What is Supply Chain Management?
By Hugo Britt | July 8, 2021
Supply chain management is the strategic coordination of the people, processes, and data involved in moving goods and services from their point of origin to their point of delivery.
In simpler terms, it’s the management of everything that happens from the moment a product’s need is determined to the moment that product reaches the hands of the customer.
How the definition of supply chain management has evolved
The term “supply chain management” was first coined almost 40 years ago by Keith Oliver, a British logistician and consultant. Oliver defined it as “the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.”
The original definition still rings true although the capabilities and ever-increasing consumer expectations today have broadened the implications of this definition. For example, satisfying customer requirements can mean next-day shipping and free returns.
Today, the end of a supply chain isn’t always the point of consumption. Oftentimes the supply chain ends when a return is processed.
Elements of effective supply chain management
Effective supply chain management requires knowledge, efficiency, data, and speed. Speed is particularly important because a supply chain manager needs to ensure the timeliness of not only products and services, but also information. This means anticipating and preparing for delays and obstacles, leveraging data to keep your finger on the pulse of each step in your supply chain, and developing good relationships with suppliers.
Here are some of the key elements of effective supply chain management (SCM).
Sourcing and procurement play a big role in supply chain management along with marketing, logistics, IT, operations, quality control, fulfillment, and sometimes engineering. For your supply chain to flow smoothly, all of these functions need to be synchronized and aligned with your business objectives.
Suppliers of goods and services are involved from the beginning to the end of the supply chain. Thoroughly evaluating and choosing suppliers you can count on is one of the most important steps in SCM. Effective management only goes as far as the reliability of your suppliers.
With many suppliers comes many contracts. Ensuring that contractual agreements, details, and deadlines stay organized can be better managed through contract management software.
Some aspects of SCM are best to outsource, especially for small to mid-sized companies. Distribution and fulfillment are good examples of areas that can be outsourced to third party vendors. They can store and manage your inventory, ship orders, and process returns on your behalf.
It’s important to identify areas where software can solve problems in your supply chain. You can purchase all-in-one supply chain management software or a specific solution such as a tool to automate your supply chain data.
According to Deloitte, the supply chain accounts for 80% of total business spend. Considering how much businesses spend on goods and services annually and ensuring costs remain competitive is crucial to SCM. Researching vendor pricing, re-visiting the RFP process regularly, and identifying areas to reduce your spend should be prioritized on an ongoing basis.