What is Supply Chain Management?

Learn the SCM basics and how to leverage performance data to improve your strategy
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This post will cover supply chain management and the following topics:

What is supply chain management

The importance of supply chain management

Benefits of supply chain management

Challenges with supply chain management

5 components of SCM

How to improve your SCM strategy

 

What is supply chain management?

Supply chain management (SCM) encompasses all activities that relate to demand planning, sourcing, production, inventory management, and transportation of physical goods.

Because SCM is such an expansive, complex undertaking, each partner — from shippers to carriers to retailers — must efficiently communicate and collaborate to manage risk and adapt quickly to change.

Supply chain management for a long time was primarily focused on one key goal: efficiency. The best logistics operations globally were those that could get goods to customers at the fastest speed but the lowest cost, which often meant keeping inventory low and ‘just in time’.

This model works when there is a relatively stable and predictable environment, but in recent years the industry has learned that disruption is the new normal. Therefore, SCM strategies are shifting from pure efficiency planning to focusing more on resilience and responsiveness. To build more future-proof supply chains, companies should focus on two key areas: a single source of truth for their performance data and a connected supply chain where all disparate systems, technologies, and networks are linked.

The importance of supply chain management

SCM works to minimize cost, waste, and time in the production cycle. As the industry continues to deal with disruption, a resilient and responsive SCM strategy is important to ensure a positive experience for all parties involved in moving goods. A thoughtful SCM strategy supports businesses in multiple ways, outlined below.

Deliver better customer service: By investing in SCM tools, companies can provide better service to their customers by surfacing insights around on-time delivery, tender acceptance, and other important metrics.

Reduce overall cost: Supply chain managers are often focused on reducing the costs incurred at all steps within the supply chain. Improving production processes, relationships with suppliers, and inventory management are some of the ways that supply chain managers can attempt to further reduce costs.

Identify potential problems: Through data analysis, manufacturers are better equipped to anticipate shortages or other friction areas before the buyer is affected.

Efficient allocation of resources: With SCM, companies can make better decisions around freight allocation, procurement, demand planning, etc.

Benefits of supply chain management

Supply chain management creates a number of benefits that translate to higher profits, better brand image, and greater competitive advantage. These include the following:

– better ability to predict and meet customer demand;

– improved supply chain visibility

– fewer process inefficiencies and less product waste;

– increased sustainability from an environmental standpoint;

– lower overhead;

– improvements in cash flow; and

– more efficient logistics in terms of improved routing guides, fewer service failures, etc.

Overall, SCM helps to create a more agile, resilient, and disruption-proof supply chain.

Challenges with supply chain management

Over the past few years, supply chains have seen major challenges brought on by changing consumer behavior and ongoing disruption from COVID-19. In a recent report, Data, not Digitalization, Transforms the Post-Pandemic Supply Chain, found that one of the biggest challenges facing supply chain leaders is the lack of data visibility and transparency.

“The sheer volume of data being generated, along with the siloed nature of that data, makes it incredibly difficult to measure and manage performance at scale.” Brian Cristol, CEO of Isometric Technologies.

With so much data being generated from a TMS and ERP, a frequent issue for shippers and carriers is the fact that they are not able to easily reconcile it and put it to use. This becomes a huge problem when measuring the effectiveness of one’s operations, specifically when it comes to understanding service failures.

Each company works on a separate system of record (sometimes multiple systems); important information like KPIs and SLAs are stored separately, and service failures are often documented via emails and spreadsheets (if they’re documented at all). This makes it tough to collaborate across stakeholders and nearly impossible to identify responsible parties or the monetary impact of a failure.

Today, supply chain data reconciliation is often one-sided, time-consuming, and riddled with inaccurate or missing data. These incomplete, untrustworthy datasets are then used by supply chain leaders to make important, costly procurement decisions, drive carrier performance discussions, and influence retailer negotiations.

“At the end of the day, the supply chain is about different people in different organizations working together to move physical goods from A to B… so how do you enhance those relationships? Better data visibility.” – Brian Cristol, CEO of Isometric Technologies speaking on FreightWaves

5 components of SCM

A thorough Supply Chain Management strategy must include the following key components:

Plan. Organizations must work cross-functionally to create strategic plans to meet customer demand for products. This planning should involve supply chain analytics and materials management tools like ERP systems.

Source. Organizations must work with outside stakeholders to identify and select vendors that can supply materials efficiently according to service-level agreements. Sourcing should involve procurement software which helps automate sourcing and payment.

Make. To manufacture products, organizations must schedule production, test product quality, and ensure compliance requirements are followed. In this stage, most manufacturers will utilize an MRP (materials requirement planning) system.

Deliver. Organizations focus on getting finished goods to consumers. Inventory management and warehouse management systems are especially crucial at this stage.

Return. Shippers and transportation providers work together to handle the return process of goods. This stage includes software from other stages, including inventory and transportation management systems.

How to improve your SCM strategy

As illustrated earlier in the article, there are major data challenges within current SCM strategies. These challenges make it difficult to accurately measure and manage the performance and overall health of one’s supply chain.

Brian Cristol, CEO of Isometric Technologies states that, “You can’t manage what you can’t measure. In order to improve supply chain management, organizations must first be able to accurately measure the performance of their current network.” To create a more resilient SCM strategy, organizations must first accurately measure the performance of their supply chain in collaboration with their business partners to identify areas of friction. An emerging category of Logistics Performance Intelligence software has been created to address this need.

Isometric Technologies (ISO) offers a neutral platform for shippers and carriers to measure performance across their partnerships through a single pane of glass. This transparency fosters trust and helps both parties identify issues faster (instead of waiting until a QBR to address operational challenges). Through ISO’s modernized performance management workflow, partners align on a standardized source of truth while simultaneously normalizing and correcting their flawed data.

Customers with contextualized performance data can use this information to drive efficiencies across their entire supply chain ecosystem – from optimizing carrier performance to proactively managing retailer deductions, and powering next-generation procurement tools.

About ISO

Isometric Technologies (ISO) is the first neutral platform for shippers and carriers to reconcile transportation performance data and measure the hidden costs of service. By digitizing the scorecarding process and associating the costs of chargebacks or service failures to the responsible parties, ISO improves financial outcomes, drives accountability, and strengthens relationships between shippers and carriers.