What is Supply Chain Management? A Beginners Guide for Digital Transformation

Written By: Kyler Cheatham
Date: July 15, 2022

Supply chain management (SCM) is a process that includes the planning and coordination of all activities involved in sourcing, procurement, conversion, and logistics management. It is a strategy through which businesses streamline their supply chains to improve efficiency and effectiveness while reducing costs.

The ultimate goal of SCM is to create a seamless, integrated system that delivers the right product, at the right time, and in the right quantity to the customer while minimizing waste and maximizing profitability.

There are three key elements to supply chain management:

1. Sourcing: This involves the identification and selection of suppliers who can provide raw materials, components, or finished products needed by the company.

2. Procurement: This is the process of negotiating contracts and prices with suppliers, placing orders, and managing supplier performance.

3. Logistics: This encompasses all activities involved in the transportation and storage of goods, from the point of origin to the point of consumption.

The goal of SCM is to create a system that integrates all of these activities to deliver the right product, at the right time, and in the right quantity while minimizing waste and maximizing profitability.

SCM is a critical function for any business that relies on the flow of goods and materials to produce finished products or provide services. An efficient and effective SCM system is essential for meeting customer demand, reducing inventory costs, and maximizing profits.

Benefits that can be achieved through supply chain management:

  • Streamlined operations
  • Reduced inventories
  • Increased sales
  • Improved customer satisfaction
  • Shortened product life cycles
  • Reduced production costs

What Happens if a Supply Chain is Broken?

Supply chains are the backbone of an organization and can be critical to success, yet they are often complex and ever-changing.

Supply chains are often broken because of a lack of communication and coordination between the different parties involved. This can lead to delays in shipments, errors in orders, and other problems that can disrupt the flow of goods and materials. In addition, supply chains can be disrupted by natural disasters, political instability, and other unforeseen events. 

A broken supply chain can have a major impact on an organization, including decreased sales, higher production costs, and lower customer satisfaction. In some cases, a broken supply chain can even lead to bankruptcy.

Thus, it is important for businesses to carefully manage their supply chains and to have contingency plans in place in case of disruptions.

Key tips for managing a supply chain:

  • Establish clear objectives and KPIs.
  • Define roles and responsibilities.
  • Build relationships with a diverse group of suppliers.
  • Implement effective communication protocols.
  • Monitor the supply chain regularly.
  • Have a contingency plan in place.

Why are Global Supply Chains Struggling?

There are several reasons why global supply chains are challenged within our current business climate. One of the key reasons is the increasing complexity of supply chains. With businesses operating in multiple countries and across different time zones, there are more opportunities for things to go wrong.

In addition, the rising cost of labor, transportation, and raw materials is putting pressure on profit margins. Another challenge is the growing number of regulations and standards that need to be met. Geopolitical tensions and natural disasters can also disrupt supply chains.

Despite these challenges, global supply chains continue to play a vital role in the economy. They allow businesses to source materials and products from around the world, which helps to keep costs down. In addition, they provide an important link between suppliers and customers.

Supply Chain Management Tools

Supply chain management software is a type of business software that helps businesses plan, execute, and monitor their supply chain operations. It can be used to track inventory levels, orders, and deliveries. In addition, supply chain management software can help businesses optimize their shipping routes and schedules. These tools can also be used to monitor supplier performance and compliance with regulations.

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Examples of SCM systems are:

  • Oracle SCM Cloud
  • SAP Ariba
  • JDA Software
  • Infor
  • Sage X3

Supply chain management software can save businesses money by helping them to optimize their operations. For example, the software can help businesses to plan efficient shipping routes and schedules. In addition, supply chain management software can help businesses to track their inventory levels and to avoid stockouts. By carefully managing their supply chains, businesses can ensure they are future-proofing their business and avoiding any revenue loss.

How to Select SCM Software

There are a few things to consider when selecting SCM software for a business. One is to think about the specific needs of the business and what type of software would best meet those needs. Another is to consider the budget and whether the software is affordable.

It is also important to think about whether the software is easy to use and whether it will be compatible with other software that the business uses. Any tool will need to effectively integrate with the other systems within the business to maximize business value. Any new system or technology will require data management and sharing strategy.

Data is important in supply chain management because it helps businesses to track their inventory levels, orders, and deliveries. In addition, data can help businesses to optimize their shipping routes and schedules. Data can also be used to monitor supplier performance and ensure compliance, especially for global supply chains.

Many ERP systems have supply chain capabilities or applications. Moving back to the examples above - Oracle, SAP, JDA, Infor, and Sage. Each of these systems has different features and functions that can be used to manage a supply chain as well as other functionality in a variety of business areas. If your organization has a current ERP suite, be sure you understand the current capabilities.

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Internal and External Support

There are a number of factors that can affect the success of a supply chain. One of the most important is the management of the supply chain. Internally, an effective supply chain manager will have a deep understanding of all aspects of the supply chain, from sourcing and procurement to transportation and logistics. They will also be able to utilize a variety of tools and resources to help manage the supply chain.

One of the most crucial and underutilized tools for supply chain management is expert advice. Many experts, like our team at Third Stage, have extensive experience in managing supply chains, especially within specific industries. These experts can provide valuable insights and recommendations that can help improve the efficiency of a supply chain. In addition, they can help identify potential problems and offer solutions or recommendations for tools and strategies.

If you have questions about supply chain management or systems, please feel free to reach out to me directly, kyler.cheatham@thirdstage-consulting.com. Also, be sure to download our newly released 2023 Digital Transformation Report.

Kyler Cheatham
Kyler Cheatham is a digital artist and innovator who is always thinking of new ways to improve the world around her. As the Global Marketing Director at Third Stage Consulting, she uses her creativity and tech-savvyness to help businesses reach their target audiences. Kyler is also a thought leader in the digital marketing space, and she loves sharing her knowledge with others. She is also a mother of two young children, which has given her a unique perspective on balancing work and family life.
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