What is supply chain management?
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What is supply chain management?

Supply chain management is the handling of the entire production flow of goods or services—starting from the raw components to delivering the final product to consumers. A company creates a network of suppliers that move the product from raw materials suppliers to organizations that deal directly with users.

Why is supply chain management important?

Effective supply chain management systems minimize cost, waste and time in the production cycle. The industry standard has become a just-in-time supply chain where retail sales automatically signal replenishment orders to manufacturers. Retailers can then restock shelves almost as quickly as they sell products. One way to further improve on this process is to analyze the data from supply chain partners to see where to improve further.

By analyzing partner data, CIO identifies three scenarios where effective supply chain management increases value to the supply chain cycle:1

Identifying potential problems

When a customer orders more products than the manufacturer can deliver, the buyer can complain of poor service. Through data analysis, manufacturers might be able to anticipate the shortage before the buyer is disappointed.

Optimizing price dynamically

Seasonal products have a limited shelf life. At the end of the season, retailers typically scrap these products or sell them at deep discounts. Airlines, hotels and others with perishable “products” typically adjust prices dynamically to meet demand. By using analytic software, similar forecasting techniques can improve margins, even for hard goods.

Improving the allocation of “available to promise” inventory

Analytical software tools help to dynamically allocate resources and schedule work based on the sales forecast, actual orders and promised delivery of raw materials. Manufacturers can confirm a product delivery date when buyers place orders—significantly reducing incorrectly-filled orders.

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How does supply chain management work?

Most experts and practitioners refer to five critical components of supply chain management:

Planning

Plan and manage all resources required to meet customer demand for a company’s product or service. When the supply chain is established, determine metrics to measure whether the supply chain is efficient, effective, delivers value to customers and meets company goals.

Sourcing

Choose suppliers to provide the goods and services needed to create the product. Then, establish processes to monitor and manage supplier relationships. Key processes include: ordering, receiving, managing inventory and authorizing supplier payments.

Manufacturing

Organize the activities required to accept raw materials, manufacture the product, test for quality, package for shipping and schedule for delivery.

Delivery and logistics

Coordinate customer orders, schedule deliveries, dispatch loads, invoice customers and receive payments.

Returning

Create a network or process to take back defective, excess or unwanted products.

Key features of effective supply chain management

The supply chain is the most obvious “face” of the business for customers and consumers. The better and more effective a company’s supply chain management is, the better it protects its business reputation and long-term sustainability.

IDC defines supply chain management by identifying the five Cs of the effective supply chain management of the future:2

  • Connected: Accessing unstructured data from social media, structured data from the Internet of Things (IoT) and more traditional data sets available through traditional enterprise resource planning (ERP) and business-to-business (B2B) integration tools.

  • Collaborative: Improving collaboration with suppliers increasingly means the use of cloud-based commerce networks to enable multi-enterprise collaboration and engagement.

  • Cyber-aware: Hardening systems and protecting them from cyber-intrusions and hacks is a crucial enterprise-wide concern for the supply chain.

  • Cognitively enabled: Collating, coordinating, and conducting decisions and actions across the chain, the AI platform serves as the modern supply chain's control tower, enabling most of the supply chain to be automated and self-learning.

  • Comprehensive: Scaling analytics capabilities with data in real time to ensure that insights are comprehensive and fast is critical, as latency is unacceptable in the future supply chain.

Many supply chains have begun this process, with participation in cloud-based commerce networks at an all-time high and with major efforts underway to bolster analytics capabilities.

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Evolution of supply chain management

While yesterday’s supply chains focused on the availability, movement and cost of physical assets, today’s supply chains are about the management of data, services and products bundled into solutions. Modern supply chain management systems are about much more than just where and when. Supply chain management affects product and service quality, delivery, costs, customer experience and ultimately, profitability.

As recently as 2017, a typical supply chain accessed 50 times more data than just five years earlier. However, experts analyze less than a quarter of this data. That means the value of critical, time-sensitive data—such as information about weather, sudden labor shortages, political unrest and microbursts in demand—can be lost.

Modern supply chains take advantage of massive amounts of data that the chain process generates and that analytical experts and data scientists curate. Future supply chain leaders and the ERP systems they manage will likely focus on optimizing the usefulness of this data—analyzing it in real time with minimal latency.

Supply chain consulting

With IBM Services®, you can evolve your supply chain processes into intelligent workflows to reach new levels of responsiveness and innovation. Challenge siloed processes to uncover efficiencies and enable your teams to execute and deliver. Use emerging technologies like AI and blockchain to unlock opportunities in every step of the value chain—from demand planning to order orchestration and fulfillment.

Explore supply chain consulting services
Explore supply chain topics What is a supply chain control tower?

A supply chain control tower is traditionally defined as a connected, personalized dashboard of data, key business metrics and events across the supply chain.

What is order management?

Order management is the tracking of orders from inception to fulfillment, and the management of the people, processes and data connected to the order as it moves through its lifecycle.

What is inventory management?

Inventory management, a critical element of the supply chain, is tracking inventory from manufacturers to warehouses and from these facilities to the point of sale.

What is electronic data interchange (EDI)?

EDI is the intercompany communication of business documents in a standard format. It is a standard electronic format that replaces paper-based documents such as purchase orders or invoices.

What is supply chain analytics?

Supply chain analytics helps to make sense of the massive amounts of data a supply chain generates by uncovering patterns and generating insights.

What is supply chain optimization?

Supply chain optimization makes use of technology and resources like blockchain, AI and IoT to maximize efficiency and performance in a supply network.

Blockchain for supply chain solutions

Blockchain for supply chain solutions help supply chain leaders use data to handle the disruptions of today and build resiliency for the future.

What is B2B integration?

B2B integration is the automation of business processes and communication between two or more organizations.

What is managed file transfer (MFT)?

MFT is a technology platform that allows organizations to reliably exchange electronic data securely and in compliance with applicable regulations.

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Supply chain management resources Expert supply chain insights

Find articles on everything from supply chain sustainability to relevant technology trends and government regulations.

Supply chain solutions

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Forging the future of supply chains

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Take the next step

IBM Sterling Supply Chain Intelligence Suite is an AI-based optimization and automation solution. Designed for organizations struggling to solve supply chain disruptions through traditional transformation, the suite facilitates supply network resiliency and sustainability, increases agility and accelerates time-to-value through actionable insights, smarter workflows and intelligent automation.

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Footnotes

1 "What is supply chain management? Mastering logistics end to end"(link resides outside ibm.com), Bart Perkins, Sarah K. White, Thomas Wailgum, CIO, 28 October 2021

2 "The Path to a Thinking Supply Chain", Simon Ellis, John Santagate, IDC Technology Spotlight, August 2018