Supply chain management (SCM) sounds like a straight-forward topic; nevertheless, numerous articles have been written on the subject explaining what it is and what it isn’t. Ask a person on the street what constitutes supply chain management and my guess is they would say SCM means ensuring the entire supply chain, from procurement of raw materials to product delivery, runs smoothly. That’s pretty much how Adam Hayes, a derivatives trader and private wealth manager, sees it. He writes, “Supply chain management is the management of the flow of goods and services and includes all processes that transform raw materials into final products. It involves the active streamlining of a business’s supply-side activities to maximize customer value and gain a competitive advantage in the marketplace.”[1] How important is supply chain management? Sara White, a Marketing Coordinator at SupplyPike, observes, “SCM performance directly impacts an organization’s general performance. In terms of cost-effectiveness, estimates show that businesses with extended global supply chains have between 80% and 90% of their costs involved in their supply chains. Also, as offshoring makes modern supply chains more complicated, multi-channel distribution and global marketplace emphasize on the importance of SCM.”[2] Clearly, supply chain management is critical to a business’ success. In fact, Lora Cecere (@lcecere), founder of Supply Chain Insights, insists, “The supply chain IS Business, not a department within a business.”[3]
The importance of supply chain management
Analysts from River Logic write, “Businesses that organize, streamline and manage their supply chains benefit from lower direct and indirect costs. This leads to increased revenue and answers the question, ‘What is supply chain management and why it is important?'”[4] White adds, “The economic environment of the 21st century is extremely aggressive, with sleek, high-efficiency supply chains often redefining the standards of success, average performances, and failures. Large- and mid-sized businesses are often pitted against small and active new ventures, making the implementation of supply chain management systems more crucial.” Like most things in life, change has been a constant SCM characteristic. Abhishek Bansal (@abheshekbansal), Co-Founder & CEO of Shadowfax, notes, “Over the last decade, with the evolution of technology and the advent of ecommerce, the concept of supply chain management has undergone metamorphosis.”[5] Hayes suggests SCM involves five different areas: The plan or strategy; the source (of raw materials or services); manufacturing (focused on productivity and efficiency); delivery and logistics; and, the return system (for defective or unwanted products). I would a sixth area: Sales and marketing. Although sales and marketing may not be traditional supply chain areas, an enterprise cannot adequately plan without sales and marketing inputs.
As noted above, Bansal believes supply chain management has undergone metamorphic change over the past decade. He singles out four areas causing that change: Technology, visibility, risk management, and customer segmentation. Concerning technology, he writes, “New and emerging technologies powered by the internet and ease of connectivity have made disruptive changes in the way the sector was managed traditionally. Technologies like blockchain, data analytics, cloud computing, etc. have transformed the sector. Moreover, new consumer-connect technologies have placed huge and novel demands on supply chain system.” In fact, if you look at the matrix found below, which lists Hayes’ SCM areas vertically and Bansal’s SCM disrupters horizontally. You’ll see that technology can affect every area of supply chain management.
Supply chain visibility has been a supply chain problem for a long time; and, extended global supply chains, involving multi-tiered suppliers, have only exacerbated visibility challenges. Bansal notes, “Supply chain visibility helps in tracking and tracing the exact location of the products [as they move through the system]. Improving and strengthening supply chain visibility helps in reducing the complexities in supply chain management.” As a result of the coronavirus pandemic, the whole world learned about the importance of supply risk management and supply resilience. Bansal explains, “Supply chains are usually vast and complicated networks. If one part of this network is exposed to risk, all other parts become vulnerable to disruption. With growing business complexities there is a driving need for a deeper understanding of how supply chains operate and how to operate efficiently while managing risk.” Bansal’s final area of disruption is customer segmentation. He writes, “Supply chains are ever-evolving which requires constant optimization and attention. … Customer Segmentation allows a supply chain to better tailor its efficiencies to cater to various audience subsets.” This is a critical capability in the e-commerce era. As the following charts demonstrates, supply chain management is a complicated area requiring a high level of collaboration.
As President and CEO of a cognitive computing company, you won’t be surprised to learn I believe cognitive technologies will play an important (even critical) role in future supply chain management activities. Bansal notes, “Effective supply chain management in no longer about reaction to crisis rather it is about crisis prediction and being ready with solutions, thanks to the technological evolution and the changing mindset of decision-makers [crisis preparedness is becoming a reality].” Brian Hodgson (@fivepond), Senior Vice President of Industry Strategy for Descartes Systems Group, Inc., has identified what he believes are the three top trends in supply chain management that professionals need to watch.[5] They are:
1. Collaborative networks. Hodgson explains, “We are transitioning from legacy point to point EDI networks to real-time, API, collaborative networks. Furthermore, there are new ‘specialty’ networks that have emerged that connect parties and that also integrate in the larger networks. … These include, for example, real-time freight visibility; IoT networks for tracking assets such as containers, pallets and unit load devices (ULDs); and capacity networks, … which results in improved asset and fleet utilization, better inventory control, and reduced congestion and detention.”
2. Data-as-a-service (DaaS). “With the expansion of networks and associated data,” Hodgson states, “there is a huge growth in harmonizing data and providing it as a service to downstream applications. This may include data on truck locations/routes and data to identify warehouses and their congestion. … Additionally, information on trading lanes, volumes at ports, and shipments from overseas suppliers can be leveraged in applications for sourcing, transportation, and carrier negotiation.”
3. Advanced analytics & AI. According to Hodgson, “New technology for visualization and benchmarking is making its way into operational teams to enable more agile supply chains. As the data quality increases, artificial intelligence can further accelerate supply chains by using data to improve carrier selection, identify new sources of products, classify products for global trade more quickly.”
Concluding thoughts
River Logic analysts note, “The term supply chain management covers all the activities associated with managing an organization’s [supply chain] with the goal of reducing costs, improving efficiency, [and] satisfying demand. Because there are costs associated with achieving these goals, it’s essential that organizations devise and implement supply chain plans or strategies.” Hayes adds, “Improvements in productivity and efficiency go straight to the bottom line of a company and have a real and lasting impact. Good supply chain management keeps companies out of the headlines and away from expensive recalls and lawsuits.” Supply chain managers face ever more complex activities. Fortunately, new technologies, like the Enterra Supply Chain Intelligence System™, are emerging to help them cope with these complexities.
Footnotes
[1] Adam Hayes, “Supply Chain Management,” Investopedia, 11 August 2019.
[2] Sara White, “Understanding Supply Chain Management,” SupplyPike Blog, 14 May 2020.
[3] Lora Cecere, “Sage advice? Only for turkeys.” eft, 1 February 2013.
[4] Staff, “What is Supply Chain Management and Why is it Important?” River Logic Blog, 9 October 2019.
[5] Patrick Burnson, “Descartes exec shares ‘Top Three Trends’ in supply chain management,” Logistics Management, 30 December 2019.
