Infographic with a cart, lorry and customer depicting supply chain

What is supply chain management?

Posted on: March 15, 2022

Supply chain management (SCM) is the smooth flow of goods and services from the point of sourcing to customer. In goods, this means the procurement of raw materials through to creating and distributing products on-shelf in stores or delivered direct to the customer. In providing a service, the supply chain usually charts the journey from digital interface (a website or platform) through to delivering the service. In both instances, there may be many different third parties and stakeholders along the chain that contribute to the successful final delivery of the product or service.

Supply chain networks work closely with operations management and logistics. The need for interaction between SCM and many different business processes means enterprise resource planning (ERP) is often employed. This is a form of business management software that gives all stakeholders a real-time overview that supports decision-making and project management. These kinds of information systems provide frameworks that give insight into the status of supply chain lifecycles.

The supply chain is inextricably linked to customer satisfaction. It encompasses price, quality and availability of products. The six components of supply chain management that the Chartered Institute of Procurement and Supply (CIPS) outline on their website are:

  • Planning: Deciding whether you will manufacture or buy stock and whether it will be sourced domestically or internationally.
  • Sourcing: From identifying and evaluating through to building strong relationships with suppliers that provide quality goods and services at a sustainable price.
  • Demand/inventory: Meeting customer demand with inventory management and real-time manufacturing schedules.
  • Production: Ensuring the right volumes and quality of production.
  • Warehousing and transportation: Storing and delivering the product effectively.
  • Return of goods: Ensuring an effective returns process for customer satisfaction.

Why supply chain management is important

The past few years have brought unprecedented change and challenge to global supply chains. Disruptions from the pandemic, climate crisis, and geopolitical tensions have made forecasting difficult, precipitating change in the entire supply chain and a rethink of the logistics network. 

During events like lockdowns and extreme weather, the strain on the supply chain becomes even clearer as people become more reliant on basics such as food, energy, and medicine supplies. Ecommerce has seen rapid growth in the last few years and shows no sign of slowing. According to Insider Intelligence, the global ecommerce market is set to hit $5.55 trillion in 2022. All these factors contribute to a situation where pre-pandemic business models are no longer reliable and a new supply chain strategy is required that incorporates risk management as a priority.   

The rise of warehousing in SCM

Warehouses have become extremely valuable as retail companies look to store products closer to distribution hubs. This is part of an effort to meet customer demand and avoid backlogs and shipping delays on orders. 

Retailers and suppliers are holding more inventory – sometimes referred to as “safety stock” – nearer to large conurbations in a bid to reduce shipping costs. They are also relying more on automation and data analysis in ways that Amazon pioneered. Amazon also utilises robotics to support picking and packing with more than 200,000 mobile robots working alongside thousands of human workers in its warehouse network. This level of optimisation has led to Amazon successfully navigating supply chain risk throughout the pandemic. By chartering their own planes and ships, they have continuously been able to avoid hotspots in the global supply chain crisis.

In a report from December 2021, commercial property agents CBRE predicted that warehousing would lead to growth in the following territories:

  • Poland: Bordering Germany and six central and eastern European countries, Poland is a strong candidate for global companies to establish manufacturing and distribution facilities.
  • Mediterranean ports in Spain and Greece: Spain is accessible through the Suez Canal, making it an ideal port of entry for goods from Asia. Piraeus in Greece has emerged as the top port in the Mediterranean leading to heightened demand for logistics space in Athens.
  • Turkey: The seventh largest global exporter of textiles and apparel by value, Turkey is well positioned as a manufacturer when shipping costs are rising in China and production delays continue due to outbreaks of coronavirus.

With more inventories comes more inventory management. Balancing profitability with competitiveness is key, as although providers of goods want to be well stocked, they do not want stock sitting in the warehouse leading to higher storage costs and waste. 

In case studies within the fresh grocery sector, turnaround of goods is fast so storage is less of an issue. However, whatever the consumer goods, demand forecasting relies heavily on analytics as well as partnerships between manufacturers, producers, and logistics providers to ensure optimal supply chain performance.

Algorithms for logistics management

Predictive analytics and algorithms support networks in the supply chain and logistics. They help to plan in numerous ways that ensure orders are delivered on time in full (OTIF). These include:

Efficient loads and routes

Logistics providers need to use capacity optimally while maintaining some flexibility to deal with contingencies like last-minute orders, rerouting, and cancellations. 

Algorithms can make sense of dynamic and unpredictable realities. They provide the resilience needed to cope with inevitable changes and can identify the best way to group orders based on stackability, destinations, and delivery windows.

Assigning loads to trucks and drivers

Deciding how goods will be transported is dependent on maximising the number of utilised hours per truck and minimising empty mileage. This requires the consideration of:

  • Staffing resource
  • Driver requirements and home base
  • Regulations on carbon emissions, driving hours, and rest periods
  • Predicted congestion at various times throughout the day or week
  • Road conditions and suitability for different vehicle classes

Algorithms ensure drivers can complete the delivery of as many loads as possible while complying with the law. As new conditions emerge, algorithms automatically recalculate estimated times of arrival and warn about changes that can affect agreed schedules.

Feedback drawn from pick and pack

Algorithms can make recommendations about how to streamline the pick and pack process to fill delivery trucks most efficiently. Drivers and retailers can also flag damages that occurred during transportation to prevent them happening again in future. Packaging material and sizing can be better planned or crate use, batching and 3D cubing reviewed.

Is supply chain management a good career?

The supply chain is vital to practically all businesses. Rapid transformations in the sector are challenging industries to maintain a competitive advantage while building in sustainability. A sustainable supply chain is no longer about the lowest price for good quality; the planet’s resources are under pressure and innovative solutions are needed to sustain business and sustain the ecosystem.

Study with the University of Wolverhampton and embark upon an online MBA where you can improve your skills on this part-time course while continuing to work and contribute to better business processes in a world of diversification. If you’re interested in specialising in financial management, our online MBA Finance will give you skills to support the streamlining of processes and create a more resourceful supply chain.

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