Introduction to Supply Chain Management: The Essentials to Know
Supply chains, a topic of little concern in the past, have now come to the forefront of the industry's conversation. Disruptions caused by the COVID-19 crisis, along with the ongoing conflict in Ukraine and other geopolitical tensions have exposed the significant vulnerabilities of global supply chains today.
Against the backdrop of recent events around the world, supply chain management (SCM) today has become an essential tool for businesses to keep ahead of the competition, while also maintaining their high performance and profitability. With this in mind, this article seeks to cover everything you should know about SCM, including the latest industry trends and predictions for the future of SCM.
Understanding Supply Chain Management and Supply Chain Logistics
Before we proceed, let’s take a quick look at what exactly supply chain management and supply chain logistics mean:
What is supply chain management? Supply chain management (SCM) is the centralized management of the flow of goods and services, and involves all processes that transform raw materials into final products. It also includes the streamlining of a business's supply-side activities to maximize customer value and gain a competitive advantage in the marketplace.
What is supply chain logistics? Supply chain logistics is often referred to as the backbone of any global trade is a network of transportation, warehousing, and inventory. It allows choosing the most advantageous mode of transportation, how to design and set up a warehousing facility, how to control and manage inventory and assets, and how to set up an efficient logistics network while reducing cost and delivering top-notch customer service.
5 Elements of Supply Chain – Planning, Sourcing, Making, Delivering, Returns
Supply chain management has five key elements namely planning, sourcing raw materials, manufacturing, delivery, and returns.
At this initial phase, businesses create a general strategy to guide their supply chain activities. The supply chain is also defined at this point and measured for efficiency by rules which are determined by the business owner(s). Furthermore, businesses take careful consideration of the level of demand for their products, the resources available to the business and the quality of goods to be produced. With the ongoing digital transformation in the field of supply chain management, more and more businesses starting to take advantage of technologies such as Internet of Things IoT and machine learning.
This phase involves making provision for the acquisition of goods and services necessary for production. Under this category, the business chooses partners to supply it with raw materials. It then seeks these potential partners out and negotiates relevant agreements or contracts.
Organizations also determine means to control their inventory and stock. With the right sourcing work in place, businesses can enjoy quick and seamless access to relevant raw materials at the best costs. This practice also forestalls material shortages.
This stage is concerned with developing raw materials into finished goods for sale. Some of the activities of interest here include the following.
Quality Control: Businesses determine the quality standards for their goods and the measures to ensure that these standards are being met. Mechanisms and processes for internal quality control are also developed.
Manufacturing: Infrastructure and equipment for production is determined and organized for effective transformation of raw materials to the desired state.
Logistics: The business organizes for the movement of goods to the production site
Product Packaging: The packages to be used for the products are chosen and designed.
This component involves the movement of finished goods to the final consumer. Manufacturing companies are often unable to accomplish this independently and have to work in partnership with distributors. Relevant activities here include the following.
Delivery Methods: There are various means used to deliver goods to clients. These range from the use of boats in riverine areas to drone delivery technology in highly populated metropolises. With information gleaned from supply chain analysis, businesses can decide on the right option for them.
Orders: The business sets processes to be followed in making orders from their company. Issues such as payment modes are also determined.
Storage: Businesses may build warehouses at strategic locations to enhance product delivery. In such cases, warehouse management is necessary to optimize the effectiveness of these facilities. With effective logistics in place, products would reach consumers in time without getting damaged on route. This helps protect and promote the business’ reputation.
Some products can reach customers in a spoilt, broken or defective state. When this happens, it is necessary for them to return these goods to the company. The last element of supply chain management is concerned with making this return process easy and seamless. Activities here may include the following.
Engaging with customers post-purchase
Developing processes and channels through which to receive bad products.
Ensuring the maintenance of high product quality standards.
Customer loyalty is kept when they are able to easily send back bad products to the manufacturer. For companies to effectively use these elements to their benefit, it is necessary to build personnel expertise in each of the areas and take advantage of relevant cutting-edge artificial intelligence AI technology. Read more about returns management here.
Latest Trends in Supply Chain Management
Now that we have covered some of the basics of SCM, let's look into the latest industry trends and predictions for the future of the industry. By understanding where the industry is headed, companies can also be better prepared to face challenges and seize opportunities as they come up.
1) Digitization of the Supply Chain
What are the Differences between Traditional and Digital Supply Chains?
To some extent, traditional supply chains use technology, but there are quite some differences between the two.
Traditional supply chains use standalone systems while digital supply chains use integrated technology systems working together seamlessly. This eradicates silos and creates better transparency between different players in the supply chain.
The rules rely on historical inputs in traditional supply chains whereas digital supply chains leverage real-time information updated automatically. This provides timely responses, enabling businesses to detect issues or risks well ahead of time.
There are long lead times in traditional supply chains because they involve a lot of manual physical operations throughout the supply chain. However, supply chain digitization provides digital warehousing solutions like automated guided vehicles, where advanced warehouse management systems are implemented to provide real-time data exchange and speed up the fulfillment and shipping process.
Understanding Supply Chain 4.0
In Supply Chain 4.0, supply-chain management applies Industry 4.0 innovations such as the Internet of Things, advanced robotics, analytics, and big data. This will help to jump-start performance and customer satisfaction. It makes your organization faster, more flexible, more granular, more accurate, and more efficient.
