Supply Chain Management (SCM): How It Works & Why It's Important

Supply chain management is an important aspect in the success and profitability of businesses across industries. It encompasses the planning, coordination, and execution of various activities involved in delivering products or services to customers.

From sourcing raw materials to delivering finished goods, effective supply chain management is essential for streamlining operations, optimizing costs, ensuring customer satisfaction, and gaining a competitive edge in the marketplace. In fact, a recent report from EY identified that supply chain visibility is one of the top priorities for companies all over the world.

Table of contents

What is supply chain management 

How supply chain management works

Types of supply chain management

Why supply chain management is important for business

Why effective and timely communication is critical for supply chain management

How DeskAlerts can support your supply chain delivery management

What Is Supply Chain Management (SCM)?

Supply Chain Management (SCM) is the comprehensive coordination and management of sourcing, procurement, conversion, and logistics activities. It also includes the crucial components of coordinating and collaborating with channel partners: suppliers, intermediaries, third-party service providers, and customers. In essence, SCM is about managing and optimizing the flow of goods, services, and information from the point of origin to the end customer. This strategic approach ensures that businesses can deliver their products or services efficiently, cost-effectively, and with high quality. Key aspects of SCM include:

• Predicting customer demand to ensure products are produced and delivered efficiently.
• The process of obtaining goods and services from suppliers.
• The actual creation of the goods or services.
• Managing the transportation and storage of goods.
• Handling returned goods and managing reverse logistics.

Effective SCM is crucial for minimizing costs, maximizing efficiency, and ensuring customer satisfaction. It involves a holistic approach in which every component of the supply chain is interconnected and managed cohesively.

How Supply Chain Management (SCM) Works

SCM operates through a series of interrelated processes, each crucial for the seamless flow of goods, services, and information:

1. Planning and Strategy

The foundation of SCM is planning and strategy development. This involves forecasting demand, determining the resources required, and devising strategies to balance supply and demand effectively. Planning ensures the supply chain can meet customer demands without overproducing or underproducing.

2. Sourcing and Procurement

Sourcing involves selecting suppliers who can provide the goods and services needed to produce the final product. Procurement is the process of acquiring these goods and services. Effective sourcing and procurement are critical for cost management and ensuring quality and timely delivery.

3. Manufacturing and Production

This stage includes transforming raw materials into finished products. It involves production scheduling, managing the manufacturing processes, and ensuring quality control. Efficient production processes are essential for meeting customer demands and minimizing costs.

4. Logistics and Distribution

Logistics involves the transportation and storage of goods. Distribution ensures that finished products reach the end customer. Effective logistics and distribution systems are vital for timely delivery and minimizing transportation costs. Technologies like GPS tracking and automated warehousing systems enhance the efficiency of logistics and distribution.

5. Return and Reverse Logistics

This involves managing the return of products from customers and the reverse flow of goods. Reverse logistics is essential for handling returns, recycling, and disposal of products. Efficient return processes can improve customer satisfaction and recover value from returned products.

6. Technology Integration

Modern SCM relies heavily on technology. Systems like Enterprise Resource Planning (ERP), Warehouse Management Systems (WMS), and Transportation Management Systems (TMS) integrate various components of the supply chain. Advanced analytics and Artificial Intelligence (AI) are also used to predict demand, optimize routes, and manage inventory.

7. Continuous Improvement

Continuous improvement involves regularly assessing and enhancing supply chain processes to achieve better efficiency, cost savings, and customer satisfaction. This may include implementing lean principles, adopting new technologies, and refining processes based on performance metrics and feedback.

Types of Supply Chain Models

Different businesses use various supply chain models based on their specific needs and industry requirements. Here are some common types:

1. Integrated Make-to-Stock Model

This model focuses on producing goods based on demand forecasts and stocking them for future sales. It is suitable for products with stable demand and allows companies to achieve economies of scale in production. This model requires accurate demand forecasting and efficient inventory management.

2. Build-to-Order Model

In this model, goods are manufactured only after receiving a customer order. It is suitable for customized products and helps reduce inventory costs. This model requires flexible manufacturing processes and good coordination with suppliers. It is often used in industries like aerospace and custom electronics.

3. Continuous Replenishment Model

This model involves continuously replenishing inventory as it depletes. It is suitable for products with consistent demand and helps maintain high product availability. It requires close collaboration with suppliers and real-time data on inventory levels. Retailers like Walmart use this model to keep shelves stocked efficiently.

4. Channel Assembly Model

In this model, components are shipped to assembly locations and assembled as per customer orders. It is suitable for products that can be easily assembled and helps reduce inventory costs. This model is often used in industries like automotive and electronics, where final assembly can be postponed until customer orders are received.

