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. A company creates a network of suppliers (“links” in the chain) that move the product along from the suppliers of raw materials to those organizations that deal directly with users.

How does supply chain management work?

According to CIO¹, there are five components of traditional supply chain management systems:

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.


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. 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, the CIO.com post¹ identifies 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.

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 Path to a Thinking Supply Chain² defines what is supply chain management by identifying 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 protect them 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.


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 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.¹ However, less than a quarter of this data is being analyzed. 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 generated by the chain process and are curated by analytical experts and data scientists. Future supply chain 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.

Supply chain management use cases

Chemonics

Chemonics and IBM co-created a first-of-its-kind platform called Automatic Requisition Tracking Management Information System (ARTMIS).

The ARTMIS platform helps track shipments at every step of the supply chain. This has allowed Chemonics to manage orders up to 24 months out.

BASF

BASF wanted to make digitalization an integral part of its business to create additional value for customers, grow the business and improve efficiency. Working with IBM, the company’s Nutrition and Health division conducted a proof of concept (PoC) with IBM® Watson™ technology to explore how AI and machine learning can support smarter inventory decisions, helping to ensure that products arrive in the right place at the right time.

Farmer Connect

Learn how Farmer Connect and IBM Food Trust™ are connecting coffee growers and consumers with blockchain.


Supply chain consulting

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, enable your teams to execute and deliver, and use emerging technologies like AI and blockchain to unlock opportunities in every step of the value chain — from demand planning to order orchestration and fulfilment.

Explore supply chain topics

Supply chain control tower

A supply chain control tower should provide end-to-end visibility across the supply chain — particularly into unforeseen external events.

Order management

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

Inventory management

Clear visibility into inventory transactions can positively impact the entire process of ordering, storing and using inventory — from raw materials to finished product.

Electronic data interchange

EDI is a standard format to exchange business information between two organizations electronically instead of using paper documents.

Supply chain analytics

Analytics that can affect quality, delivery, the customer experience — and ultimately, profitability.

Supply chain optimization

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

Blockchain supply chain

Enhance trust across your supply chain network with the business and technical expertise of IBM Blockchain.

B2B integration

Business-to-business (B2B) integration is the automation of business processes and communication between two or more organizations.

Managed file transfer

Managed file transfer (MFT) is a technology platform that allows organizations to reliably exchange electronic data between systems and people in a secure way to meet compliance needs.

Supply chain management resources

Blog: IBM Supply Chain

Insights on building an intelligent, self-correcting supply chain.

Blog: IBM Blockchain

Insights on building an intelligent, self-correcting blockchain supply chain.

Supply chain solutions

Built to be resilient, smarter supply chains adapt when facing disruptions. Smarter supply chains can scale to meet new demands as customer needs change. Smarter supply chains are more reliable and designed to build trust between you and your customers.

IBM solutions

Order management

Order management software lets you orchestrate your entire fulfillment network with powerful core capabilities and next-level options.

Supply chain transparency

Find out why 800,000 trading partners trust IBM for partner network connectivity with market-leading AI and blockchain capabilities.

Supply chain visibility

IBM Sterling Supply Chain Insights is an AI-enabled solution that delivers real-time intelligence to optimize supply chain performance by quickly correlating data from siloed systems, capturing organizational knowledge and creating digital playbooks.

Blockchain for food

Join an ecosystem of producers, suppliers, manufacturers, retailers and others creating a smarter, safer and more sustainable food system for all.

Supply chain for retail

Optimize your retail supply chain with the ability to respond to trends at any scale.

Container logistics

Transform your container logistics by freeing it from traditional data systems, manual document handling and poor visibility.

¹ What is supply chain management (SCM)? (link resides outside ibm.com), Bart Perkins & Thomas Wailgum, CIO, 27 August 2017
² The Path to a Thinking Supply Chain (PDF, 1.5 MB), Simon Ellis & John Santagate, IDC Technology Spotlight, August 2018