Benefits of Digitization of the Supply Chain
According to McKinsey, the digitization of the supply chain (or Supply Chain 4.0) enables supply chains to become faster, more granular and much more precise. This way, companies are able to build on industry trends and better cope with the ever-changing customer expectations.
To be more specific, supply chain digitization provides supply chain managers with real-time visibility into inventory activity. This will consequently help you manage your finances better.
Digitization of the supply chain also allows for minimizing lead times and improving supply chain velocity by bringing real-time visibility throughout your supply chain. With advanced tracking and analytics capabilities, supply chain digitization can provide valuable insights for better decision-making.
2) The Use of Artificial Intelligence & IoT
Benefits of AI and IoT in Supply Chain Management
Artificial intelligence (AI) is a technology that is making every sector smarter. The global supply chain AI market is proposed to reach $13.5 billion by 2026. The adoption of artificial intelligence in supply chain management will result in accurate inventory management, smart manufacturing, dynamic logistic systems, on-time delivery, warehouse management, reduced operation costs, enhanced safety, and increased productivity.
Research by Gartner states that the global market for the internet of things is expected to grow to $12.44B in 2024, attaining a 40% compound annual growth rate (CAGR) in seven years. In addition to providing more oversight in operations and transportation, IoT can be used to improve inventory control, fleet tracking, and even technological and mechanical maintenance. It can also be used to create smart warehouses and fleets that increase efficiency and data accuracy in multiple areas of your supply chain.
How Companies Optimize Supply Chain Management Using These Technologies
Companies can optimize supply chain management using AI and IoT by tracking and authenticating products and shipments using GPS and other technologies. They can also monitor the storage conditions of products which enhances quality management throughout the supply chain.
3) A Growing Emphasis on Sustainability
According to McKinsey & Company, the supply chain accounts for more than 90% of most consumer goods companies’ environmental impact. This is why many businesses put more effort into supply chain sustainability. Sustainable supply chain management adds the goals of upholding environmental and societal values by addressing global issues such as climate change, water security, deforestation, human rights, fair labor practices, and corruption.
4) Mass Customization in Supply Chain
Mass customization is the theory of producing single-batch, customized products at the same cost and speed as traditional volume manufacturing strategies. Be aware that mass customization promises huge gains in efficiency and customer satisfaction. It likewise presents new challenges for product brands.
According to McKinsey, profitable mass customization of products and services requires success in two areas:
Identifying opportunities for customization that creates value for customers, and
Achieving a manageable cost structure and level for the producer.
4 Supply Chain Predictions for 2023 and Beyond
Here are some supply chain predictions for 2022 and beyond as pointed out by Gartner:
Through 2025, 25% of supply chain decisions will be executed across intelligent edge environments.
Physical locations where things, people, and data connections, such as operators, machines, sensors, and devices are located across the supply chain network are called edges. Edge ecosystems provide decision-making to take place near the original spring of information.
Edge ecosystems deliver the infrastructure for automated network tools, devices, and applications to work in tandem with each other, whether robots, drones, or connected vehicles. Advances in data communications services, such as Wi-Fi, Bluetooth, and 5G will further support edge ecosystems and complement traditional centralized supply chain solutions. Edge computing decision-making is already occurring across many supply chains. The focus over the next three years is to identify further use cases, where connected, automated, and autonomous networks of edge decisions can be enabled.
By 2026, over 75% of commercial supply chain management application vendors will deliver artificial intelligence (AI), embedded advanced analytics (AA), and data science.
The use of AA and AI is of high priority to improve decision-making for supply chain users in all markets and industries. Supply chain application vendors noticed and are reacting as they should.
Application vendors now offer AA and AI capabilities embedded within their applications and continue to enlarge these areas. Supply chain suites and large mega-vendors vendors have an advantage due to their size, which allows for more investments. However, smaller vendors are catching up.
Approximately 75% of large enterprises will adopt intralogistics smart robots in their warehouse services by 2026.
In addition to labor availability constraints, rapidly rising labor rates and the residual impacts of COVID-19 will oblige most companies to invest more in cyber-physical systems, especially intralogistics smart robots that can be deployed in warehouses and distribution centers.
The need to automate certain operations to supplement the human workforce is carried out by these robots. Implementation is faster and less expensive compared to traditional means of automation, such as conveyor sortation or automated guided vehicles.
25% of supply chain execution (SCE) vendors will change their primary application to a microservices architecture by 2026.
Supply chain organizations must become more agile as supply chain complexity and volatility. This implies that traditional applications, built around aging architectures, are not fit for the job anymore. One way to future-proof the technological base of the supply chain is to toggle to microservices-based and composable application architectures.
However, upgrading or implementing a new SCE application is an expensive and time-consuming process for some organizations. Many supply chain leaders constantly balance the risk of not upgrading against the desire to minimize the cost. There will certainly be early adoption of modular, composable services in the supply chain, especially for enterprise-centric applications that can be managed internally.
The bottom line is that the digitization of the supply chain will enable companies to address the new requirements of customers, the challenges on the supply side, and the remaining expectations for efficiency improvement. Innovation has always created new markets and new opportunities, and it has allowed companies to grow. And that is the case with supply chain management. The people who most benefit from the evolution of supply chain management will be those who embrace this change, leverage on the trend it offers, and use it to their advantage.
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