Supply chain management (SCM )is the backbone that keeps the world economy moving. For every car, phone, and rubber chicken there exists a long history of workers, components, and the shippings that all combine to form a supply chain. The most effective management of a supply chain can be the difference between a decent company and a stellar one.
In this post, we’ll take a look at how the supply chains are laid out, what traditional management methods look likes, and what’s coming down the pipeline for the SCM (supply chain management).
What is supply chain management (SCM)?
Supply chain management is a holistic term describing the different stages through which products or services travels before finally reaching the end-user. It involves the activities, such as procurement and transportation; and processes, such as product life cycle management and customer service management.
At its core, is the attempt to make the creation of products or the services more efficient. A restaurant provides a great example of how this all works. We all know the basics—someone buys the food, cooks it, and sells it. The details are where supply chain management comes into play.
First, let’s spell the whole process out. We want to sell an omelet.
- Farmer A produces the eggs. Farmer B produces the cheese and the butter. Farmer C produces the ham. This is not a vegan omelet, apparently.
- Farmers A and C then sell their eggs and ham to a large company, Supplier A. Farmer B, meanwhile, only works with the Supplier B.
- Suppliers A and Suppliers B then make the separate deliveries to the restaurant, where we receive the goods and store them in the appropriate places.
- We prep a bunch of food in the morning to make a ton of omelets.
- When an orders comes in, we combine the ingredients and then plate it.
- Plate served, Finally money collected.
Just looking at the lists you can start to see where the weak links in the chain might crop up. You can probably also see a few places where we could make things more efficient. Maybe we can get our dairy from the same supplier or combine some food before the orders come in, knowing how much we typically sell.
This is how supply chain management starts (For manage your supply chain process a better supply chain management ERP Required). You look at everything you’re doing and try to sort out the requirements from the excess. Then, you consolidate processes or switch suppliers or change the layouts to accommodate a more efficient system.
There’s a balance to be struck in all this between finding the shortest route to completion and creating the pinch points. If you end up relying on one supplier for all your produce, you’ll need new backup plans should that supplier run low or raise costs or go out of business.
Supply chain managers try to balance the whole end-to-end process without sacrificing the quality or introducing the new risks.
Real-world supply chain success
Walmart is one of the classic supply chain management success story. In the 1980s, Walmart started cutting out the middlemen in its supply chain system, working directly with its suppliers instead. It was then able to decentralize its distributions center operations to take advantage of its size and variety of suppliers.
Walmart started by focusing on the steps involved in the process and trying to trim those down to the bare min (Minimum). It did this, in part, by implementing a vendor managed inventory (VMI) system. Using VMI, Walmart shares a huge amount of sales data’s with its vendors and suppliers and then make them responsible for managing the inventory in the warehouse.
This has all sorts of benefits for the Walmart and its vendors, but the biggest is that it cut down on ‘out of stock’ situations. By 1989, Walmart had cuts its distribution costs down to less than 2% of its total cost of goods sold.
Walmart decide to streamline by turning its system into a relationship with the vendors and the distributors. It’s a system that many high-end restaurants and coffee roasters are starting to use as well. Instead of relying on the market prices and classic delivery timelines, companies are reaching out directly to the producers and customizing the deliveries, payments, and shipping.
While Walmart set the bar for 20th-century distribution and the supply chain management, it’s the 21st century now. Things are changing in supply chain management (SCM), and new names are rising to the top.
Future Of Supply Chain Management
- Technology complements teams
- IoT makes warehouses smarter
- Pre-fulfillment speed becomes vital
- Customization along the supply chain
- Inventory flow optimization
- Further optimization of working capital
- Enhanced relationships with suppliers
- Blockchain provides universal visibility
- Integration into overall operations
Managing a supply chain is a quite difficult task and it takes a team of people. These days, those folks are helped along by the supply chain management system and ERP software systems that helps individuals take in a global view.