What is Supply Chain Management?

It is well known that supply chain management is an integral part of most businesses and is essential to company success and customer satisfaction.

Olga BińczakSep 20, 2021

What is supply chain management?

At the basic level, supply chain management (SCM) is the management of the flow of goods, data and financial resources related to products or services from the moment of purchasing raw materials to the delivery of the product to its destination.

The supply chain is often equated with logistics, but logistics is only one element of the supply chain. Today's digital SCM systems can be used by all parties involved in product or service development, order fulfillment, and information tracking, including suppliers, manufacturers, wholesalers, retailers, and transportation and logistics entities.

Supply chain operations include procurement, product lifecycle management, supply chain planning (including inventory planning and maintenance of enterprise resources and production lines), logistics (including transportation and fleet management), and order management. Supply chain management can also include global trade activities, including the management of global suppliers and international manufacturing processes.

History of SCM systems

Supply chains have existed since ancient times, starting with the first product made and sold. With the advent of industrialization, supply chain management has become more complex and has allowed enterprises to produce and deliver goods and services more efficiently. For example, Henry Ford's standardization of auto parts turned out to be a breakthrough that allowed for the mass production of goods to meet the demands of a growing number of customers. Over time, subsequent changes (such as the introduction of computers to the market) systematically increased the level of advancement of SCM systems. For generations, however, such systems remained an essentially linear, autonomous function managed by supply chain specialists.

The situation changed dramatically with the advent of the Internet, technological innovation, and a global economy is driven by demand. Today, supply chain management is no longer a linear function, but rather a complex set of heterogeneous networks available 24/7. At the heart of these networks are consumers who expect their orders to be delivered the way they choose.

Industry 4.0 and the SCM system

The current completely new applications of modern technologies in the manufacturing industry are referred to as the fourth industrial revolution - the so-called Industry 4.0. In this latest installment of industrialization, new technologies (such as artificial intelligence (AI), machine learning, Internet of Things, automation, and sensors) are changing the way new products are manufactured, maintained, and distributed, and new services are developed and delivered. It can be said that the basis of the Industry 4.0 concept is the supply chain.

With this concept, the way companies apply these technologies to the supply chain is fundamentally different from the way they have used them in the past. For example, in the past, an enterprise would have waited for a computer to crash to fix it. However, the introduction of smart technologies has changed the way things are done. Now it is possible to predict the occurrence of such a failure and take appropriate preventive measures in order not to endanger the continuity of the supply chain operation. Supply chain management is therefore already a matter of using appropriate technologies to improve the operation of the supply chain and the entire enterprise.

Supply chain management in the Industry 4.0 concept also has a significant advantage over traditional supply chain management, as it enables tailored planning and execution of tasks with significant cost savings. For example, companies operating under a plan-to-produce model, where production is as closely related to customer demand as possible, need to make accurate forecasts. This requires numerous measures to ensure that the production meets the demand reported by the market but does not exceed it, and that costly stocks do not emerge. Intelligent SCM solutions can therefore help you meet both customer requirements and financial goals.

Intelligent SCM solutions also have other advantages. Once implemented, some supply chain employees may be redirected to other, more productive tasks. These solutions can also automate routine tasks and improve the operation of the entire supply chain.

SCM system and the cloud

Cloud is a natural ally for today's SCM systems - not least because cloud applications are inherently more flexible and easier to adapt to changes. It is very difficult to adapt locally installed and coded applications to dynamically changing operating conditions (for example, unexpected supply problems). Cloud solutions are inherently designed to make better use of technologies that are increasingly used in the context of Industry 4.0. Enabling these technologies to operate on top of legacy applications is both complex and costly.

Another significant benefit of integrating the cloud with the SCM system is that the individual functions of the SCM cloud system can be implemented based on specific business needs, without the need for a full-scale migration. Many enterprises have the short-term need to rationalize their transition to the cloud. The best SCM systems help you to get the maximum benefit from your resources and make the transfer of these resources to the cloud will allow you to meet the present and future needs of the enterprise in the field of supply chain management.

Learn how Codemachine can help your organization leverage more efficient tools for a business function.  Let’s talk about your project! Contact us at: scm.c9e.dev