What is supply chain management?
Your guide to all things supply chain management, including best practices, emerging trends, and more.
From raw materials to consumer goods, supply chain management (SCM) encompasses the entire process of assembling and delivering a sellable product. SCM includes the disciplines of supply planning, product planning, demand planning, sales and operations (S&OP) planning, and supply management.
Making SCM a key focus of your strategic activities can have a positive impact that resounds throughout your entire business — but to do that you must first ensure you understand some foundational principles.
What are the best practices of supply chain management?
To succeed in a growing global market, you need a supply chain that’s connected from start to finish, across your enterprise and beyond. Here are five steps to succeed in connected supply chain planning:
1. Make the move to real-time supply chain planning
When using enterprise resource planning (ERP) systems and spreadsheets for planning, companies typically rely only on historical data, resulting in little wiggle room for changes should any disruptions occur in demand or supply. For example, based on the previous year’s numbers, a company can estimate the number of products it will sell in the next quarter. But what if a massive hurricane destroys a key distribution center, leading to too little supply on the shelves?
2. Unify supply chain planning with enterprise planning
A vital second step is connecting traditionally siloed supply chain planning to sales and operations planning and financial planning. Companies can benefit from synchronizing their short-term operational planning with their wider business planning processes to make real-time updates to inventory forecasts and supply.
Deploying real-time S&OP solutions that enable enterprise-wide collaboration means that key stakeholders across the business can create new scenarios and quickly assess how to use their resources to optimize profitability.
3. Anticipate the demand of the end customer
For consumer packaged-goods companies, anticipating what customers want and when they want it is an ongoing challenge. A solution like Anaplan allows end-to-end visibility across the supply chain and beyond an existing network of wholesalers and retailers to sense demand signals from customers.
When changing consumer sentiments can be rapidly identified and changes to demand for the product assessed, the company, partners, and customers benefit from improved profitability, margins, and lead time.
4. Leverage real-time data across all points of the supply chain
Because supply chain planning typically involves myriad suppliers, channels, customers, and pricing schemes, models can become large and potentially unwieldy — especially when spreadsheets are the primary planning tools. Incorporating a solution that uses real-time data allows planning with greater accuracy and reduces the risk of stock-outs or surplus inventory.
5. Ensure the flexibility to cope with change
When technology facilitates efficient planning and quick reactions, disruptions aren’t the end of the world because re-planning and re-forecasting is easy — resulting in time and money saved and increased profitability.
What is the supply chain management process?
The SCM process is composed of four main parts: demand management, supply management, S&OP, and product portfolio management.
1. Demand management
Demand management consists of three elements:
- Demand planning is the process of forecasting demand to make sure products can be reliably delivered. Effective demand planning can improve the accuracy of revenue forecasts, align inventory levels with demand levels, and enhance profitability.
- Merchandise planning is a systematic approach to planning, buying, and selling merchandise to maximize ROI while making merchandise available at the places, times, prices, and quantities the market demands.
- Trade promotion planning is a marketing technique to increase short-term demand for products in retail stores based on special pricing, display fixtures, demonstrations, value-added bonuses, no-obligation gifts, etc.
2. Supply management
Supply management is made up of five areas:
- Supply planning determines how best to fulfill the requirements created from the demand plan. The objective is to balance supply and demand in a manner that achieves the financial and service objectives of the enterprise.
- Production planning addresses the production and manufacturing modules within a company. It considers the resource allocation of employees, materials, and of production capacity.
- Inventory planning determines the optimal quantity and timing of inventory to align it with sales and production needs.
- Capacity planning determines the production staff and equipment needed to meet the demand for products.
- Distribution planning and network planning oversees the movement of goods from a supplier or manufacturer to the point of sale. Distribution management is an overarching term that refers to processes such as packaging, inventory, warehousing, supply chain, and logistics.
S&OP is a monthly integrated business management process that empowers leadership to focus on key supply chain drivers, including sales, marketing, demand management, production, inventory management, and new product introduction.
With an eye on financial and business impact, the goal of S&OP is to enable executives to make better-informed decisions through a dynamic connection of plans and strategies across the business. Often repeated monthly, S&OP enables effective SCM and focuses the resources of an organization on delivering what their customers need while remaining profitable.
4. Product portfolio management
Product portfolio management is the process involved in going from initial product idea to market introduction. A company must have an exit strategy for its product when it reaches the end of its profitable life — or in case the product doesn’t sell well.
Product portfolio management includes:
- New product introduction
- End-of-life planning
- Cannibalization planning
- Commercialization and ramp planning
- Contribution margin analysis
- Portfolio management
- Brand, portfolio, and platform planning
What skills are needed for supply chain management?
Successful supply chain leaders combine technical and business knowledge with collaboration and communication skills. The ability to influence department leaders that partner with supply chain is key, as well as the skills to interact intelligently with leaders across the organization is essential. And strong business acumen is a must-have — you’ll be more effective working with your counterparts in finance, sales, and marketing if you can speak their lingo.
When speaking of the potential conflict between man and machine, some have said AI won’t replace managers, but managers who work with AI will replace managers who don’t. This highlights the transformation taking place in supply chain: humanity is essential, but so is technology. It’s not a paradox; it’s the new normal. This leader is digitally dexterous, but also skilled with people. And this leader is a storyteller — digging into the countless layers of the supply chain to find the issues and weaving the right story together to help solve them.
The many-faceted role of a supply chain leader is changing as we speak. To thrive in this new world, supply chain professionals should grow their capacities in collaboration, communication, and leadership, and pair those skills with in-depth technical knowledge to become a powerful force for the future of SCM software.
What will supply chain management look like in the future?
Here are a few key emerging trends in SCM.
Artificial intelligence and machine learning
History-based forecasting is used to drive supply chain planning, but artificial intelligence (AI) and machine learning (ML) are primed to change that forever. AI- and ML-based predictive models will transform processes like demand sensing, shaping, and orchestration, as well as supply planning. AI will begin to drive dynamic pricing, and new product introductions will be based on predictive market intelligence. AI and ML will also drive new models for product promotions management, as well as responses to disruptions in the supply chain.
Regulatory challenges and security risks
With the continued risk of high-profile hacks that compromise the information of millions of consumers, companies will need to raise the standards of their privacy and protection protocols. Macroeconomic concerns, political instability, oil prices, and resource availability will all require action across the enterprise, including within the supply chain. As a result, supply chain planners will need sophisticated modeling capabilities to plan for all potential scenarios.
A dynamic, connected future
Supply chain managers are always looking for new ways to take advantage of opportunities and to overcome obstacles as the modern supply chain evolves. With a connected supply chain planning approach and the use of new technologies, data is brought together, and more people are integrated into decision-making processes. As the supply chain of the future comes into view, these trends will play a key role in supply chain transformation.