5. Efficient Consumer Response (ECR) Model

The ECR model focuses on improving the supply chain's efficiency by enhancing the flow of products and information. This model is commonly used in the grocery industry, where rapid replenishment and accurate demand forecasting are essential.

6. Agile Model

The agile model is designed for businesses that need to respond quickly to market changes and customer demands. It is suitable for industries with high demand variability and short product life cycles, such as fashion and consumer electronics. This model emphasizes flexibility and responsiveness.

7. Lean Model

The lean model aims to minimize waste and maximize efficiency. It focuses on reducing excess inventory, overproduction, and other forms of waste in the supply chain. This model is widely used in manufacturing industries to streamline processes and reduce costs.

8. Hybrid Model

The hybrid model combines elements of different supply chain models to meet specific business needs. For example, a company might use a build-to-order model for customized products and a make-to-stock model for standard products. This approach allows businesses to leverage the advantages of multiple models.

9. Green Supply Chain Model

This model integrates sustainable practices into supply chain management. It focuses on reducing environmental impact through initiatives like reducing carbon footprint, using eco-friendly materials, and minimizing waste. Companies adopting this model aim to enhance their environmental responsibility while maintaining efficient operations.

10. Digital Supply Chain Model

The digital supply chain model leverages advanced digital technologies such as IoT, AI, blockchain, and big data analytics. These technologies provide real-time visibility, enhance decision-making, and improve efficiency across the supply chain. This model is particularly useful for businesses looking to innovate and stay competitive in a rapidly changing market.

Each of these models has its advantages and challenges, and the choice of model depends on factors such as the type of product, market demand, and business strategy. Companies need to carefully evaluate their needs and select the model that best aligns with their objectives. For instance, a company with a high volume of standardized products may benefit from an integrated make-to-stock model. At the same time, a business that focuses on customized solutions might find the build-to-order model more suitable.

Why supply chain management is important for business

As companies strive to meet the ever-increasing demands of customers and navigate a rapidly changing business landscape, effective supply chain management remains a critical success factor. These are the reasons why it is important:

1. Cost efficiency

Efficient supply chain management helps businesses reduce their costs by streamlining processes, eliminating waste, and optimizing inventory levels. By improving coordination between suppliers, manufacturers, and distributors, companies can minimize lead times, avoid stockouts and reduce carrying costs.

2. Customer satisfaction

Supply chain management directly impacts customer satisfaction. Timely delivery, product availability, and the accuracy of orders are key factors that influence customer loyalty.

Effective supply chain management ensures that products are available when and where customers need them, leading to faster order fulfillment and reduced backorders. This results in improved customer satisfaction, repeat purchases, and positive word-of-mouth recommendations.

3. Competitive advantage

A well-managed supply chain can provide a significant competitive advantage. It enables businesses to differentiate themselves by offering superior customer service, faster delivery times, and better quality products than their competitors. By optimizing the supply chain, companies can respond quickly to market changes, launch new products faster, and adapt to customer demands more efficiently than their opposition.

4. Risk mitigation

Supply chain management helps businesses identify and mitigate risks associated with sourcing, production, and distribution. By diversifying suppliers, implementing contingency plans, and monitoring key performance indicators, companies can reduce the impact of disruptions such as natural disasters, political instability, or supply chain breakdowns.

5. Data-driven decision making

A vast amount of data can be generated in supply chain management that can be leveraged for informed decision-making. Advanced analytics, artificial intelligence, and machine learning techniques enable businesses to extract valuable insights from supply chain data. These insights help optimize inventory levels, forecast demand, identify bottlenecks, and improve overall operational efficiency.

Why effective and timely communication is critical for supply chain management

Communication is essential in supply chain management for coordination, information sharing, relationship building, conflict resolution, customer satisfaction, risk management, innovation, transparency, performance measurement, and adaptability.

Timely communication is communication that is delivered promptly to support efficient decision-making and collaboration. Timely communication examples include letting people know swiftly when there has been a problem in the delivery chain. By prioritizing timely communication, businesses can optimize their supply chain delivery operations and achieve long-term success.

The benefits include:

• Ensuring that all stakeholders, including suppliers, manufacturers, distributors, and retailers, are aligned with the overall goals and objectives of the supply chain.
• Facilitating the timely sharing of information, such as demand forecasts, production schedules, inventory levels, and delivery supply chain status.
• Enabling informed decision-making and planning plans to respond quickly to changes or disruptions in the supply chain.
• Building strong relationships among supply chain partners which is crucial in creating long-term partnerships and strategic alliances within the supply chain.
• Ensuring customer satisfaction in the supply chain. By communicating effectively with customers, businesses can gather feedback, understand their needs and preferences, and address any issues or concerns promptly.

How DeskAlerts can support your supply chain delivery management

DeskAlerts is a powerful internal communication solution that can greatly support businesses in managing their supply chain operations.

