What is supply chain management?

Supply chain management is the handling of the entire production flow of a good or service — starting from the raw components all the way to delivering the final product to the consumer. To accomplish this task, a company will create a network of suppliers (the “links” in the chain) that move the product along from the suppliers of raw materials to the organizations who deal directly with users.

According to CIO, there are six components of traditional 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.
  • Making – Organize the activities required to accept raw materials, manufacture the product, test for quality, package for shipping and schedule for delivery.
  • Delivering (or logistics) Coordinating customer orders, scheduling delivery, dispatching loads, invoicing customers and receiving payments.
  • Returning – Create a network or process to take back defective, excess or unwanted products. 
  • Enabling – Establish support processes to monitor information throughout the supply chain and assure compliance with all regulations. Enabling processes include: finance, human resources, IT, facilities management, portfolio management, product design, sales and quality assurance.

Evolution of supply chain management

While yesterday’s supply chains were 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 is about much more than just where and when. Supply chain management affects product and service quality, delivery, costs, the customer experience and ultimately, profitability.

As recently as 2017 a typical supply chain accessed 50 times more data than just five years earlier.(1) However, less than a quarter of this data is being analyzed. That means the value of critical, time-sensitive data — such as weather, sudden labor shortages, political unrest and microbursts in demand — can be lost.

Modern supply chains take advantage of massive amounts of data generated by the chain process and are curated by analytical experts and data scientists. Future supply chains leaders and the Enterprise Resource Planning (ERP) systems they manage will likely focus on optimizing the usefulness of this data — analyzing it in real time with minimal latency.

Why is supply chain management important?

Effective supply chain management minimizes 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. Retail shelves can then be restocked almost as quickly as product is sold. One way to further improve on this process is to analyze the data from supply chain partners to see where further improvements can be made.

By analyzing partner data, Perkins and Wailgum identify three scenarios where effective supply chain management increases value to the supply chain cycle:

  • Identifying potential problems. When a customer orders more product than the manufacturer can deliver, the buyer can complain of poor service. Through data analysis, manufacturers may 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, these products are typically scrapped or sold 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 the order is placed – significantly reducing incorrectly-filled orders.

Using software for supply chain management

With supply chain management becoming so complicated, many types of software have been developed to optimize supply chain performance. Software products cover the gamut — from supplying timely and accurate supply chain information to monitoring sales — so that manufacturers produce and ship only as much product as can be sold. By reducing unneeded inventory, both manufacturers and retailers can lower the costs of producing and shipping goods and services.

For instance, IBM has developed many software products to increase the effectiveness of supply chain management, with some of the software even using artificial intelligence (AI) technologies. With AI capabilities, supply chain software can actually “learn” an ever-fluctuating production flow and can anticipate the need for changes. IBM products include:

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’s Simon Ellis in The Thinking Supply Chain identifies the five “Cs” of the effective supply chain management of the future:

  • Connected: Being able to access unstructured data from social media, structured data from the Internet of Things (IoT) and more traditional data sets available through traditional ERP and 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: The supply chain must harden its systems and from cyber-intrusions and hacks, which should be an enterprise-wide concern.
  • Cognitively enabled: The AI platform becomes the modern supply chain's control tower by collating, coordinating and conducting decisions and actions across the chain. Most of the supply chain is automated and self-learning.
  • Comprehensive: Analytics capabilities must be scaled with data in real time. Insights will be comprehensive and fast. Latency is unacceptable in the supply chain of the future.

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

Operations and Supply chain

Review these series of thought leadership articles on supply chain management from the IBM Institute of Business Value.

Case studies for effective supply chain management

Indus Motor Company

Learn how Indus shifted quality control into top gear to win sales, nurture loyalty and overtake the competition.

Lenovo

See how Lenovo's AI-powered approach to risk management reduces their response time to supply chain disruptions from days to minutes.

Resources

IDC Technology Spotlight: The Path to a Thinking Supply Chain

Learn how today's supply chains are experiencing a period of significant change.

IBM Sterling Supply Chain Business Network overview

Explore a cloud-based, digital business network that enables you to streamline collaboration with your partners and get visibility into the lifecycle of every B2B transaction.

Tour: Experience what Watson brings to Supply Chain

Find out how to use natural language capabilities for search and navigation and visualize complex business transactions.

Explore supply chain topics