Understanding supply chain managementPosted on: March 1, 2023
by Ruth Brooks
Supply chain management (SCM) is the management of every step in the supply chain from sourcing raw materials to putting stock on shelves at retailers. For this reason, supply chain management is key to business running smoothly. We know that the Covid-19 pandemic put pressure on global supply chains and exposed inefficiencies and shortfalls. Both logistics networks and labour forces were impacted by illness of workers, while the continued aftermath of Brexit also affected employee numbers as migrant workers left the United Kingdom permanently. Plus, the effects of climate change are becoming evident as weather is less predictable from season to season and extreme events threaten to disrupt supply chains in the long-term.
Seemingly local events have a knock-on effect globally. For example in February 2021, Texas experienced uncharacteristically cold weather for a period of time which became known as the Texas Freeze. This then caused the worst energy blackout in U.S. history. As a consequence three major semiconductor plants – including Samsung’s plant – experienced shutdowns, which only exacerbated the global semiconductor shortage (the shortage had originally been triggered by the pandemic). This then caused disruptions in the automotive industry with a slowdown in production of microchip-dependent cars. On a national level in the USA, the outages forced railway closures, which created a break in supply chain links between Texas and the Pacific Northwest for three days. Samsung lost over $270 million from just one month’s interruption. The supply chain is exactly that – a chain, and so any disruption leads to a chain reaction.
What are the six steps of supply chain management?
The supply chain operations reference (SCOR) model was designed to help evaluate the effectiveness of supply chains as well as of sales and operational planning (S&OP). It was developed in 1996 by the management consulting firm PRTM and originally it streamlined supply chain management into four processes: planning, sourcing, making, and delivering. The fifth and sixth steps – returning and enabling – were later added. The latest version of SCOR incorporates aspects such as metadata, omnichannel, and blockchain.
Each step deals more specifically with the following aspects of SCM:
Planning – identification of resources, material requirement planning, communications, establishment of delivery chains, alignment of business objectives with supply and demand, examination of best practice, inventory assessment, transportation, fulfilment of regulation requirement, resources requirement to improve efficiency.
Sourcing/Procuring – assessment of demand for goods and availability and the purchase, receipt, testing and provision of raw materials.
Making/Manufacturing – planning of production and manufacture, implementation of quality control, packaging design and creation, planning of market-ready products based on demand forecast.
Delivering – transportation, warehousing, distribution management and all associated processes for the completion of goods and services.
Returning – the processing of returned goods, consideration of the full lifecycle of a product for a sustainable supply chain, creating a closed loop system for disposal or recycling of goods, ensuring that this is an easy and accessible process for the best customer experience.
Enabling/Supporting – includes processes such as supply chain risk management, legal requirements, business rules and regulations, facilities performance, contractual requirements, and database management.
The full SCOR model is based upon a hierarchical structure illustrated by a pyramid with the top level (the pinnacle of the pyramid) made up of the six steps of the business process. Beneath this is the configuration layer. This is more of a tactical level which focuses on the performance of the supply chain completely independently from its company or the business sector in which it operates. Beneath that, at the base of the pyramid is the design level. This is the operational level, where the configuration level processes are broken down once more into sub-processes. It’s at this base level that process elements are defined and optimisation takes place to increase efficiency.
Many companies use enterprise resource planning (ERP) software for the day-to-day planning of these supply chain processes that can also overlap with operations management.
How is technology changing the supply chain ecosystem?
Although the phrase “supply chain” suggests linearity, the supply chain ecosystem is more of a network of various suppliers and partnerships. Supply chain networks integrate new technologies and real-time data so that all parties are able to make informed decisions about forecasting and incorporate risk management for when plans inevitably change. Even the most effective supply chains are subject to change, but managing these efficiently leads to customer satisfaction, and so a competitive advantage.
As supply chains have grown, they have become more complex in all areas from procurement to inventory management and logistics to sustainability. Logistics and distribution have become particularly specialised and many companies now outsource this vital function to third party logistics (3PL) partners who have much more experience and resources.
3PLs are more likely to have built their systems upon the latest Service as a Software (SaaS) technology and cloud computing so don’t need to perform the huge undertaking of digital transformation that some organisations struggle with. They also offer inventory management and warehousing, something that many organisations have come to rely on to avoid transportation issues and delays. Warehousing takes advantage of local depots and anticipates customer demand for certain items in certain areas. Much of this can be monitored and predicted with the help of artificial intelligence (AI) and automation.
Another area which is revolutionising supply chain performance is blockchain. Blockchain allows for traceability, transparency, and security. It can also be used to create automated smart contracts. This ensures that all parties are paid when goods are delivered or certain steps in the chain are complete without the involvement of unnecessary bureaucracy or the complications of multiple communication channels with different departments.
Meanwhile the internet of things (IoT) is increasingly being used by shipping ports and freight facilities. Combined with blockchain, this means that sensors and transmitters attached to shipments can confirm when they have reached their destination and determine whether they’re in good condition or not.
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The supply chain sector is rapidly changing and improving but still with many exciting challenges that need long-term solutions. Because the supply chain affects all aspects of business, it is a key area of knowledge, the understanding of which can help in better decision making, tighter supply chain processes, and ultimately, an optimised value chain.
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