DeskAlerts lets you use a variety of tools and channels to cut through the digital noise in your organization and instantly communicate with the employees you need to reach. This ensures that important information, such as changes in delivery schedules, production delays, or inventory shortages, is immediately communicated to all relevant parties, allowing them to take appropriate actions promptly.

Ways to use DeskAlerts in supply chain management include:

1. Desktop alerts

DeskAlerts' core feature is the ability to send pop-up alerts directly to employees' desktop screens. This channel is particularly useful for urgent and time-sensitive communications related to supply chain management. It ensures that important information comes to the attention of employees immediately, allowing them to take prompt action.

2. Emergency notifications

In the event of supply chain disruptions caused by emergencies, natural disasters, or unexpected events, DeskAlerts can be used to quickly disseminate emergency notifications to supply chain teams. This helps ensure the safety of employees, mitigate risks, and activate contingency plans while minimizing the impact on the supply chain operations.

3. Alerting for inventory management

DeskAlerts can be utilized to notify supply chain teams about critical inventory levels. You can integrate DeskAlerts with other monitoring systems that you use in your company so that when a stock reaches predetermined thresholds, automated alerts can be sent to relevant personnel, prompting them to initiate reorder processes or take necessary actions to avoid stockouts or overstocking.

>>Learn About DeskAlerts’ Integration Tools<<

4. Mobile alerts

One of DeskAlerts’ most popular features is an employee app that enables you to disseminate information quickly to staff no matter where they are. This is especially useful when you need to reach non-desk employees, such as those involved in transport and logistics. ensuring that they stay informed and connected to supply chain communications at all times.

5. Acknowledgment of compliance and policy updates

DeskAlerts can be used to communicate supply chain-related policies, compliance guidelines, and regulatory updates to relevant personnel. This helps ensure that everyone involved in the supply chain adheres to the necessary standards, procedures, and legal requirements minimizing risks and maintaining compliance. You can send your alerts in a way that requires employees to acknowledge they have read and agree to the information - keeping them accountable.

6. Surveys and polls

There are survey and polling capabilities within DeskAlerts, allowing businesses to gather feedback and insights from supply chain personnel. Surveys and polls can be used to assess employee satisfaction, collect data on supply chain performance or obtain opinions on process improvements. This feedback aids in identifying areas for enhancement and making data-driven decisions.

>>The best 30 employee satisfaction survey questions<<

7. Targeted messaging

DeskAlerts allows businesses to target specific groups or individuals within the organization with tailored messaging. This feature is valuable for delivering customized communications based on roles, departments, or locations. Targeted messaging ensures that relevant information is sent to the appropriate recipients, reducing communication clutter and improving efficiency.

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By leveraging the channels and tools provided by DeskAlerts, businesses can enhance communication within their supply chain, ensuring that important information reaches the right people at the right time. This promotes better coordination, improved efficiency, and effective decision-making, ultimately benefiting the overall supply chain management process. Get in touch with our team of experts today for a free demonstration of how DeskAlerts can enhance your supply change management in your company.

FAQ:

What is timely delivery in supply chain management?

Timely delivery in supply chain management refers to the efficient and prompt delivery of products or services to customers within the agreed-upon timeframe. It ensures that goods reach their destination on time, minimizing delays and disruptions.

How do you ensure timely delivery of goods?

To ensure timely delivery of goods, it is essential to establish effective planning and coordination throughout the delivery supply chain. This includes accurate demand forecasting, efficient production scheduling, streamlined logistics, and proactive communication with suppliers and customers. How to improve on-time delivery? It involves ensuring robust tracking systems, optimizing transportation routes, and implementing contingency plans for potential disruptions also contribute to maintaining a smooth flow of goods and meeting delivery deadlines.

How do you ensure effective supply chain management?

Effective supply chain management can be achieved by focusing on key areas. This includes building strong relationships with suppliers, optimizing inventory levels, implementing efficient logistics and transportation strategies, adopting technology-driven solutions, fostering collaboration among stakeholders, and continuously monitoring and improving processes.

Why is timely delivery important?

Timely delivery is important because it directly impacts customer satisfaction, helps maintain a competitive advantage, reduces inventory holding costs, improves cash flow, fosters strong customer relationships, and enhances overall operational efficiency within the supply chain.

What factors make a supply chain effective and efficient?

Effective and efficient supply chains are characterized by:

• Strong collaboration and timely communication among stakeholders, including suppliers, manufacturers, distributors, and customers.
• Optimized inventory management, including accurate demand forecasting and streamlined replenishment processes,
• Efficient transportation and logistics operations, such as optimized routes, timely deliveries, and effective warehouse management.
• Technology integration, such as advanced analytics, automation, and real-time tracking that enhances visibility, decision-making, and overall supply chain performance.