: Reduce operational and inventory costs while maintaining quality and reliability.
- Improving delivery efficiency: Streamline processes to minimise delays, waste, and redundancies.
- Increasing agility: Enable quick responses to market changes, customer demands, or disruptions.
- Strengthening supplier relationships: Develop mutually beneficial partnerships with suppliers for long-term stability.
- Promoting sustainability: Implement practices that reduce environmental impact and comply with regulations.
Why is it crucial for businesses?
Scope 3 refers to indirect greenhouse gas emissions and the supply chain, including raw material extraction, transportation, and product usage or disposal. Effective supply chain management can play a critical role in minimising these emissions by:
- Partnering with environmentally conscious suppliers that use renewable energy and eco-friendly practices.
- Optimise transportation routes and switch to low-emission vehicles or modes like rail and sea over air freight.
- Procuring raw materials that have a lower carbon footprint.
- Encouraging designs that use recyclable materials and consume less energy during production and use.
- Implementing circular economy principles to recycle and reuse materials across the supply chain.
- Using carbon accounting tools to measure, monitor, and report emissions throughout the supply chain.
What are the benefits of effective supply chain management?
Effective supply chain management has manifold benefits. These are:
- Save cost: Efficient supply chain management reduces production and logistics expenses.
- Improve productivity: Streamlined operations lead to better use of resources and workforce.
- Enhance quality control: Close monitoring ensures high-quality products and processes.
- Faster delivery times: Optimised logistics enable timely product delivery.
- Mitigate risk: Proactive planning reduces vulnerability to supply chain disruptions.
- Promote sustainability: Helps fulfilling environmental goals, such as reducing carbon footprints and waste.
- Provide competitive advantage: Efficient supply chains offer better pricing, reliability, and service.
What are the supply chain models?
Supply chain management varies significantly across companies, as each business has unique goals, constraints, and strengths that shape its approach. By choosing the right model, companies can lead effective supply chain management. The most practised models in the business world are:
Continuous Flow Model
This traditional model is ideal for industries with steady and consistent demand. Manufacturers produce the same product repeatedly, anticipating minimal variations in customer demand. It is particularly suited for well-established, mature industries.
Agile Model
The agile model emphasises flexibility, enabling companies to adapt quickly to changing needs. This approach is most effective for businesses dealing with unpredictable demand or producing custom-order products, where responsiveness is critical.
Fast Model
Designed for industries with products that have short life cycles, the fast model focuses on quick production and turnover. Companies leveraging this model aim to capitalise on trends, ensuring their products are manufactured and sold before the trend fades.
Flexible Model
Ideal for businesses impacted by seasonal demand fluctuations, the flexible model ensures production can scale up during peak seasons and down during off-peak times. It is particularly effective for companies requiring dynamic adjustments to meet varying demand levels.
Efficient Model
This model is tailored for industries with tight profit margins, where maximising efficiency is essential to maintain competitiveness. Companies applying this approach focus on optimising equipment use, managing inventory effectively, and streamlining order processing to reduce costs.
Custom Model
When none of the predefined models fit, businesses can develop a custom SCM model. This is often necessary for highly specialised industries with unique technical requirements, such as automotive manufacturing, where tailored processes are critical.
How to implement supply chain management effectively?
To implement supply chain management effectively, businesses need to follow these steps:
Analyse the current supply chain:
- Identify existing processes and inefficiencies or bottlenecks
- Assess supplier performance and logistics reliability
Set clear goals:
- Define objectives such as cost reduction
- Improve lead times or sustainability targets
Leverage technology:
- Use Enterprise Resource Planning (ERP) systems
- Supply chain management software
- Automation tools for real-time tracking and data analysis
Collaborate with stakeholders:
- Build strong relationships with suppliers, manufacturers, and logistics providers
- Foster transparency and communication across the supply chain
Focus on sustainability:
- Incorporate eco-friendly materials and energy-efficient processes
- Set measurable goals for reducing emissions and waste
Monitor KPIs and adapt to market dynamics:
- Continuously evaluate performance using Key Performance Indicators (KPIs) such as delivery accuracy, order fulfilment rates, and inventory turnover
- Adapt to market dynamics or emerging technologies
